THE VIRTUS FUNDS
THE VIRGINIA MUNICIPAL BOND FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
January 5, 1998
Dear Shareholder,
As a result of the merger of Signet Banking Corporation with and into a
wholly-owned subsidiary of First Union Corporation effective November 28, 1997,
I am writing to shareholders of The Virginia Municipal Bond Fund (the "Fund"),
to inform you of a Special Shareholders' meeting to be held on February 20,
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 Virginia Municipal Bond Fund in exchange for either Class A or Class Y
shares of Evergreen Virginia Municipal Bond Fund and the assumption by Evergreen
Virginia Municipal Bond Fund of certain liabilities of the Fund. You will
receive shares of Evergreen Virginia Municipal Bond Fund having an aggregate net
asset value equal to the aggregate net asset value of your Fund shares. Details
about Evergreen Virginia Municipal Bond Fund's investment objective, portfolio
management team, performance, etc. are contained in the attached
Prospectus/Proxy Statement. 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 Virtus
Capital Management, Inc.
Information relating to the Interim Investment Advisory Agreement is contained
in the attached Prospectus/Proxy Statement.
The Board of Trustees 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 presented and sign and return your proxy card in the enclosed
postage paid envelope today.
If you have any questions about this
<PAGE>
proxy, please call our proxy solicitor, Shareholder Communications Corporation,
at 800-733-8481 ext. 437. You may also FAX your completed and signed proxy card
to 800-733-1885. If we do not receive your completed proxy card 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,
Edward C. Gonzales
President
The Virtus Funds
<PAGE>
THE VIRTUS FUNDS
THE VIRGINIA MUNICIPAL BOND FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of The Virginia Municipal Bond Fund, a series of The Virtus Funds
(the "Fund"), will be held at the offices of the Evergreen Funds, 200 Berkeley
Street, 26th Floor, Boston, Massachusetts 02116 on February 20, 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 November 26, 1997, providing for the acquisition of all
of the assets of the Fund by Evergreen Virginia Municipal Bond Fund, a series of
Evergreen Municipal Trust, ("Evergreen VA") in exchange for shares of Evergreen
VA and the assumption by Evergreen VA of certain identified liabilities of the
Fund. The Plan also provides for distribution of such shares of Evergreen VA 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 Virtus Capital
Management, Inc.
3. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of The Virtus Funds on behalf of the Fund have fixed the
close of business on December 26, 1997 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 Trustees
John W. McGonigle
Secretary
<PAGE>
January 5, 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(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name of
the party signing should conform exactly to a name shown in the
Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Sr. John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998
Acquisition of Assets of
THE VIRGINIA MUNICIPAL BOND FUND
a series of
The Virtus Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
EVERGREEN VIRGINIA MUNICIPAL BOND FUND
a series of
Evergreen Municipal Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
The Virginia Municipal Bond Fund ("Virtus VA") in connection with a proposed
Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Virtus VA for consideration at a Special Meeting of Shareholders
to be held on February 20, 1998 at 2:00 p.m. at the offices of the Evergreen
Funds, 200 Berkeley Street, Boston, Massachusetts 02116, and any adjournments
thereof (the "Meeting"). The Plan provides for all of the assets of Virtus VA to
be acquired by Evergreen Virginia Municipal Bond Fund ("Evergreen VA") in
exchange for shares of Evergreen VA and the assumption by Evergreen VA of
certain identified liabilities of Virtus VA (hereinafter referred to as the
"Reorganization"). Evergreen VA and Virtus VA are sometimes hereinafter referred
to individually as the "Fund" and collectively as the "Funds." Following the
Reorganization, shares of Evergreen VA will be distributed to shareholders of
Virtus VA in liquidation of Virtus VA and such Fund will be terminated. Holders
of Investment shares of Virtus VA will receive Class A shares of Evergreen VA
and holders of Trust shares of Virtus VA will receive Class Y shares of
Evergreen VA. Each such class of shares of Evergreen VA has the same Rule 12b-1
distribution-related fees, if any, as the shares of the class of Virtus VA held
by them prior to the Reorganization. No initial sales charge will be imposed in
connection with Class A shares of Evergreen VA received by holders of Investment
shares of Virtus VA. As a result of the proposed Reorganization, shareholders of
Virtus VA will receive that number of full and fractional shares of Evergreen VA
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of Virtus VA. The Reorganization is being structured
as a tax-free reorganization for federal income tax purposes.
Evergreen VA is a separate series of Evergreen Municipal Trust, an
open-end management investment company registered under
<PAGE>
the Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objective of Evergreen VA is to seek current income exempt from federal regular
income tax and Virginia state income tax, consistent with the preservation of
capital. The investment objective of Virtus VA is substantially identical -- to
provide current income which is exempt from federal regular income tax and the
personal income tax imposed by the Commonwealth of Virginia. Each Fund invests
primarily in municipal bonds of the Commonwealth of Virginia.
Shareholders of Virtus VA are also being asked to approve the Interim
Investment Advisory Agreement with Virtus Capital Management, Inc., a subsidiary
of First Union Corporation ("Virtus") (the "Interim Advisory Agreement"), with
the same terms and fees as the previous advisory agreement between Virtus VA and
Virtus. The Interim Advisory Agreement will be in effect for the period of time
between November 28, 1997, the date on which the merger of Signet Banking
Corporation with and into a wholly-owned subsidiary of First Union Corporation
was consummated, and the date of the Reorganization (scheduled for on or about
February 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen VA that
shareholders of Virtus VA 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 January 5, 1998,
relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen VA dated August 31, 1997 and
Virtus VA dated September 30, 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 VA at 200 Berkeley Street, Boston,
Massachusetts 02116 or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen VA dated October 31, 1996, as
amended, and its Annual Report for the fiscal year ended August 31, 1997 are
incorporated herein by reference in their entirety, insofar as they relate to
Evergreen VA only, and not to any other funds described therein. The
Prospectuses, which pertain (i) to Class A and Class B 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
Virtus VA will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the class of shares of Evergreen VA that they will
receive as a result of the consummation of the Reorganization. Additional
information about Evergreen VA is contained in its Statement of Additional
Information of the same date which has been filed with
<PAGE>
the SEC and which is available upon request and without charge by writing to or
calling Evergreen VA at the address or telephone number listed in the preceding
paragraph.
The two Prospectuses of Virtus VA (which pertain to (i) Trust shares
and (ii) Investment shares) dated November 30, 1997, insofar as they relate to
Virtus VA only, and not to any other funds described therein, are incorporated
herein in their entirety by reference. Copies of the Prospectuses and related
Statements of Additional Information dated the same date, are available upon
request without charge by writing to Virtus VA at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-829-3863.
Included as Exhibits A and B to this Prospectus/Proxy Statement is 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.............................................6
SUMMARY ..................................................................10
Proposed Plan of Reorganization...................................10
Tax Consequences..................................................12
Investment Objectives and Policies of the Funds...................12
Comparative Performance Information for each Fund.................13
Management of the Funds...........................................14
Investment Advisers...............................................14
Administrators....................................................15
Portfolio Management..............................................16
Distribution of Shares............................................16
Purchase and Redemption Procedures................................18
Exchange Privileges...............................................18
Dividend Policy...................................................19
Risks .........................................................19
REASONS FOR THE REORGANIZATION.............................................21
Agreement and Plan of Reorganization..............................24
Federal Income Tax Consequences...................................26
Pro-forma Capitalization..........................................27
Shareholder Information...........................................29
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES...........................29
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS............................31
Forms of Organization.............................................31
Capitalization....................................................32
Shareholder Liability.............................................32
Shareholder Meetings and Voting Rights............................33
Liquidation or Dissolution........................................34
Liability and Indemnification of Trustees.........................34
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT.......................35
Introduction......................................................35
Comparison of the Interim Advisory Agreement and the
Previous Advisory Agreement .............................37
Information About Virtus VA's Investment Adviser..................38
ADDITIONAL INFORMATION.....................................................39
VOTING INFORMATION CONCERNING THE MEETING..................................39
FINANCIAL STATEMENTS AND EXPERTS...........................................42
LEGAL MATTERS..............................................................42
<PAGE>
OTHER BUSINESS.............................................................42
APPENDIX A.................................................................44
EXHIBIT A
EXHIBIT B
EXHIBIT C
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y and Class A shares of Evergreen VA set forth in
the following tables and in the examples are based on the expenses of Evergreen
VA for the fiscal year ended August 31, 1997. The amounts for Trust and
Investment shares of Virtus VA set forth in the following tables and in the
examples are based on the expenses for Virtus VA for the fiscal year ended
September 30, 1997. The pro forma amounts for Class Y and Class A shares of
Evergreen VA are based on what the combined expenses would have been for
Evergreen VA for the fiscal year ending August 31, 1997. All amounts are
adjusted for voluntary expense waivers.
The following tables show for Evergreen VA, Virtus VA and Evergreen VA
pro forma, assuming consummation of the Reorganization, the shareholder
transaction expenses and annual fund operating expenses associated with an
investment in the Class Y, Class A, Trust and Investment shares of each Fund, as
applicable.
Comparison of Class Y and Class A Shares
of Evergreen VA With Trust and
Investment Shares of Virtus VA
<TABLE>
<CAPTION>
Evergreen VA Virtus VA
Class Y Class A Trust Investment
<S> <C> <C> <C> <C>
Shareholder Transaction
Expenses
Maximum Sales Load None 4.75% None None
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 Sales None None None 2.00%
Charge (as a percentage within
of original purchase five years
price or redemption after
proceeds, whichever is purchase
lower) date, and
0.00%
thereafter
<PAGE>
Shareholder Transaction
Expenses
Exchange Fee None None None None
Annual Fund Operating
Expenses (as a percentage
of average daily net
assets)
Management Fee (After 0.00% 0.00% 0.75% 0.75%
Waiver)
12b-1 Fees (1) None 0.25% None 0.25%
Other Expenses (After 0.79% 0.78% 0.36% 0.36%
----- ----- ----- -----
Reimbursement)
Annual Fund Operating 0.79% 1.03% 1.11% 1.36%
===== ===== ===== =====
Expenses (2)
</TABLE>
<TABLE>
<CAPTION>
Evergreen VA Pro Forma
Class Y Class A
Shareholder Transaction Expenses
<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
Contingent Deferred Sales Charge None None
Exchange Fee None None
Annual Fund Operating Expenses
(as a percentage of average daily
net assets)
Management Fee (After Waiver) 0.07% 0.07%
12b-1 Fees (1) None 0.25%
Other Expenses 0.72% 0.71%
----- -----
Annual Fund Operating Expenses 0.79% 1.03%
===== =====
(3)
</TABLE>
- ---------------
(1) Class A shares of Evergreen VA 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.
(2) Annual Fund Operating Expenses for Evergreen VA for the fiscal year
ended August 31, 1997 would have been 1.84% for Class A shares and
1.60% for Class Y shares absent fee waivers of 0.50% and expense
reimbursements of 0.31% for each of Class A and Class Y shares.
(3) Annual Fund Operating Expenses for Evergreen VA pro forma for the
fiscal year ending August 31, 1997 would have been 1.46% for Class A
shares and 1.22% for Class Y shares absent fee waivers of 0.43% for
each of Class A and Class Y.
Examples. The following tables show expense amounts for shares of Evergreen
VA and of Virtus VA, and for shares of Evergreen VA pro forma, assuming
consummation of the
<PAGE>
Reorganization, which illustrate 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, and
additionally, for Investment shares, no redemption at the end of each period. In
the case of Evergreen VA pro forma, the examples do not reflect the imposition
of the 4.75% maximum sales load on purchases since Virtus VA shareholders who
receive Class A shares of Evergreen VA in the Reorganization or who purchase
additional Class A shares subsequent to the Reorganization will not incur any
sales load.
<TABLE>
<CAPTION>
Evergreen VA
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Class Y $8 $25 $44 $98
Class A $58 $79 $102 $167
</TABLE>
<TABLE>
<CAPTION>
Virtus VA
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Trust $11 $35 $61 $135
Investment $34 $63 $74 $164
(Assuming
redemption at
end of period)
Investment $14 $43 $74 $164
(Assuming no
redemption at
end of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen VA Pro Forma
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Class Y $8 $25 $44 $98
Class A $11 $33 $57 $126
</TABLE>
<PAGE>
The purpose of the foregoing examples is to assist Virtus VA
shareholders in understanding the various costs and expenses that an investor in
Evergreen VA 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 Virtus VA. 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,
and, to the extent not inconsistent with such additional information, the
Prospectuses of Evergreen VA dated October 31, 1996, as amended, and the
Prospectuses of Virtus VA dated November 30, 1997, (which are incorporated
herein by reference), and 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 Virtus VA in
exchange for shares of Evergreen VA and the assumption by Evergreen VA of
certain identified liabilities of Virtus VA. 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 VA to Virtus VA shareholders
in liquidation of Virtus VA as part of the Reorganization. As a result of the
Reorganization, the holders of Investment shares and Trust shares, respectively,
of Virtus VA will become the owners of that number of full and fractional Class
A and Class Y shares of Evergreen VA which have an aggregate net asset value
equal to the aggregate net asset value of the holders' shares of Virtus VA, as
of the close of business immediately prior to the date of the Reorganization.
See "Reasons for the Reorganization - Agreement and Plan of Reorganization."
The Trustees of The Virtus Funds, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of Virtus VA, and that the interests of the
shareholders of Virtus VA will not be diluted as a result of the transactions
contemplated by the Reorganization. Accordingly, the Trustees have submitted the
Plan for the approval of Virtus VA's shareholders.
THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF VIRTUS VA
<PAGE>
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Municipal Trust have also approved the Plan
and, accordingly, Evergreen VA's participation in the Reorganization.
Approval of the Reorganization on the part of Virtus VA will require
the affirmative vote of a majority of Virtus VA's shares voted and entitled to
vote, 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 (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
has been consummated and, as a result, by law the Merger terminated the
investment advisory agreement between Virtus and Virtus VA. Prior to
consummation of the Merger, Virtus VA received an order from the SEC which
permitted the implementation, without formal shareholder approval, of a new
investment advisory agreement between the Fund and Virtus for a period of not
more than 120 days 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 (but in no event later than April 30, 1998). The Interim
Advisory Agreement has the same terms and fees as the previous investment
advisory agreement between Virtus VA and Virtus. The Reorganization is scheduled
to take place on or about February 27, 1998.
Approval of the Interim Advisory Agreement requires the affirmative
vote of (i) 67% or more of the shares of Virtus VA present in person or by proxy
at the Meeting, if holders of more than 50% of the shares of Virtus VA
outstanding on the record date are present, in person or by proxy, or (ii) more
than 50% of the outstanding shares of Virtus VA, whichever is less. See "Voting
Information Concerning the Meeting."
If the shareholders of Virtus VA do not vote to approve the
Reorganization, the Trustees will consider other possible courses of action in
the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Reorganization, Virtus VA 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 VA in the Reorganization. The holding period and aggregate
tax basis of shares of Evergreen VA that are received
<PAGE>
by Virtus VA'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 Virtus VA in the hands of Evergreen VA 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 VA upon the receipt of the assets of the Fund in exchange for
shares of Evergreen VA and the assumption by Evergreen VA of certain identified
liabilities.
Investment Objectives and Policies of the Funds
The investment objective and policies of Evergreen VA and Virtus VA are
substantially identical.
The investment objective of Evergreen VA is to seek current income
exempt from federal regular income tax and from income taxes of the Commonwealth
of Virginia. The investment objective of Virtus VA is to provide current income
which is exempt from federal regular income tax and the personal income tax
imposed by the Commonwealth of Virginia.
Each Fund will normally invest its assets so that at least 80% of its
annual interest income is derived from, or at least 80% of its net assets are
invested in, obligations which provide interest income which is exempt from
federal regular income taxes. In addition, at least 65% of the value of each
Fund's total assets will be invested in municipal bonds of Virginia.
Each Fund seeks to achieve its investment objective by investing
principally in municipal bonds, including industrial development bonds, of
Virginia. In addition, the Funds may invest in obligations issued by or on
behalf of any state, territory, or possession of the United States, including
the District of Columbia, or their political subdivisions or agencies and
instrumentalities, the interest from which is exempt from federal regular income
tax. See "Comparison of Investment Objectives and Policies" below.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statements of Additional Information of the
Funds. The total return of Evergreen VA and Virtus VA for the one and five year
periods ended September 30, 1997 and for the periods from inception through
September 30, 1997 are set forth in the table below. The calculations of total
return assume the reinvestment of all dividends and capital gains distributions
on the reinvestment date and the deduction of all recurring expenses (including
sales charges) that were charged to shareholders' accounts.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return (1)
From
1 Year 5 Years Inception
Ended Ended To
September September September Inception
30,1997 30, 1997 30, 1997 Date
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
VA
Class A 3.42% N/A 4.09% 7/22/93
shares
Class Y 8.85% N/A 6.24% 2/28/94
shares
Virtus VA
Trust 8.00% 5.96% 6.62% 10/16/90
shares
Investment 7.74% 5.73% 6.45% 10/16/90
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 return during the period would have been lower.
Important information about Evergreen VA is also contained in
management's discussion of Evergreen VA's performance, attached hereto as
Exhibit C. This information also appears in Evergreen VA's most recent Annual
Report.
Management of the Funds
The overall management of Evergreen VA and of Virtus VA is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Municipal Trust and The Virtus Funds, respectively.
Investment Advisers
The investment adviser to Evergreen VA 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 $40
billion as of November 30, 1997. For
<PAGE>
further information regarding FUNB and First Union, see "Management of the Funds
- - Investment Advisers" in the Prospectuses of Evergreen VA.
FUNB manages investments and supervises the daily business affairs of
Evergreen VA 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.
Virtus serves as the investment adviser for Virtus VA. As investment
adviser, Virtus continuously conducts investment research and supervision of the
Fund and is responsible for the purchase and sale of portfolio securities. For
its services as investment adviser, Virtus receives a fee at an annual rate of
0.75% 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.
Administrators
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Evergreen VA. As administrator, EIS provides facilities, equipment and personnel
to Evergreen VA and is entitled to receive an administration fee from the Fund
based on the 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.
Federated Administrative Services ("FAS") provides Virtus VA with
certain administrative personnel and services including certain legal and
accounting services. FAS is entitled to receive a fee for such services at the
following annual rates: 0.15% on the first $250 million of average daily net
assets of the combined assets of the funds in the Blanchard/Virtus mutual fund
family, 0.125% on the next $250 million of such assets, 0.10% on the next $250
million of such assets, and 0.075% on assets in excess of $750 million.
Portfolio Management
Charles E. Jeanne has been portfolio manager of Evergreen VA since
1993. Mr. Jeanne joined FUNB in 1993 as a portfolio manager and has been an
Assistant Vice President since July, 1996. From 1989 until joining FUNB, Mr.
Jeanne served as a trader/portfolio manager for First American Bank where he was
responsible for individual accounts and common trust funds.
<PAGE>
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen VA's shares. EDI distributes the
Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen VA offers three classes of shares:
Class A, Class B 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.
In the proposed Reorganization, shareholders of Virtus VA who own Trust
shares will receive Class Y shares of Evergreen VA, and shareholders of Virtus
VA who own Investment shares will receive Class A shares of Evergreen VA. The
Class Y and Class A shares of Evergreen VA have substantially similar
arrangements with respect to the imposition of Rule 12b-1 distribution and
service fees as the Trust and Investment shares of Virtus VA. Because the
Reorganization will be effected at net asset value without the imposition of a
sales charge, Evergreen VA shares acquired by shareholders of Virtus VA pursuant
to the proposed Reorganization would not be subject to any initial sales charge
or contingent deferred sales charge ("CDSC") 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 VA which will be received by Virtus VA
shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Evergreen VA Prospectuses and the Virtus VA Prospectuses and in
each Fund's respective Statements of Additional Information.
Class Y Shares. Class Y shares are sold at net asset value without any
initial 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. Virtus VA shareholders who receive
Evergreen VA Class Y shares in the Reorganization who wish to make subsequent
purchases of Evergreen VA's 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 VA.
Holders of Investment shares of Virtus VA who receive Class A shares of
Evergreen VA in
<PAGE>
the Reorganization will be able to purchase additional Class A shares of
Evergreen VA and any other Evergreen fund at net asset value. No initial sales
charge will be imposed.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statements of Additional
Information.
Distribution-Related Expenses. Evergreen VA 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, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
Virtus VA has adopted a Rule 12b-1 plan with respect to its Investment
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.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectuses and Statements 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 each Fund is $1,000
($10,000 for Trust shares of Virtus VA). Except for the minimum investment
requirement of $100 for Investment shares of Virtus VA, 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 (less any applicable CDSC
in the case of Virtus VA) 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 of invested funds. All funds invested in
each Fund are invested in full and fractional shares. The Funds reserve the
right to reject any purchase order.
Exchange Privileges
Virtus VA currently permits holders of Investment shares to exchange such
shares for Investment shares of other funds managed by Virtus. Exchanges of
Trust shares are not permitted. Holders
<PAGE>
of shares of a class of Evergreen VA generally may exchange their shares for
shares of the same class of any other Evergreen fund. Virtus VA shareholders
will be receiving Class Y and Class A shares of Evergreen VA in the
Reorganization and, accordingly, with respect to shares of Evergreen VA received
by Virtus VA shareholders in the Reorganization, the exchange privilege is
limited to the Class Y and Class A shares, as applicable, of other Evergreen
funds. Evergreen VA 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
Statements of Additional Information.
Dividend Policy
Each Fund declares dividends daily and distributes its net 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 Virtus VA who have elected to
have their dividends and/or distributions reinvested will have dividends and/or
distributions received from Evergreen VA reinvested in shares of Evergreen VA.
Shareholders of Virtus VA who have elected to receive dividends and/or
distributions in cash will receive dividends and/or distributions from Evergreen
VA 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 VA.
Each of Evergreen VA and Virtus VA has qualified and intends to
continue to qualify to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, so
long as each Fund distributes all of its investment company taxable income and
any net realized gains to shareholders, it is expected that a Fund will not be
required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
<PAGE>
Risks
Since the investment objective and policies of each Fund are
substantially comparable, the risks involved in investing in each Fund's shares
are similar. There is no assurance that investment performances will be positive
and that the Funds will meet their investment objectives. For a discussion of
each Fund's objectives and policies, see "Comparison of Investment Objectives
and Policies."
Both Funds are non-diversified investment companies. As such, there is
no limit on the percentage of assets which can be invested in the securities of
a single issuer. An investment in either of the Funds, therefore, will entail
greater risk than would exist in a diversified investment company because the
higher percentage of investments among fewer issuers may result in greater
fluctuations in the total market value of the Fund's portfolio. Any adverse
developments affecting the value of the securities in a Fund's portfolio will
have a greater impact on the total value of the portfolio than would be the case
if the portfolio were diversified among more issuers.
Bond yields are dependent on several factors including market
conditions, the size of an offering, the maturity of the bond, ratings of the
bond and the ability of issuers to meet their obligations. There is no limit on
the maturity of the bonds purchased by the Funds. The prices of bonds fluctuate
inversely in relation to the direction of 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. The prices of
longer term bonds fluctuate more widely in response to market interest rate
changes.
Although the Funds will not purchase securities rated below BBB by
Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service
("Moody's"), or if unrated, securities judged by the Fund's investment adviser
to be comparable quality to such rated securities, the Funds are not required to
dispose of securities that have been downgraded subsequent to their purchase. If
the municipal obligations held by a Fund are downgraded, the Fund's
concentration in securities of Virginia may cause the Fund to be subject to the
risks inherent in holding
<PAGE>
material amounts of low-rated debt securities in its portfolio. Bonds rated BBB
by S&P or Baa by Moody's, although considered to be investment grade, have
speculative characteristics. Changes in economic conditions or other
circumstances are more likely to lead to weakened capacity of such lower rated
investment grade bonds to make principal and interest payments than is the case
with higher rated bonds.
It should be noted that municipal securities may be adversely affected
by local political and economic conditions and developments within a state. For
example, adverse conditions in a significant industry within Virginia may from
time to time have a correspondingly adverse effect on specific issuers within
Virginia or on anticipated revenue to the state itself; conversely, an improving
economic outlook for a significant industry may have a positive effect on such
issuers or revenues. Since each Fund concentrates investments in securities
issued by Virginia and Virginia's political subdivisions, each provides a
greater level of risk than a fund which is diversified across numerous states
and municipal entities.
The value of municipal securities may also be affected by general
conditions in the money markets or the municipal bond markets, the levels of
federal and state income tax rates, the supply of tax-exempt bonds, the size of
the particular offering, the maturity of the obligation, the credit quality and
rating of the issue, and perceptions with respect to the level of interest
rates.
Investing in Virginia municipal securities which meet a Fund's quality
standards may not be possible if the Commonwealth of Virginia or its
municipalities do not maintain their current credit ratings. In addition,
certain Virginia constitutional amendments, legislative measures, executive
orders, administrative regulations and voter initiatives could result in adverse
consequences affecting Virginia municipal securities. In addition, from time to
time, the supply of municipal securities acceptable for purchase by the Funds
could become limited.
Each Fund is permitted to make taxable temporary investments. Neither
Fund has a current intention of generating income subject to federal regular
income tax. However, certain temporary investments may generate income that is
subject to state taxes.
REASONS FOR THE REORGANIZATION
On July 18, 1997, First Union entered into an Agreement and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with and into a wholly-owned subsidiary of First Union. The Merger was
consummated on November 28, 1997. As a result of the Merger it is expected that
FUNB and its affiliates will succeed to the investment advisory and
<PAGE>
administrative functions currently performed for Virtus VA by various units of
Signet and various unaffiliated parties. It is also expected that Signet will no
longer, upon completion of the Reorganization and similar reorganizations of
other funds in the Signet mutual fund family, provide investment advisory or
administrative services to investment companies.
At a meeting held on September 16, 1997, the Board of Trustees of The
Virtus Funds considered and approved the Reorganization as in the best interests
of shareholders of Virtus VA and determined that the interests of existing
shareholders of Virtus VA will not be diluted as a result of the transactions
contemplated by the Reorganization. In addition, the Trustees approved the
Interim Advisory Agreement with respect to Virtus VA.
As noted above, Signet has merged with and into a wholly-owned
subsidiary of First Union. Signet is the parent company of Virtus, investment
adviser to the mutual funds which comprise The Virtus Funds. The Merger caused,
as a matter of law, termination of the investment advisory agreement between
each series of The Virtus Funds and Virtus with respect to the Fund. The Virtus
Funds have received an order from the SEC which permits Virtus to continue to
act as Virtus VA's investment adviser, without shareholder approval, for a
period of not more than 120 days from the date the Merger was consummated
(November 28, 1997) to the date of shareholder approval of a new investment
advisory agreement. Accordingly, the Trustees considered the recommendations of
Signet in approving the proposed Reorganization.
In approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen VA and Virtus VA. Specifically, Evergreen VA and Virtus VA
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 Trustees evaluated the potential economies of scale
associated with larger mutual funds and concluded that operational efficiencies
may be achieved upon the combination of Virtus VA with Evergreen VA. As of
September 30, 1997, Evergreen VA's net assets were approximately $17 million and
Virtus VA's net assets were approximately $79 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Virtus VA continue its existence and be separately managed by
FUNB or one of its affiliates, Virtus VA would be offered through common
distribution channels with the similar Evergreen VA. Virtus VA would also have
to bear the cost of maintaining its separate existence. Signet and FUNB believe
that the prospect of dividing the resources of the Evergreen mutual fund
organization between
<PAGE>
two similar funds could result in each Fund being disadvantaged due to an
inability to achieve optimum size, performance levels and the greatest possible
economies of scale. Accordingly, for the reasons noted above and recognizing
that there can be no assurance that any economies of scale or other benefits
will be realized, Signet and FUNB believe that the proposed Reorganization would
be in the best interests of each Fund and its shareholders.
The Board of Trustees of The Virtus Funds met and considered the
recommendation of Signet 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 VA and Virtus VA; (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 Virtus VA in connection with the Reorganization; (x)
the fact that Evergreen VA will assume certain identified liabilities of Virtus
VA; and (xi) the expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Virtus VA from the sale of its assets to Evergreen VA. In this regard, the
Trustees considered the potential benefits of being associated with a larger
entity and the economies of scale that could be realized by the participation in
such an entity by shareholders of Virtus VA.
In addition, the Trustees considered that there are alternatives
available to shareholders of Virtus VA, including the ability to redeem their
shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen Municipal Trust also concluded at a meeting
on September 16, 1997 that the proposed Reorganization would be in the best
interests of shareholders of Evergreen VA and that the interests of the
shareholders of Evergreen VA would not be diluted as a result of the
transactions contemplated by the Reorganization.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF VIRTUS VA APPROVE
<PAGE>
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 VA will acquire all of the assets of
Virtus VA in exchange for shares of Evergreen VA and the assumption by Evergreen
VA of certain identified liabilities of Virtus VA on or about February 27, 1998
or such other date as may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, Virtus VA will endeavor to discharge all of its known
liabilities and obligations. Evergreen VA will not assume any liabilities or
obligations of Virtus VA other than those reflected in an unaudited statement of
assets and liabilities of Virtus VA 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 VA to be received by the shareholders of Virtus VA will be
determined by multiplying the respective outstanding class of shares of Virtus
VA by a factor which shall be computed by dividing the net asset value per share
of the respective class of shares of Virtus VA by the net asset value per share
of the respective class of shares of Evergreen VA. 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 VA,
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 VA, 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, Virtus VA 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 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).
<PAGE>
As soon after the Closing Date as conveniently practicable, Virtus VA
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 VA
received by Virtus VA. Such liquidation and distribution will be accomplished by
the establishment of accounts in the names of the Fund's shareholders on the
share records of Evergreen VA's transfer agent. Each account will represent the
respective pro rata number of full and fractional shares of Evergreen VA due to
the Fund's shareholders. All issued and outstanding shares of Virtus VA,
including those represented by certificates, will be canceled. The shares of
Evergreen VA to be issued will have no preemptive or conversion rights. After
such distributions and the winding up of its affairs, Virtus VA will be
terminated. In connection with such termination, The Virtus Funds 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 Virtus VA'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 Virtus VA's shareholders,
the Plan may be terminated (a) by the mutual agreement of Virtus VA and
Evergreen VA; 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 Virtus VA 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 Virtus VA or its shareholders. There are not any
liabilities or any expected reimbursements in connection with the 12b-1 Plan of
Virtus VA. As a result, no 12b-1 liabilities will be assumed by Evergreen VA
following the Reorganization.
If the Reorganization is not approved by shareholders of Virtus VA, the
Board of Trustees of The Virtus Funds 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, Virtus VA will receive an
opinion of Sullivan & Worcester LLP to
<PAGE>
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 Virtus VA solely in exchange
for shares of Evergreen VA and the assumption by Evergreen VA of certain
identified liabilities, followed by the distribution of Evergreen VA's shares by
Virtus VA in dissolution and liquidation of Virtus VA, will constitute a
"reorganization" within the meaning of section 368(a)(1)(D) of the Code, and
Evergreen VA and Virtus VA 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 Virtus VA on the transfer of
all of its assets to Evergreen VA solely in exchange for Evergreen VA's shares
and the assumption by Evergreen VA of certain identified liabilities of Virtus
VA or upon the distribution of Evergreen VA's shares to Virtus VA's shareholders
in exchange for their shares of Virtus VA;
(3) The tax basis of the assets transferred will be the same to
Evergreen VA as the tax basis of such assets to Virtus VA immediately prior to
the Reorganization, and the holding period of such assets in the hands of
Evergreen VA will include the period during which the assets were held by Virtus
VA;
(4) No gain or loss will be recognized by Evergreen VA upon the receipt
of the assets from Virtus VA solely in exchange for the shares of Evergreen VA
and the assumption by Evergreen VA of certain identified liabilities of Virtus
VA;
(5) No gain or loss will be recognized by Virtus VA's shareholders upon
the issuance of the shares of Evergreen VA to them, provided they receive solely
such shares (including fractional shares) in exchange for their shares of Virtus
VA; and
(6) The aggregate tax basis of the shares of Evergreen VA, including
any fractional shares, received by each of the shareholders of Virtus VA
pursuant to the Reorganization will be the same as the aggregate tax basis of
the shares of Virtus VA held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of Evergreen VA, including
fractional shares, received by each such shareholder will include the period
during which the shares of Virtus VA exchanged therefor were held by such
shareholder (provided that the shares of Virtus VA 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
<PAGE>
under the Code, a shareholder of Virtus VA 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 VA shares he or she received.
Shareholders of Virtus VA 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 VA. Since the foregoing
discussion relates only to the federal income tax consequences of the
Reorganization, shareholders of Virtus VA should also consult their tax advisers
as to the state and local tax consequences, if any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen VA and
Virtus VA as of September 30, 1997, and the capitalization of Evergreen VA 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 1.09 and 1.09 Class Y and Class A shares, respectively, of
Evergreen VA issued for each Trust and Investment share, respectively, of Virtus
VA.
<PAGE>
<TABLE>
<CAPTION>
Capitalization of Virtus VA,
Evergreen VA and Evergreen
VA (Pro Forma)
Evergreen VA
(After
Reorgani-
Virtus VA Evergreen VA zation)
--------- -------- ------------
<S> <C> <C> <C>
Net Assets
Trust.......................... $19,891,348 N/A N/A
Investment..................... $58,881,216 N/A N/A
Class A........................ N/A $2,953,726 $61,834,942
Class B........................ N/A $7,007,347 $7,007,347
Class Y........................ N/A $6,853,790 $26,745,138
----------- ----------- ------------
Total Net $78,772,564 $16,814,863 $95,587,427
Assets.......................
Net Asset Value Per
Share
Trust.......................... $11.07 N/A N/A
Investment..................... $11.07 N/A N/A
Class A........................ N/A $10.12 $10.12
Class B........................ N/A $10.12 $10.12
Class Y........................ N/A $10.12 $10.12
Shares Outstanding
Trust.......................... 1,797,148 N/A N/A
Investment..................... 5,319,803 N/A N/A
Class A........................ N/A 291,948 6,111,140
Class B........................ N/A 692,585 692,585
Class Y........................ N/A 677,389 2,643,242
--------- -------- ----------
All Classes.................... 7,116,951 1,661,922 9,446,967
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the 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.
<PAGE>
Shareholder Information
As of December 26, 1997 (the "Record Date"), the following number of
each Class of shares of beneficial interest of Virtus VA were outstanding:
Class of Shares
- ---------------
Trust.......................................... 1,741,064
Investment..................................... 5,117,331
---------
All Classes.................................... 6,858,395
As of November 30, 1997, the officers and Trustees of The Virtus Funds
beneficially owned as a group less than 1% of the outstanding shares of Virtus
VA. To Virtus VA's knowledge, the following persons owned beneficially or of
record more than 5% of Virtus VA's total outstanding shares as of November 30,
1997:
<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>
Stephens, Inc. Investment 1,687,821 32.34% 30.75% Class A
111 Center Street
Little Rock, AR
72201-3507
Bova & Co. Trust 1,784,894 100% 74.04% Class Y
Signet Trust
Company
P.O. Box 26311
Richmond, VA
23260-6311
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statements of
Additional Information of the Funds. The investment objectives, policies and
restrictions of Evergreen VA can be found in the Prospectuses of Evergreen VA
under the caption "Investment Objectives and Policies." Evergreen VA'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
<PAGE>
policies are not discussed in this Prospectus/Proxy Statement and their shares
are not offered hereby. The investment objective, policies and restrictions of
Virtus VA can be found in the respective Prospectuses of the Fund under the
caption "Investment Objective and Policies of each Fund." Unlike the investment
objective of Virtus VA, which is fundamental, the investment objective of
Evergreen VA is non-fundamental and can be changed by the Board of Trustees
without shareholder approval.
The investment objective and policies of Evergreen VA and of Virtus VA
are substantially identical. The investment objective of Evergreen VA is to seek
current income exempt from federal regular income tax and from income taxes of
the Commonwealth of Virginia. The investment objective of Virtus VA is to
provide current income which is exempt from federal regular income tax and the
personal income tax imposed by the Commonwealth of Virginia.
Each Fund will normally invest its assets so that at least 80% of its
annual interest income is derived from, or at least 80% of its net assets are
invested in, debt obligations which provide interest income which is exempt from
federal regular income taxes. The interest retains its tax-free status when
distributed to the Fund's shareholders. It is likely that shareholders of either
Fund who are subject to the federal alternative minimum tax will be required to
include interest from a portion of the municipal securities owned by the Funds
in calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations. In addition, at least 65% of the value
of each Fund's total assets will be invested in municipal bonds of Virginia.
Each Fund seeks to achieve its investment objective by investing
principally in municipal bonds, including industrial development bonds, of
Virginia. Although each Fund may invest in obligations issued by or on behalf of
any state, territory, or possession of the United States, including the District
of Columbia, or their political subdivisions or agencies and instrumentalities,
the interest from which is exempt from federal regular income tax, Virtus VA,
unlike Evergreen VA, requires that interest from all such "non Virginia" debt
obligations also be exempt from personal income tax imposed by the Commonwealth
of Virginia.
Both Funds seek to invest in debt obligations rated Baa or better by
Moody's, or BBB or better by S&P, or, if unrated, determined by the Fund's
investment adviser to be of comparable quality to bonds with such investment
grade ratings. Evergreen VA may also invest in municipal bonds which are insured
by a municipal bond insurance company which is rated at least Aa by Moody's or
AA by S&P, which are guaranteed at the time of purchase by the U.S. government
as to the payment of principal and interest, or which are fully collateralized
by an escrow of
<PAGE>
U.S. government securities. Virtus VA may invest in insured or guaranteed
municipal debt obligations if, in the opinion of the Trustees, the
creditworthiness of the insurer or guarantor is considered satisfactory. If any
security owned by a Fund loses its rating or has its rating reduced after the
Fund has purchased it, neither Evergreen VA nor Virtus VA is required to sell or
otherwise dispose of the security, but may consider doing so. If ratings made by
Moody's or S&P change because of changes in those organization or their ratings
system, each Fund will try to use comparable ratings as standards in accordance
with its investment objective.
Both Funds may employ for hedging purposes the strategy of engaging in
futures transactions and related options, and Evergreen VA may write covered put
and call options and purchase put and call options on securities.
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectuses and Statements of
Additional Information. The Funds have other investment policies and
restrictions which are also set forth in the Prospectuses and Statements of
Additional Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Municipal Trust and The Virtus Funds are open-end management
investment companies registered with the SEC under the 1940 Act, which
continuously offer shares to the public. Evergreen Municipal Trust is organized
as a Delaware business trust and The Virtus Funds is organized as a
Massachusetts business trust. Each Trust is governed by a Declaration of Trust,
By-Laws and a Board of Trustees. Each Trust is also governed by applicable
Delaware, Massachusetts and federal law. Evergreen VA is a series of Evergreen
Municipal Trust and Virtus VA is a series of The Virtus Funds.
As set forth in the Supplement to Evergreen VA's Prospectuses,
effective December 22, 1997, Evergreen Virginia Municipal Bond Fund, a series of
Evergreen Investment Trust, a Massachusetts business trust, was reorganized (the
"Delaware Reorganization") into a corresponding series (Evergreen VA) of
Evergreen Municipal Trust. In connection with the Delaware Reorganization, the
Fund's investment objective was reclassified from "fundamental" to
"non-fundamental" and therefore may be changed without shareholder approval; the
Fund adopted certain standardized investment restrictions; and the Fund
eliminated or reclassified from fundamental to non-fundamental certain of the
Fund's other fundamental investment restrictions.
<PAGE>
Capitalization
The beneficial interests in Evergreen VA are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. The beneficial interests in Virtus VA are represented by an unlimited
number of transferable shares of beneficial interest without par value. The
respective Declaration of Trust under which each Fund has been established
permits the Trustees to allocate shares into an unlimited number of series, and
classes thereof, with rights determined by the Trustees, all without shareholder
approval. Fractional shares may be issued. Each Fund's shares 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. 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 series as to matters, such as
approval of or amendments to investment advisory agreements or proposed
reorganizations, that affect only their particular series.
Shareholder Liability
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the Declaration of Trust under which Virtus VA was
established disclaims shareholder liability for acts or obligations of the
series and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
The Virtus Funds' Declaration of Trust provides for indemnification out of the
series property for all losses and expenses of any shareholder held personally
liable for the obligations of the series. Thus, the risk of a shareholder of The
Virtus Funds incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the series or the trust itself would be unable to meet its
obligations.
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 Municipal Trust or a shareholder is subject to the
jurisdiction of courts in those states, the courts may not apply Delaware law,
and may thereby subject shareholders of a Delaware trust to liability. To guard
against this risk, the Declaration of Trust of Evergreen Municipal 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 that the obligation is
<PAGE>
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 Municipal 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) Evergreen Municipal
Trust itself would be unable to meet its obligations. In light of Delaware law,
the nature of the Trust's business, and the nature of its assets, the risk of
personal liability to a shareholder of Evergreen Municipal Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Municipal Trust on behalf of Evergreen VA nor The
Virtus Funds on behalf of Virtus VA is required to hold annual meetings of
shareholders. However, a meeting of shareholders for the purpose of voting upon
the question of removal of a Trustee must be called when requested in writing by
the holders of at least 10% of the outstanding shares of Evergreen Municipal
Trust or The Virtus Funds. In addition, each is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders. Each
Trust currently does not intend to hold regular shareholder meetings. Each Trust
does not permit cumulative voting. Except when a larger quorum is required by
applicable law, with respect to Evergreen VA, twenty-five percent (25%) of the
outstanding shares entitled to vote, and with respect to Virtus VA, a majority
of the outstanding shares entitled to vote constitutes a quorum for
consideration of such matter. For Evergreen VA and for Virtus VA, a majority of
the votes cast and entitled to vote 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 Municipal Trust, each share
of Evergreen VA is entitled to one vote for each dollar of net asset value
applicable to each share. Under the voting provisions governing Virtus VA, each
share is entitled to one vote. Over time, the net asset values of the mutual
funds which are each a series of The Virtus Funds 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 which is a
series of The Virtus Funds and which has a lower net asset value will purchase
more shares, and under the current voting provisions of The Virtus Funds, will
have more votes, than the same investment in a series with a higher net asset
value. Under the Declaration of Trust of Evergreen Municipal Trust, voting power
is related to the dollar
<PAGE>
value of the shareholders' investment rather than to the number
of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Municipal Trust and The
Virtus Funds the shareholders are entitled to receive, when, and as declared by
the Trustees, the excess of the assets belonging to such Fund and attributable
to the class in which they hold shares 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 Declaration of Trust of The Virtus Funds provides that a Trustee
shall be liable only for his own willful defaults, and that no Trustee shall be
protected against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
The By-Laws of The Virtus Funds provide that a present or former
Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his or her position with the Trust,
provided that no indemnification shall be provided to a Trustee or officer
against any liability to the Trust or any series thereof or the shareholders of
any series by reasons of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Under the Declaration of Trust of Evergreen Municipal 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
<PAGE>
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 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 Declarations of Trust, By-Laws, Delaware and Massachusetts law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declarations of Trust, By-Laws, Delaware and
Massachusetts
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 Trustees of The Virtus Funds recommends that shareholders of Virtus
VA approve the Interim Advisory Agreement. The Merger became effective on
November 28, 1997. Pursuant to an order received from the SEC all fees payable
under the Interim Advisory Agreement will be placed in escrow and paid to Virtus
if shareholders approve the contract within 120 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 Virtus continues as
investment adviser to Virtus VA, as well as the services to be provided by
Virtus 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.
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management (adviser to the Fund since 1990), is an
indirect wholly-owned subsidiary of First Union. Virtus' address is 707 East
Main Street, Suite 1300, Richmond, Virginia 23219. Virtus has served as
investment adviser pursuant to an Investment Advisory Agreement dated March 1,
1995, as amended on October 21, 1996. As used herein, the Investment Advisory
Agreement, as amended, for Virtus VA is referred to as the "Previous Advisory
Agreement." At a meeting
<PAGE>
of the Board of Trustees of The Virtus Funds held on September 16, 1997, the
Trustees, including a majority of the Independent Trustees, approved the Interim
Advisory Agreement for Virtus VA.
The Trustees have authorized The Virtus Funds, on behalf of Virtus VA,
to enter into the Interim Advisory Agreement with Virtus. Such Agreement became
effective on November 28, 1997. If the Interim Advisory Agreement for Virtus VA
is not approved by shareholders, the Trustees will consider appropriate actions
to be taken with respect to Virtus VA's investment advisory arrangements at that
time. The Previous Advisory Agreement was last approved by the Trustees,
including a majority of the Independent Trustees, on February 24, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by Virtus under the Interim Advisory Agreement are identical to those currently
provided by Virtus under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, Virtus manages Virtus VA and
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio securities.
FAS currently acts as administrator of Virtus VA. FAS will continue
during the term of the Interim Advisory Agreement as Virtus VA's administrator
for the same compensation as currently received. An affiliate of FAS currently
performs transfer agency services for Virtus VA's shareholders. Commencing
February 9, 1998 Evergreen Service Company will provide such transfer agency
services for the same fees charged by Virtus VA's current transfer agent. See
"Summary - Administrators."
Fees and Expenses. The investment advisory fees and expense
limitations for Virtus VA under the Previous Advisory Agreement
and the Interim Advisory Agreement are identical. See "Summary -
Investment Advisers."
Expense Reimbursement. The Previous Advisory Agreement included a
provision which provides that Virtus may from time to time and for such periods
as it deems appropriate reduce its compensation to the extent that the Fund's
expenses exceed such lower expense limitation as Virtus may, by notice to The
Virtus Funds, voluntarily declare to be effective. Furthermore, Virtus may, if
it deems appropriate, assume expenses of the Fund or a class to the extent that
the Fund's or classes' expenses exceed such lower expense limitation as Virtus
may, by notice to The Virtus Funds, voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
<PAGE>
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, The Virtus Funds was required to pay or cause to be paid on
behalf of the Fund or each class, all of the Fund's or classes' expenses and the
Fund's or classes' allocable share of The Virtus Funds' expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Agreement on the part of Virtus,
Virtus was not liable to The Virtus Funds or to the Fund or to any shareholder
for any act or omission in the course of or connected in any way with rendering
services or for any losses that may be sustained in the purchase, holding or
sale of any security.
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 Virtus VA (as defined in the 1940 Act) or by a vote of a
majority of The Virtus Funds' entire Board of Trustees on 60 days' written
notice to Virtus or by Virtus on 60 days' written notice to The Virtus Funds.
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 Virtus VA's Investment Adviser
Virtus, a registered investment adviser, manages, in addition to the
Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three
fixed income trust funds. The name and address of each executive officer and
director of Virtus is set forth in Appendix A to this Prospectus/Proxy
Statement.
During the fiscal years ended September 30, 1997, 1996 and 1995, Virtus
received from Virtus VA management fees of $650,276, $762,051 and $775,247,
respectively, of which $0, $20,993 and $227,301, respectively, were voluntarily
waived. Signet acts as custodian for Virtus VA and received $28,448 for the
fiscal year ended September 30, 1997. Commencing on or about January 20, 1998
FUNB will act as Virtus VA's custodian during the term of the Interim Advisory
Agreement.
The Board of Trustees considered the Interim Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Reasons for the Reorganization."
The Board of Trustees
<PAGE>
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 TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF VIRTUS VA APPROVE
THE INTERIM ADVISORY AGREEMENT
ADDITIONAL INFORMATION
Evergreen VA. Information concerning the operation and management of
Evergreen VA is incorporated herein by reference from the Prospectuses dated
October 31, 1996, as amended, copies of which are enclosed, and the Statement of
Additional Information of the same date. A copy of such Statement of Additional
Information is available upon request and without charge by writing to Evergreen
VA at the address listed on the cover page of this Prospectus/Proxy Statement or
by calling toll-free 1-800-343-2898.
Virtus VA. Information about the Fund is included in its current
Prospectuses dated November 30, 1997, and in the Statements 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 Statements
of Additional Information are available upon request and without charge by
writing to Virtus VA at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
Evergreen VA and Virtus VA are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information including proxy
material, and charter documents with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of The Virtus Funds to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, 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 Virtus VA on or about January 5, 1998. Only shareholders of
record as of the close of business on the Record Date will be entitled to notice
of, and to
<PAGE>
vote at, the Meeting or any adjournment thereof. The holders of a majority of
the outstanding shares entitled to vote, at the close of business on the Record
Date, present in person or represented by proxy, will constitute a quorum for
the Meeting. If the enclosed form of proxy is properly executed and returned in
time to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Reorganization, 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 not be counted as shares voted and will have no
effect on the vote regarding the Plan. However, such "broker non-votes" will
have the effect of being counted as votes against 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 The Virtus
Funds, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. 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 shares voted and entitled to vote, 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 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 Signet, their affiliates or other
representatives of Virtus VA (who will not be paid for their soliciting
activities). Shareholder Communications Corporation has been engaged by Virtus
VA to assist in soliciting proxies.
<PAGE>
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement 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 February 20, 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 Massachusetts law or the Declaration of Trust of The
Virtus Funds 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 VA which they receive in the
transaction at their then-current net asset value. Shares of Virtus VA may be
redeemed at any time prior to the consummation of the Reorganization.
Shareholders of Virtus VA 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.
Virtus VA does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of The Virtus Funds
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 VA 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 Virtus VA whether other persons are beneficial owners of shares
for which proxies are being solicited and, if so, the number of copies of this
<PAGE>
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen VA as of August 31, 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 Virtus VA
incorporated in this Prospectus/Proxy Statement by reference from the Annual
Report of The Virtus Funds for the year ended September 30, 1997 have been
audited by Deloitte & Touche 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.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen VA
will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of The Virtus Funds 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 TRUSTEES OF THE VIRTUS FUNDS 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.
January 5, 1998
<PAGE>
APPENDIX A
The names and addresses of the principal executive officers
and directors of Virtus Capital Management, Inc. are as follows:
OFFICERS:
Name Address
- ---- -------
David C. Francis, Chief First Union National Bank
Investment Officer 201 South College Street
Charlotte, North Carolina 28288-
1195
Tanya Orr Bird, Vice Virtus Capital Management, Inc.
President 707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Clemons Rosson, Vice Virtus Capital Management, Inc.
President, Assistant 707 East Main Street
Secretary Suite 1300
Richmond, Virginia 23219
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
Ethel B. Sutton, Vice Evergreen Asset Management Corp.
President 2500 Westchester Avenue
Purchase, New York 10577
DIRECTORS:
<PAGE>
Name Address
- ---- -------
David C. Francis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
Donald A. McMullen First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
William M. Ennis First Union National Bank
201 South College Street
Charlotte, North Carolina 28288-
1195
Barbara J. Colvin 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
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of November, 1997, by and between the Evergreen Municipal
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 Virginia Municipal Bond Fund series (the "Acquiring Fund"), and The
Virtus Funds, a Massachusetts business trust, with its principal place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
("Virtus Funds"), with respect to its The Virginia Municipal Bond 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)(D) 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 certain
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;
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 certain 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, the Trustees of Virtus Funds have determined that the Selling
Fund should exchange all of its assets and certain identified liabilities for
Acquiring Fund Shares and that the
<PAGE>
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 certain 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, and 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.
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
<PAGE>
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 of the Selling Fund
immediately prior to the Reorganization, in each case calculated in accordance
with such Rule 2830.
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
<PAGE>
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.
<PAGE>
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
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
Investment shares and Trust 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 February 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
<PAGE>
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. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date; and (b) all necessary taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the 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 as of the Closing Date, to
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of Virtus Funds 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:
<PAGE>
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the 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 Virtus Funds' Declaration of Trust 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 on 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 September
30, 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 September 30, 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 (except that, under Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
<PAGE>
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 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.
4.2.1 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.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the
<PAGE>
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 August
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 August 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.
(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
<PAGE>
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 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.
<PAGE>
(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.
4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and
warranties set forth in Section 4.2.1 shall be deemed to include, to the extent
applicable, representations and warranties made by and on behalf of Evergreen
Virginia Municipal Bond Fund (the "Predecessor Fund"), a series of Evergreen
Investment Trust, a Massachusetts business trust, as of the date hereof. The
Acquiring Fund shall deliver to the Selling Fund a certificate of the
Predecessor Fund of even date making the representations set forth in Section
4.2.1 with respect to the Predecessor Fund to the extent applicable to the
Predecessor Fund as of the date hereof.
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. Virtus Funds 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.
<PAGE>
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes 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 Virtus Funds' 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 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
<PAGE>
(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 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
<PAGE>
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
Virtus Funds 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 Signet Banking
Corporation shall be completed prior to the Closing Date.
6.4 The acquisition of the assets of the Predecessor Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by Virtus Funds'
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.
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 Virtus Funds.
<PAGE>
7.3.1 The Acquiring Fund shall have received on the Closing Date an
opinion of Dickstein Shapiro Morin & Oshinsky 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
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's 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 Commonwealth of Massachusetts 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 Virtus Funds' Declaration of Trust or By-laws, or any provision of
any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of Reorganization," the Interim Advisory Agreement and the
Previous Advisory Agreement, as set forth under the caption "Information
Regarding the Interim Advisory Agreement," and the description of
<PAGE>
voting requirements applicable to approval of the Interim Advisory Agreement, as
set forth under the caption "Voting Information Concerning the Meeting," insofar
as the latter constitutes a summary of applicable voting requirements under the
Investment Company Act of 1940, as amended, are, in each case, accurate and
fairly present the information required to be shown by the applicable
requirements of Form N-14.
(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.
7.3.2 The Acquiring Fund shall have received on the Closing
Date an opinion of C. Grant Anderson, Esq., Assistant Secretary of Virtus Funds,
in form satisfactory to the Acquiring Fund as follows: 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 (except that, under
Massachusetts law, Selling Fund Shareholders could under certain circumstances
be held personally liable for obligations of the Selling Fund).
Mr. Anderson shall also state that he has reviewed and is familiar with
the contents of the Prospectus and Proxy Statement and, although he is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement, on the basis of the foregoing, no facts have come to his attention
that lead him to believe that the Prospectus and Proxy Statement as of its date,
as of the date of the Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding the Selling Fund or
necessary, in the light of the circumstances under which they were made, to make
the statements therein regarding the Selling Fund not misleading. Such opinion
may state that he does not
<PAGE>
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.
The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that
such opinions are solely for the benefit of the Acquiring Fund. Such opinions
shall contain such other assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable,
appropriate to render the opinions expressed therein, and shall indicate, with
respect to matters of Massachusetts law, that as Dickstein Shapiro Morin &
Oshinsky LLP and C. Grant Anderson are not admitted to the bar of Massachusetts,
such opinions are based either upon the review of published statutes, cases and
rules and regulations of the Commonwealth of Massachusetts or upon an opinion of
Massachusetts 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 Signet Banking
Corporation 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 Virtus Funds' Declaration
of Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section
<PAGE>
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
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(D) 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
<PAGE>
Fund solely in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain stated liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated 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:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(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 Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
<PAGE>
been obtained from and is consistent with the accounting records
of the Selling Fund;
(c) 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 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
<PAGE>
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. 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.
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
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.
<PAGE>
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, Virtus Funds, the respective
Trustees or officers, to the other party or its Trustees or officers.
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.
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 Commonwealth of
Massachusetts, 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.
<PAGE>
13.5 It is expressly agreed that the obligations of the Selling Fund
and the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of Virtus Funds or the
Trust personally, but shall bind only the trust property of the Selling Fund and
the Acquiring Fund, as provided in the Declarations of Trust of Virtus Funds and
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of Virtus Funds on behalf of the Selling Fund and the Trust on
behalf of the Acquiring Fund and signed by authorized officers of Virtus Funds
and 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 Selling Fund and the
Acquiring Fund as provided in the Declarations of Trust of Virtus Funds and the
Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
EVERGREEN MUNICIPAL TRUST
ON BEHALF OF EVERGREEN
VIRGINIA MUNICIPAL BOND FUND
By:
Name:
Title:
THE VIRTUS FUNDS
ON BEHALF OF THE VIRGINIA
MUNICIPAL BOND FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
THE VIRTUS FUNDS
INTERIM INVESTMENT ADVISORY AGREEMENT
This Agreement is made between Virtus Capital Management, Inc., a
Maryland corporation having its principal place of business in Richmond,
Virginia (the "Adviser"), and The Virtus Funds, a Massachusetts business trust
having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 (the "Act") and
is registered as such with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of
the portfolios ("Funds") of the Trust, which may be offered in one or more
classes of shares ("Classes"), on whose behalf the Trust executes an exhibit to
this Agreement, and Adviser, by its execution of each such exhibit, accepts the
appointments. Subject to the direction of the Trustees of the Trust, Adviser
shall provide investment research and supervision of the investments of each of
the Funds and conduct a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statement and exhibits as may be
on file with the Securities and Exchange Commission.
3. The Trust shall pay or cause to be paid on behalf of each Fund or
Class, all of the Fund's or Classes' expenses and the Fund's or Classes'
allocable share of Trust expenses.
4. The Trust, on behalf of each of the Funds shall pay to Adviser for
all services rendered to such Fund by Adviser hereunder the fees set forth in
the exhibits attached hereto.
5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation to the extent that any Fund's expenses
exceed such lower expense limitation as
<PAGE>
the Adviser may, by notice to the Trust, voluntarily declare to be effective.
Furthermore, the Adviser may, if it deems appropriate, assume expenses of one or
more Fund or Class to the extent that any Fund's or Classes' expenses exceed
such lower expense limitation as the Adviser may, by notice to the Trust,
voluntarily declare to be effective.
6. This Agreement shall begin for each Fund on the date that the Trust
executes an exhibit to this Contract relating to such Fund. This Agreement shall
remain in effect for each Fund until the earlier of the Closing Date defined in
the Agreement and Plan of Reorganization to be dated as of November 26, 1997
with respect to each Fund or for two years from the date of its execution and
from year to year thereafter, subject to the provisions for termination and all
of the other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose; and
(b) Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter that
it does not desire such continuation with respect to that Fund.
7. Notwithstanding any provision in this Agreement, it may be
terminated at any time with respect to any Fund, without the payment of any
penalty, by the Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of that Fund, as defined in Section 2(a)(42) of
the Act on sixty (60) days' written notice to Adviser.
8. This Agreement may not be assigned by Adviser and shall
automatically terminate in the event of any assignment. Adviser may employ or
contract with such other person, persons, corporation or corporations at its own
cost and expense as it shall determine in order to assist it in carrying out
this Agreement.
9. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under this Agreement on the part
of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or
to any shareholder for any act or omission in the course of or connected in any
way with rendering services or for any losses that may be sustained in the
purchase, holding or sale of any security.
10. This Agreement may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by vote of a majority
of the Trustees of the Trust, including a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party to this
Agreement (other
<PAGE>
than as Trustees of the Trust), cast in person at a meeting called for that
purpose, and on behalf of a Fund by a majority of the outstanding voting
securities of such Fund as defined in Section 2(a)(42) of the Act.
11. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations pursuant to this Agreement of a particular Fund and of the Trust
with respect to that particular Fund be limited solely to the assets of that
particular Fund, and Adviser shall not seek satisfaction of any such obligation
from the assets of any other Fund, the shareholders of any Fund, the Trustees,
officers, employees or agents of the Trust, or any of them.
12. This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
13. This Agreement will become binding on the parties hereto upon their
execution of the attached exhibits to this Agreement.
<PAGE>
EXHIBIT A
THE U.S. GOVERNMENT SECURITIES FUND
THE VIRGINIA MUNICIPAL BOND FUND
THE MARYLAND MUNICIPAL BOND FUND
THE TREASURY MONEY MARKET FUND
THE MONEY MARKET FUND
THE TAX-FREE MONEY MARKET FUND
THE STYLE MANAGER FUND
THE STYLE MANAGER: LARGE CAP FUND
Name of Fund Percentage of Net Assets
- ------------ ------------------------
The Treasury Money Market Fund .50 of 1%
The Money Market Fund .50 of 1%
The Tax-Free Money Market Fund .50 of 1%
The U.S. Government Securities Fund .75 of 1%
The Virginia Municipal Bond Fund .75 of 1%
The Maryland Municipal Bond Fund .75 of 1%
The Style Manager: Large Cap Fund .75 of 1%
The Style Manager Fund 1.25 of 1%
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to the following
percentage (the "applicable percentage") of the average daily net assets of each
Fund.
The fee shall be accrued daily at the rate of 1/365th of the applicable
percentage applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 28th day of November, 1997.
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
By:
Assistant Secretary President
Attest: THE VIRTUS FUNDS
By:
Assistant Secretary Vice President
C. Grant Anderson
<PAGE>
EXHIBIT C
(logo)
EVERGREEN
VIRGINIA MUNICIPAL BOND FUND
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FUND AT A GLANCE
As of August 31, 1997
PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUALIZED
1 YEAR TOTAL RETURN(1)
---------------------------- ----------------------- CUMULATIVE TOTAL
SHARE INCEPTION WITHOUT SALES WITH SALES SINCE RETURN(1) SINCE 12-MONTH
CLASS DATE CHARGE CHARGE 3 YEARS INCEPTION INCEPTION DISTRIBUTION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
A 7/2/93 9.05% 3.87% 6.08% 3.90% 17.25% $0.50
B 7/2/93 8.24% 3.24% 6.14% 3.98% 17.71% $0.41
Y 2/28/94 9.32% -- 8.08% 6.06% 22.93% $0.51
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Adjusted for maximum sales charge.
CURRENT STRATEGY
- --------------------------------------------------------------------------------
For the twelve months ended September 30, 1997, the Fund's class Y
and class A shares ranked number 6 and 8, respectively, out of 32
Virginia municipal debt funds tracked by Lipper Analytical
Services, an independent mutual fund rating company. (2) During
the course of the fiscal year, we continued to emphasize an
income-oriented approach. In doing so, we maintained a
higher-coupon structure which allows our funds to provide tax-free
income and in the long term, produce a strong total return with
reduced volatility. A substantial portion of the total return of
the Fund is produced by the portfolio's higher coupon structure.
To ensure credit quality and increase total return, our municipal
credit analysts work in conjunction with portfolio managers to
carefully monitor existing holdings and seek out new investment
opportunities.
(Photo of
Charles E. Jeanne)
CHARLES E. JEANNE
ASSISTANT VICE PRESIDENT,
PORTFOLIO MANAGER
- --------------------------------------------------------------------------------
GROWTH OF INVESTMENT
Evergreen Virginia Municipal Bond Fund
Comparison of a $10,000 investment in Evergreen Virginia Municipal Bond
Fund, Class A shares, versus a similar investment in the Lehman Brothers
Virginia Municipal Bond Index (LBVMBI) and the Consumer Price Index (CPI).
(A chart appears here with the following plot points.)
In Thousands
7/93 8/93 8/94 8/95 8/96 8/97
Class A Shares 9,525 9,675 9,355 10,228 10,752 $11,725
CPI 10,000 10,028 10,318 10,589 10,893 $11,113
LBVMBI 10,000 10,189 10,241 11,151 11,665 $12,695
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in different classes. The Lehman Brothers Virginia Municipal Bond
Index is an unmanaged market index. The index does not include transaction
costs associated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through August 31, 1997.
PORTFOLIO CHARACTERISTICS
- ----------------------------------------------------------------
Total Net Assets: $15,824,821
Average Credit Quality: AA
Average Maturity: 20.56 years
Average Duration: 10.96 years
PORTFOLIO COMPOSITION
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie chart appears here with the following plot points.)
Housing 24.9%
Lease 14.8%
Other 12.9%
Industrial Development 9.5%
Hospital 7.6%
Transportation 7.5%
Residential Care 7.2%
Public Facilities 6.4%
General Obligation Local 4.6%
Education 4.6%
PORTFOLIO QUALITY
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie chart appears here with the following plot points.)
A 27.7%
AA 32.7%
AAA 19.5%
BBB 3.7%
NR 16.4%
(2) THE RANKINGS ARE BASED ON TOTAL RETURN AND DO NOT INCLUDE THE EFFECT OF A
SALES CHARGE.
7
