THE VIRTUS FUNDS
THE STYLE MANAGER: LARGE CAP 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 Style Manager: Large Cap 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 three 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 Value Fund in exchange for either Class A or Class Y shares of
Evergreen Value Fund and the assumption by Evergreen Value Fund of certain
liabilities of the Fund. You will receive shares of Evergreen Value Fund having
an aggregate net asset value equal to the aggregate net asset value of your Fund
shares. Details about Evergreen Value 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.
The third and final proposal requests shareholder consideration of an Interim
Sub-Advisory Agreement between Virtus Capital Management, Inc. and Trend Capital
Management, Inc.
Information relating to the Interim Investment Advisory Agreement and the
Interim Sub-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.
<PAGE>
If you have any questions about this 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 STYLE MANAGER: LARGE CAP 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 Style Manager: Large Cap Fund, a series of The Virtus Funds
("Large Cap"), 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 Large Cap by Evergreen Value Fund, a series of Evergreen Equity
Trust, ("Evergreen Value") in exchange for shares of Evergreen Value and the
assumption by Evergreen Value of certain identified liabilities of Large Cap.
The Plan also provides for distribution of such shares of Evergreen Value to
shareholders of Large Cap in liquidation and subsequent termination of Large
Cap. A vote in favor of the Plan is a vote in favor of the liquidation and
dissolution of Large Cap.
2. To consider and act upon the Interim Investment Advisory Agreement
between Large Cap and Virtus Capital Management, Inc.
3. To consider and act upon the Interim Sub-Advisory Agreement between
Virtus Capital Management, Inc. and Trend Capital Management, Inc.
4. 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 Large Cap have fixed the
close of business on December 26, 1997 as the record date for the determination
of shareholders of Large Cap 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
<PAGE>
TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER
SOLICITATION.
By Order of the Board of Trustees
John W. McGonigle
Secretary
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 STYLE MANAGER: LARGE CAP FUND
a series of
The Virtus Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
EVERGREEN VALUE FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
The Style Manager: Large Cap Fund ("Large Cap") in connection with a proposed
Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Large Cap 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 Large Cap to
be acquired by Evergreen Value Fund ("Evergreen Value") in exchange for shares
of Evergreen Value and the assumption by Evergreen Value of certain identified
liabilities of Large Cap (hereinafter referred to as the "Reorganization").
Evergreen Value and Large Cap are sometimes hereinafter referred to individually
as the "Fund" and collectively as the "Funds." Following the Reorganization,
shares of Evergreen Value will be distributed to shareholders of Large Cap in
liquidation of Large Cap and such Fund will be terminated. Holders of Investment
shares and Trust shares of Large Cap will receive Class A and Class Y shares,
respectively, of Evergreen Value. Each such class of shares of Evergreen Value
has the same Rule 12b-1 distribution-related fees, if any, as the shares of the
class of Large Cap held by such holders prior to the Reorganization. No initial
sales charge will be imposed in connection with Class A shares of Evergreen
Value received by holders of Investment shares of Large Cap. As a result of the
proposed Reorganization, shareholders of Large Cap will receive that number of
full and fractional shares of Evergreen Value having an aggregate net asset
value equal to the aggregate net asset value of such shareholder's shares of
Large Cap. The Reorganization is being structured as a tax-free reorganization
for federal income tax purposes.
Evergreen Value is a separate series of Evergreen Equity Trust, an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act").
<PAGE>
The investment objectives of Evergreen Value are to seek long-term capital
appreciation with current income as a secondary objective. Such investment
objectives are substantially identical to those of Large Cap.
Shareholders of Large Cap 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 Large Cap and
Virtus and the Interim Sub-Advisory Agreement between Virtus and Trend Capital
Management, Inc. ("Trend") with the same terms and fees as the previous
sub-advisory agreement between Virtus and Trend. The Interim Advisory Agreement
and Interim Sub-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 Value that
shareholders of Large Cap 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 Value dated July 31, 1997 and
Large Cap 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 Value at 200 Berkeley Street, Boston,
Massachusetts 02116, or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen Value dated May 1, 1997, as amended
and its Annual Report for the period ended July 31, 1997 are incorporated herein
by reference in their entirety, insofar as they relate to Evergreen Value only,
and not to any other fund described therein. The Prospectuses, which pertain (i)
to Class Y shares and (ii) to Class A, Class B and Class C shares, differ only
insofar as they describe the separate distribution and shareholder servicing
arrangements applicable to the classes. Shareholders of Large Cap will receive,
with this Prospectus/Proxy Statement, copies of the Prospectus pertaining to the
class of shares of Evergreen Value that they will receive as a result of the
consummation of the Reorganization. Additional information about Evergreen Value
is contained in its Statement of Additional Information dated December 1, 1997,
as amended, which has been filed with the SEC and which is available upon
request and without charge by writing to or calling
<PAGE>
Evergreen Value at the address or telephone number listed in the preceding
paragraph.
The two Prospectuses of Large Cap (which pertain to (i) Trust shares
and (ii) Investment shares) dated November 30, 1997, insofar as they relate to
Large Cap 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 Large Cap 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, B and C to this Prospectus/Proxy Statement are
a copy of the Plan, the Interim Advisory Agreement and the Interim Sub-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 .............................................................11
Proposed Plan of Reorganization..............................11
Tax Consequences.............................................13
Investment Objectives and Policies of the Funds..............13
Comparative Performance Information for each Fund............14
Management of the Funds......................................15
Investment Advisers and Sub-Adviser..........................15
Administrators...............................................16
Portfolio Management.........................................16
Distribution of Shares.......................................16
Purchase and Redemption Procedures...........................18
Exchange Privileges..........................................18
Dividend Policy..............................................19
Risks ....................................................20
REASONS FOR THE REORGANIZATION........................................20
Agreement and Plan of Reorganization.........................23
Federal Income Tax Consequences..............................25
Pro-forma Capitalization.....................................26
Shareholder Information......................................28
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................28
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS.......................31
Forms of Organization........................................32
Capitalization...............................................32
Shareholder Liability........................................33
Shareholder Meetings and Voting Rights.......................33
Liquidation or Dissolution...................................34
Liability and Indemnification of Trustees....................35
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT..................36
Introduction.................................................36
Comparison of the Interim Advisory Agreement
and the Previous Advisory Agreement.....................37
Information about Large Cap's Investment Adviser.............38
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT..............39
Introduction.................................................39
Comparison of the Interim Sub-Advisory Agreement
and the Previous Sub-Advisory Agreement.................40
ADDITIONAL INFORMATION................................................41
<PAGE>
VOTING INFORMATION CONCERNING THE MEETING.............................42
FINANCIAL STATEMENTS AND EXPERTS......................................45
LEGAL MATTERS.........................................................45
OTHER BUSINESS........................................................45
APPENDIX A............................................................46
APPENDIX B............................................................47
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y and Class A shares of Evergreen Value set forth
in the following tables and in the examples are based on the expenses of
Evergreen Value for the fiscal year ended July 31, 1997. The amounts for Trust
and Investment shares of Large Cap set forth in the following tables and in the
examples are based on the expenses for Large Cap for the fiscal year ended
September 30, 1997. The pro forma amounts for Class Y and Class A shares of
Evergreen Value are based on the estimated expenses of Evergreen Value for the
fiscal year ending July 31, 1998.
The following tables show for Evergreen Value, Large Cap and Evergreen
Value 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 Value With Trust and
Investment Shares of Large Cap
Evergreen Value
---------------
Shareholder
Transaction Expenses Class Y Class A
------- -------
Maximum Sales Load None 4.75%
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None
Imposed on
Reinvested Dividends
(as a percentage of
offering price)
Contingent Deferred None None
Sales Charge (as a
percentage of
original purchase
price or redemption
proceeds, whichever
is lower)
Exchange Fee None None
<PAGE>
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee 0.50% 0.50%
12b-1 Fees (1) None 0.25%
Other Expenses 0.17% 0.17%
-------- ---------
Annual Fund
Operating Expenses 0.67% 0.92%
-------- ----------
-------- ----------
<TABLE>
<CAPTION>
Large Cap
---------
Shareholder Transaction Trust Investment
Expenses ----- ----------
<S> <C> <C>
Maximum Sales Load Imposed on None None
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on None None
Reinvested Dividends (as a
percentage of offering price)
Contingent Deferred Sales None 2.00%
Charge (as a percentage of within
original purchase price or five years
redemption proceeds, whichever of
is lower) purchase
date and
0.00%
thereafter
Exchange Fee None None
Annual Fund Operating Expenses
(as a percentage of average
daily net assets)
Management Fee 0.75% 0.75%
12b-1 Fees None 0.25%
<PAGE>
Other Expenses
0.49% 0.49%
----- -----
Annual Fund Operating Expenses 1.24% 1.49%
----- -----
----- -----
</TABLE>
Evergreen Value Pro Forma
Shareholder
Transaction Class Y Class A
Expenses ------- -------
Maximum Sales Load None 4.75%
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Sales Load None None
Imposed on
Reinvested
Dividends (as a
percentage of
offering price)
Contingent Deferred None None
Sales Charge (as a
percentage of
original purchase
price or redemption
proceeds, whichever
is lower)
Exchange Fee None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee 0.50% 0.50%
12b-1 Fees(1) None 0.25%
Other Expenses 0.17% 0.17%
--------- ----------
<PAGE>
Annual Fund
Operating Expenses
0.67% 0.92%
--------- ----------
--------- ----------
- ---------------
(1) Class A shares of Evergreen Value 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.
Examples. The following tables show for Evergreen Value and Large Cap,
and for Evergreen Value pro forma, assuming consummation of the Reorganization,
examples of the cumulative effect of shareholder transaction expenses and annual
fund operating expenses indicated above on a $1,000 investment in each class of
shares for the periods specified, assuming (i) a 5% annual return, and (ii)
redemption at the end of such period and, additionally for Investment shares, no
redemption at the end of each period. In the case of Evergreen Value pro forma,
the examples do not reflect the imposition of the 4.75% maximum sales load on
purchases since Large Cap shareholders who receive Class A shares of Evergreen
Value in the Reorganization or who purchase additional Class A shares subsequent
to the Reorganization will not incur any sales load.
<TABLE>
<CAPTION>
Evergreen Value
---------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $7 $21 $37 $83
Class A $56 $75 $95 $154
</TABLE>
<TABLE>
<CAPTION>
Large Cap
---------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Trust $13 $39 $68 $150
<PAGE>
Investment $35 $67 $81 $178
(Assuming
redemption at end
of period)
Investment $15 $47 $81 $178
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Value Pro Forma
-------------------------
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $7 $21 $37 $83
Class A $9 $29 $51 $113
</TABLE>
The purpose of the foregoing examples is to assist Large Cap
shareholders in understanding the various costs and expenses that an investor in
Evergreen Value would bear directly and indirectly as a result of the
Reorganization, as compared with the various direct and indirect expenses
currently borne by a shareholder in Large Cap. 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 Value dated May 1, 1997, as amended and the
Prospectuses of Large Cap dated November 30, 1997 (which are incorporated herein
by reference), the Plan, the Interim Advisory Agreement and the Interim
Sub-Advisory Agreement, forms of which are attached to this Prospectus/Proxy
Statement as Exhibits A, B and C, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of Large Cap in
exchange for shares of Evergreen Value and the assumption by Evergreen Value of
certain identified liabilities
<PAGE>
of Large Cap. 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 Value to Large Cap shareholders in
liquidation of Large Cap as part of the Reorganization. As a result of the
Reorganization, the holders of Investment and Trust shares of Large Cap will
become the owners of that number of full and fractional Class A and Class Y
shares, respectively, of Evergreen Value having an aggregate net asset value
equal to the aggregate net asset value of the shareholders' shares of Large Cap
as of the close of business immediately prior to the date that Large Cap's
assets are exchanged for shares of Evergreen Value. 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 Large Cap, and that the interests of the
shareholders of Large Cap 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 Large Cap's shareholders.
THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF LARGE CAP
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Equity Trust have also approved the Plan and,
accordingly, Evergreen Value's participation in the Reorganization.
Approval of the Reorganization on the part of Large Cap will require
the affirmative vote of a majority of Large Cap'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 Large Cap and the sub-advisory
agreement between Virtus and Trend. Prior to consummation of the Merger, Large
Cap 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 and a new sub-advisory agreement between Virtus and Trend for a
period of not more than 120 days beginning on the date of the closing of
<PAGE>
the Merger and continuing through the date the Interim Advisory Agreement and
Interim Sub-Advisory Agreement are approved by the Fund's shareholders (but in
no event later than April 30, 1998). The Interim Advisory Agreement and the
Interim Sub-Advisory Agreement have the same terms and fees as the previous
investment advisory agreement between Large Cap and Virtus and the previous
sub-advisory agreement between Virtus and Trend, respectively. The
Reorganization is scheduled to take place on or about February 27, 1998.
Approval of the Interim Advisory Agreement and Interim Sub- Advisory
Agreement requires the affirmative vote of (i) 67% or more of the shares of
Large Cap present in person or by proxy at the Meeting, if holders of more than
50% of the shares of Large Cap outstanding on the record date are present, in
person or by proxy, or (ii) more than 50% of the outstanding shares of Large
Cap, whichever is less. See "Voting Information Concerning the Meeting."
If the shareholders of Large Cap 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, Large Cap 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 Value in the Reorganization. The holding period and
aggregate tax basis of shares of Evergreen Value that are received by Large
Cap'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 Large Cap in the hands of Evergreen Value 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 Value upon the receipt of the assets of the Fund in exchange for
shares of Evergreen Value and the assumption by Evergreen Value of certain
identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Value and Large Cap
are substantially identical.
The investment objectives of Evergreen Value are long-term capital
appreciation with current income as a secondary objective. Normally, at least
75% of the Fund's assets will be invested in equity securities of U.S. companies
with prospects
<PAGE>
for earnings growth and dividends. The Fund's investments consist of common and
preferred stocks, bonds and convertible preferred stock of U.S. companies with
minimum market capitalizations of $100 million which are listed either on the
New York or American Stock Exchange or traded in the over-the-counter market.
The investment objective of Large Cap is to provide growth of capital
and income. The Fund pursues its investment objective by investing in common
stocks of large-capitalization companies, with market capitalizations of at
least $1 billion at the time of investment, and which are listed either on the
New York or American Stock Exchange or traded in the over-the-counter market.
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 Value for the one, five and ten year
periods ended September 30, 1997, the total return of Large Cap for the one and
five year periods ended September 30, 1997 and for both Funds for the periods
from inception through September 30, 1997 is 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.
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year From
Ended 5 Years 10 Years Inception
September Ended Ended To
30, September September September Inception
1997 30, 1997 30, 1997 30, 1997 Date
------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Evergreen
Value
Class A 28.02% 16.33% 12.67% 14.37% 4/12/85
shares
Class Y 34.74% 17.79% N/A 17.80% 1/3/91
shares
Large Cap
(1) (2)
Trust 37.37% 14.09% N/A 14.21% 10/16/90
shares
<PAGE>
Investment
shares 34.75% 13.84% N/A 14.03% 10/16/90
- --------------
</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.
(2) Effective October 21, 1996, Trend became the sub-adviser to Large Cap.
Important information about Evergreen Value is also contained in
management's discussion of Evergreen Value's performance, attached hereto as
Exhibit D. This information also appears in Evergreen Value's most recent Annual
Report.
Management of the Funds
The overall management of Evergreen Value and of Large Cap is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Equity Trust and The Virtus Funds, respectively.
Investment Advisers and Sub-Adviser
The investment adviser to Evergreen Value 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 further information
regarding FUNB and First Union, see "Management of the Funds - Investment
Advisers" in the Prospectuses of Evergreen Value.
FUNB manages investments and supervises the daily business affairs of
Evergreen Value 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 Large Cap. As investment
adviser, Virtus continuously conducts investment research and supervision on
behalf of the Fund and is responsible for the purchase and sale of portfolio
securities. Virtus has engaged Trend as the Fund's sub-adviser. Virtus
compensates Trend from the advisory fee received from Large Cap. See
"Information Regarding the Interim Sub-Advisory Agreement." 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
<PAGE>
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 Value. As administrator, EIS provides facilities, equipment and
personnel to Evergreen Value and is entitled to receive an administration fee
from the Fund based on the aggregate average daily net assets of all the mutual
funds advised by FUNB and its affiliates, calculated in accordance with the
following schedule: 0.050% on the first $7 billion, 0.035% on the next $3
billion, 0.030% on the next $5 billion, 0.020% on the next $10 billion, 0.015%
on the next $5 billion and 0.010% on assets in excess of $30 billion.
Federated Administrative Services ("FAS") provides Large Cap 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
J. Donald Raines and David C. Francis have been co-portfolio managers
of Evergreen Value since 1995. Mr. Raines, who has over nineteen years of
banking and investment experience, joined FUNB in 1990 where he is responsible
for the Institutional Portfolio Management Group. Mr. Francis has over seventeen
years of equity analysis and investment experience. He joined FUNB in July, 1994
from Federated Investment Counseling, a division of Federated Investors. Mr.
Francis is responsible for directing the equity investment process for the
Capital Management Group,.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Value's shares. EDI distributes the
Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen Value offers four classes of shares:
Class A, Class B, Class C and Class Y. Each class has separate distribution
arrangements. (See "Distribution-Related Expenses" below.) No class bears the
distribution expenses relating to the shares of any other class.
In the proposed Reorganization, shareholders of Large Cap who own Trust
shares and Investment shares will receive Class Y
<PAGE>
and Class A shares, respectively, of Evergreen Value. The Class Y and Class A
shares of Evergreen Value have substantially similar arrangements with respect
to the imposition of Rule 12b-1 distribution and service fees as the Trust and
Investment shares of Large Cap. Because the Reorganization will be effected at
net asset value without the imposition of a sales charge, Evergreen Value shares
acquired by shareholders of Large Cap pursuant to the proposed Reorganization
would not be subject to any initial sales charge or contingent deferred sales
charge as a result of the Reorganization.
The following is a summary description of charges and fees for the
Class Y and Class A shares of Evergreen Value which will be received by Large
Cap shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Evergreen Value Prospectuses and the Large Cap 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) persons who at or prior to December 31, 1994
owned shares in a mutual fund advised by Evergreen Asset Management Corp.
("Evergreen Asset"), (ii) certain institutional investors and (iii) investment
advisory clients of FUNB, Evergreen Asset or their affiliates. Large Cap
shareholders who receive Evergreen Value Class Y shares in the Reorganization
who wish to make subsequent purchases of Evergreen Value'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 Value.
Holders of Investment shares of Large Cap who receive Class A shares of
Evergreen Value in the Reorganization will be able to purchase additional Class
A shares of Evergreen Value and of 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 Value 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
<PAGE>
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
Large Cap 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.
Large Cap has not adopted a Rule 12b-1 plan with respect to its Trust shares.
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 Large Cap). Except for the minimum subsequent
investment requirement of $100 for Investment shares of Large Cap, there is no
minimum for subsequent purchases of shares of either Fund. Each Fund provides
for telephone, mail or wire redemption of shares at net asset value as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the respective Prospectuses for each Fund. Each
Fund may involuntarily redeem shareholders' accounts that have less than $1,000
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
Large Cap 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 of shares of a class of Evergreen Value
generally may exchange their shares for shares of the same class of any other
Evergreen fund. Large Cap shareholders will be receiving Class Y and Class A
shares of Evergreen Value in the Reorganization and, accordingly, with respect
to shares of Evergreen Value received by Large Cap shareholders in the
Reorganization, the exchange privilege is limited to the Class Y and Class A
shares, as applicable, of other Evergreen funds. 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.
<PAGE>
Dividend Policy
Each Fund distributes its income dividends quarterly. 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 Large Cap who have elected to
have their dividends and/or distributions reinvested will have dividends and/or
distributions received from Evergreen Value reinvested in shares of Evergreen
Value. Shareholders of Large Cap who have elected to receive dividends and/or
distributions in cash will receive dividends and/or distributions from Evergreen
Value 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 Value.
Each of Evergreen Value and Large Cap 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 net investment company taxable income
and any net realized gains to shareholders, it is expected that a Fund will not
be required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
Risks
Since the investment objectives and policies of each Fund are
substantially identical, the risks involved in investing in each Fund's shares
are similar. For a discussion of each Fund's objectives and policies, see
"Comparison of Investment Objectives and Policies." There is no assurance that
investment performances will be positive and that the Funds will meet their
investment objectives. In addition, both Funds may employ for hedging purposes
the strategy of engaging in options and futures transactions. See limitations
discussed in "Comparison of Investment Objectives and Policies." However,
Evergreen Value does not currently engage in these investment strategies. The
risks involved in these strategies are described in the "Investment Practices
and Restrictions - Options, Futures and Derivatives" section in Evergreen
Value's Prospectuses.
<PAGE>
Each Fund may invest in foreign securities or securities denominated in
or indexed to foreign currencies. These may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and be less marketable than comparable U.S.
securities. All these factors are considered by each Fund's investment adviser
before making any of these types of investments.
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
administrative functions currently performed for Large Cap 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 Large Cap and determined that the interests of existing
shareholders of Large Cap will not be diluted as a result of the transactions
contemplated by the Reorganization. In addition, the Trustees approved the
Interim Advisory Agreement and Interim Sub-Advisory Agreement with respect to
Large Cap.
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 and the sub-advisory agreement
between Virtus and Trend with respect to the Fund. The Virtus Funds have
received an order from the SEC which permits Virtus and Trend to continue to act
as Large Cap's investment adviser and sub- adviser, respectively, without
shareholder approval, for a period of not more than 120 days from the date the
Merger was
<PAGE>
consummated (November 28, 1997) to the date of shareholder approval of a new
investment advisory agreement and sub-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 Value and Large Cap. Specifically, Evergreen Value and Large
Cap 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 Large Cap with an Evergreen fund with a
greater level of assets. As of September 30, 1997, Evergreen Value's net assets
were approximately $1.8 billion and Large Cap's net assets were approximately
$107 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Large Cap continue its existence and be separately managed by
FUNB or one of its affiliates, Large Cap would be offered through common
distribution channels with the substantially identical Evergreen Value. Large
Cap 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 two substantially identical 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 Value and Large Cap; (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 Large Cap in connection with the Reorganization; (x)
the fact that Evergreen Value will assume certain identified liabilities of
Large Cap;
<PAGE>
and (xi) the expected federal income tax consequences of the
Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Large Cap from the sale of its assets to Evergreen Value. 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 Large Cap.
In addition, the Trustees considered that there are alternatives
available to shareholders of Large Cap, 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 Equity Trust also concluded at a meeting on
September 16, 1997 that the proposed Reorganization would be in the best
interests of shareholders of Evergreen Value and that the interests of the
shareholders of Evergreen Value 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 LARGE CAP APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Evergreen Value will acquire all of the assets
of Large Cap in exchange for shares of Evergreen Value and the assumption by
Evergreen Value of certain identified liabilities of Large Cap 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, Large Cap will endeavor to discharge
all of its known liabilities and obligations. Evergreen Value will not assume
any liabilities or obligations of Large Cap other than those reflected in an
unaudited statement of assets and liabilities of Large Cap 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 Value to be received by the
shareholders of Large Cap will be determined by multiplying the respective
outstanding class of shares of Large Cap by a factor which shall be computed by
dividing the net asset value per share of the respective class of shares of
Large Cap by the net asset value per share of the
<PAGE>
respective class of shares of Evergreen Value. 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 Value,
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 Value,
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, Large Cap 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).
As soon after the Closing Date as conveniently practicable, Large Cap
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
Value received by Large Cap. 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 Value's transfer agent. Each
account will represent the respective pro rata number of full and fractional
shares of Evergreen Value due to the Fund's shareholders. All issued and
outstanding shares of Large Cap, including those represented by certificates,
will be canceled. The shares of Evergreen Value to be issued will have no
preemptive or conversion rights. After such distributions and the winding up of
its affairs, Large Cap 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 Large Cap'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 Large Cap's shareholders,
the Plan may be terminated (a) by the mutual agreement of Large Cap and
Evergreen Value; or (b) at or prior to
<PAGE>
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 Large Cap 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 Large Cap or its shareholders. There are not any
liabilities or any expected reimbursements in connection with the 12b-1 Plan of
Large Cap. As a result, no 12b-1 liabilities will be assumed by Evergreen Value
following the Reorganization.
If the Reorganization is not approved by shareholders of Large Cap, 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, Large Cap will receive an
opinion of Sullivan & Worcester LLP to the effect that, on the basis of the
existing provisions of the Code, U.S. Treasury regulations issued thereunder,
current administrative rules, pronouncements and court decisions, for federal
income tax purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of Large Cap solely in exchange
for shares of Evergreen Value and the assumption by Evergreen Value of certain
identified liabilities, followed by the distribution of Evergreen Value's shares
by Large Cap in dissolution and liquidation of Large Cap, will constitute a
"reorganization" within the meaning of section 368(a)(1)(C) of the Code, and
Evergreen Value and Large Cap 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 Large Cap on the transfer of
all of its assets to Evergreen Value solely in exchange for Evergreen Value's
shares and the assumption by Evergreen Value of certain identified liabilities
of Large Cap or upon the distribution of Evergreen Value's shares to Large Cap's
shareholders in exchange for their shares of Large Cap;
(3) The tax basis of the assets transferred will be the same to
Evergreen Value as the tax basis of such assets to Large Cap immediately prior
to the Reorganization, and the holding
<PAGE>
period of such assets in the hands of Evergreen Value will include the period
during which the assets were held by Large Cap;
(4) No gain or loss will be recognized by Evergreen Value upon the
receipt of the assets from Large Cap solely in exchange for the shares of
Evergreen Value and the assumption by Evergreen Value of certain identified
liabilities of Large Cap;
(5) No gain or loss will be recognized by Large Cap's shareholders upon
the issuance of the shares of Evergreen Value to them, provided they receive
solely such shares (including fractional shares) in exchange for their shares of
Large Cap; and
(6) The aggregate tax basis of the shares of Evergreen Value, including
any fractional shares, received by each of the shareholders of Large Cap
pursuant to the Reorganization will be the same as the aggregate tax basis of
the shares of Large Cap held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of Evergreen Value,
including fractional shares, received by each such shareholder will include the
period during which the shares of Large Cap exchanged therefor were held by such
shareholder (provided that the shares of Large Cap were held as a capital asset
on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, a shareholder of Large Cap 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 Value
shares he or she received. Shareholders of Large Cap 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 Value. Since the
foregoing discussion relates only to the federal income tax consequences of the
Reorganization, shareholders of Large Cap 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 Value
and Large Cap as of September 30, 1997 and the capitalization of Evergreen Value
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 0.65318 and 0.65318 for Class Y and Class A shares,
<PAGE>
respectively, of Evergreen Value issued for each Trust and Investment share,
respectively, of Large Cap.
<TABLE>
<CAPTION>
Capitalization of Large Cap,
Evergreen Value and Evergreen
Value (Pro Forma)
Evergreen Value
(After
Reorgani-
Large Cap Evergreen Value zation)
--------- --------------- ------------
<S> <C> <C> <C>
Net Assets
Trust.......................... $26,611,481 N/A N/A
Investment..................... $80,073,046 N/A N/A
Class A........................ N/A $393,666,449 $473,739,495
Class B........................ N/A $286,679,234 $286,679,234
Class C........................ N/A $3,110,507 $3,110,507
Class Y........................ N/A $1,133,254,069 $1,159,865,550
----------- -------------- --------------
Total Net
Assets....................... $106,684,527 $1,816,710,259 $1,923,394,786
Net Asset Value Per
Share
Trust.......................... $16.31 N/A N/A
Investment..................... $16.31 N/A N/A
Class A........................ N/A $24.97 $24.97
Class B........................ N/A $24.96 $24.96
Class C........................ N/A $24.95 $24.95
Class Y........................ N/A $24.97 $24.97
Shares Outstanding
Trust.......................... 1,632,012 N/A N/A
Investment..................... 4,910,713 N/A N/A
Class A........................ N/A 15,765,458 18,973,056
Class B........................ N/A 11,483,723 11,483,723
Class C........................ N/A 124,692 124,692
Class Y........................ N/A 45,390,679 46,456,683
--------- ---------- ----------
All Classes.................... 6,542,725 72,764,552 77,038,154
</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.
Shareholder Information
<PAGE>
As of December 26, 1997 (the "Record Date"), there were the following
number of each Class of shares of beneficial interest of Large Cap outstanding:
Class of Shares
- ---------------
Trust.......................................... 1,582,628
Investment..................................... 4,813,417
---------
All Classes.................................... 6,396,045
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 Large
Cap. To Large Cap's knowledge, the following persons owned beneficially or of
record more than 5% of Large Cap's total outstanding shares as of November 30,
1997:
<TABLE>
<CAPTION>
Percen- Percen-tage
tage of of Shares of
Shares of Class After
Class Reorgani-
Before zation
No. of Reorgani- ---------
Name and Address Class Shares zation
- ---------------- ----- ------ ---------
<S> <C> <C> <C> <C>
Stephens, Inc. Investment 1,184,289 24.24% 4.21% Class A
111 Center Street
Little Rock, AR
72201-3507
Bova & Co. Trust 1,599,685 100% 2.36% 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 Value can be found in the Prospectuses of Evergreen
Value under the caption "Investment Objectives and Policies." Evergreen Value's
Prospectuses also offer additional funds advised by FUNB or its affiliates.
These additional funds are not involved in the Reorganization, their investment
objectives and policies are not discussed in this Prospectus/Proxy Statement
<PAGE>
and their shares are not offered hereby. The investment objective, policies and
restrictions of Large Cap 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 Large Cap, which is fundamental, the investment
objectives of Evergreen Value are non-fundamental and can be changed by the
Board of Trustees without shareholder approval.
The investment objectives of Evergreen Value are long-term capital
appreciation with current income as a secondary objective. Normally, at least
75% of the Fund's assets will be invested in equity securities of U.S. companies
with prospects for earnings growth and dividends. The Fund has not adopted a
policy with respect to the minimum percent of its assets that will be invested
in equity securities. However, the Fund generally invests in excess of 65% of
its assets in stocks of large capitalization companies.
Evergreen Value's investments, in order of priority, consist of:
* common and preferred stocks, bonds and convertible
preferred stock of U.S. companies with minimum market
capitalizations of $100 million which are listed on the
New York or American Stock Exchange or traded in the
over-the-counter market. The primary consideration is
for those industries and companies with the potential
for capital appreciation; income is a secondary
consideration;
* American Depositary Receipts ("ADRs") of foreign
companies traded on the New York or American Stock
Exchanges or in the over-the-counter market;
* foreign securities (either foreign or U.S. securities
traded in foreign markets). The Fund may also invest
in obligations denominated in foreign currencies. In
making these decisions, the Fund's investment adviser
will consider such factors as the condition and growth
potential of various economies and securities markets,
currency and taxation implications and other pertinent
financial, social, national and political factors;
* convertible bonds rated no lower than BBB by Standard & Poor's
Ratings Group ("S&P") or Baa by Moody's Investors Service
("Moody's") or, if not rated, determined to be of comparable
quality by the Fund's investment adviser;
* money market instruments;
<PAGE>
* fixed rate notes and bonds and adjustable and variable rate
notes of companies whose common stock the Fund may acquire
rated no lower than BBB by S&P or Baa by Moody's or, if not
rated, determined to be of comparable quality by the Fund's
investment adviser (up to 5% of total assets);
* zero coupon bonds issued or guaranteed by the U.S.
government, its agencies or instrumentalities (up to 5%
of total assets);
* obligations, including certificates of deposit and
bankers' acceptances, of banks or savings and loan
associations having at least $1 billion in deposits and
insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and
* prime commercial paper, including master demand notes rated no
lower than A-1 by S&P or Prime 1 by Moody's.
Bonds rated BBB by S&P or Baa by Moody's may have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to weaken such bonds' prospects for principal and interest payments than
higher rated bonds. However, like the higher rated bonds, these securities are
considered investment grade. If a security's rating is reduced below the
required minimum after Evergreen Value has purchased it, Evergreen Value is not
required to sell the security but may consider doing so.
As of December 31, 1994, 1995, 1996 and July 31, 1997 approximately
97%, 89%, 96% and 93.2%, respectively, of Evergreen Value's portfolio consisted
of equity securities.
The investment objective of Large Cap is to provide growth of capital
and income. Large Cap pursues its investment objective by investing primarily
(i.e., at least 65% of its assets under normal conditions) in common stocks of
large capitalization companies, with market capitalizations of at least $1
billion at the time of investment, and which are listed either on the New York
or American Stock Exchange or traded in the over-the-counter market. Large Cap
may also invest in corporate preferred stocks, bonds, notes, warrants, rights
and convertible securities, in ADRs and in high-quality, short-term money market
instruments such as commercial paper of domestic and foreign issuers and
obligations of domestic and foreign banks.
The debt securities (including convertible securities) in which Large
Cap may invest must be rated, at the time of purchase, BBB or higher by S&P or
Fitch Investor Services, L.P. or Baa or higher by Moody's or, if unrated, be of
comparable
<PAGE>
quality as determined by the Fund's investment adviser. If a security's rating
is reduced below the required minimum after Large Cap has purchased it, Large
Cap is not required to sell the security but may consider doing so.
Evergreen Value may write covered put and call options and purchase put
and call options on securities. Although there are no restrictions on the amount
of assets which may be invested in such securities, Evergreen Value does not
currently intend to invest more than 5% of its net assets in options
transactions. In addition, Evergreen Value, unlike Large Cap, may sell or
purchase currency and other financial futures contracts and may purchase
exchange listed put options on financial futures contracts. Evergreen Value does
not currently engage in futures transactions and related options. Large Cap may
enter into put and call options contracts and futures contracts. With respect to
puts and calls, Large Cap currently limits the value of the assets underlying
such options to not more than 25% of net assets, and will limit the premiums
paid for options to 20% of net assets. Large Cap will limit the margin deposits
entered into by the Fund to 5% of its net assets.
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 Equity 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 Equity 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 Value is a series of Evergreen Equity
Trust and Large Cap is a series of The Virtus Funds.
As set forth in the Supplement to Evergreen Value's Prospectuses,
effective December 22, 1997, Evergreen Value Fund, a series of Evergreen
Investment Trust, a Massachusetts business trust, was reorganized (the "Delaware
Reorganization") into a corresponding series (Evergreen Value) of Evergreen
Equity Trust. In connection with the Delaware Reorganization, the Fund's
investment objectives were reclassified from "fundamental" to "non-fundamental"
and therefore may be changed without shareholder approval; the Fund adopted
certain standardized
<PAGE>
investment restrictions; and the Fund eliminated or reclassified from
fundamental to non-fundamental certain of the Fund's other fundamental
investment restrictions.
Capitalization
The beneficial interests in Evergreen Value are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. The beneficial interests in Large Cap 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 Large Cap 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 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 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 Equity 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
<PAGE>
of Trust of Evergreen Equity Trust (a) provides that any written obligation of
the Trust may contain a statement that such obligation may only be enforced
against the assets of the Trust or the particular series in question and the
obligation is not binding upon the shareholders of the Trust; however, the
omission of such a disclaimer will not operate to create personal liability for
any shareholder; and (b) provides for indemnification out of Trust property of
any shareholder held personally liable for the obligations of the Trust.
Accordingly, the risk of a shareholder of Evergreen Equity Trust incurring
financial loss beyond that shareholder's investment because of shareholder
liability is limited to circumstances in which: (i) the court refuses to apply
Delaware law; (ii) no contractual limitation of liability was in effect; and
(iii) the Trust itself 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 Equity Trust is
remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Equity Trust on behalf of Evergreen Value nor The
Virtus Funds on behalf of Large Cap 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 Equity 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 Value, twenty-five percent (25%) of
the outstanding shares entitled to vote, and with respect to Large Cap, a
majority of the outstanding shares entitled to vote constitutes a quorum for
consideration of such matter. For Evergreen Value and Large Cap, 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 Equity Trust, each share of
Evergreen Value is entitled to one vote for each dollar of net asset value
applicable to each share. Under the voting provisions governing Large Cap, 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
<PAGE>
shares and, under the current voting provisions of The Virtus Funds, have more
votes, than the same investment in a series with a higher net asset value. Under
the Declaration of Trust of Evergreen Equity Trust, voting power is related to
the dollar value of a shareholder's investment rather than to the number of
shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Value and Large Cap, the
shareholders are entitled to receive, when, and as declared by the Trustees, the
excess of the assets belonging to such Fund or attributable to the class over
the liabilities belonging to the Fund or attributable to the class. In either
case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of 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 Equity 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,
<PAGE>
"disabling conduct"). A determination that the Trustee did not engage in
disabling conduct and is, therefore, entitled to indemnification may be based
upon the outcome of a court action or administrative proceeding or by (a) a vote
of a majority of those Trustees who are neither "interested persons" within the
meaning of the 1940 Act nor parties to the proceeding or (b) an independent
legal counsel in a written opinion. The Trust may also advance money for such
litigation expenses provided that the Trustee undertakes to repay the Trust if
his or her conduct is 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 Large
Cap 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 Large Cap, 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 Contract dated March 1,
1995, as amended on October 21, 1996. As used herein, the
<PAGE>
Investment Advisory Agreement, as amended, for Large Cap is referred to as the
"Previous Advisory Agreement." At a meeting 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 Large Cap.
The Trustees have authorized The Virtus Funds, on behalf of Large Cap,
to enter into the Interim Advisory Agreement with Virtus. Such Agreement became
effective on November 28, 1997. If the Interim Advisory Agreement for Large Cap
is not approved by shareholders, the Trustees will consider appropriate actions
to be taken with respect to Large Cap'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 Large Cap and
continuously 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 Large Cap. FAS will continue
during the term of the Interim Advisory Agreement as Large Cap's administrator
for the same compensation as currently received. An affiliate of FAS currently
performs transfer agency services for Large Cap's shareholders. Commencing
February 9, 1998 Evergreen Service Company will provide such transfer agency
services for the same fees charged by Large Cap's current transfer agent. See
"Summary - Administrators."
Fees and Expenses. The investment advisory fees and expense limitations for
Large Cap under the Previous Advisory Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers and Sub-Adviser."
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.
<PAGE>
The Interim Advisory Agreement contains an identical provision.
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 Large Cap (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 Large Cap'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 Large Cap management fees of $749,609, $704,007 and $678,512,
respectively, of which $0, $0 and $189,893, respectively, were voluntarily
waived. Signet acts as custodian for Large Cap and received $47,632 for the
fiscal year ended September 30, 1997. Commencing on or about January 20, 1998
FUNB will act as Large Cap's custodian during the term of the Interim Advisory
Agreement.
<PAGE>
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 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 LARGE CAP
APPROVE THE INTERIM ADVISORY AGREEMENT.
INFORMATION REGARDING THE INTERIM SUB-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 Large
Cap approve the Interim Sub-Advisory Agreement. Such Agreement became effective
on November 28, 1997. Pursuant to an order from the SEC, all fees payable under
the Interim Sub-Advisory Agreement will be placed in escrow and paid to Trend if
shareholders approve the contract within 120 days of its effective date. The
Interim Sub-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 Sub-Advisory Agreement are essentially the same as the
Previous Sub-Advisory Agreement (as defined below). The only difference between
the Previous Sub-Advisory Agreement and the Interim Sub-Advisory Agreement, if
approved by shareholders, is the length of time the Agreement is in effect. A
description of the Interim Sub-Advisory Agreement pursuant to which Trend
continues as the investment sub-adviser to Large Cap, as well as the services to
be provided by Trend pursuant thereto, is set forth below under "Sub-Advisory
Services." The description of the Interim Sub-Advisory Agreement in this
Prospectus/Proxy Statement is qualified in its entirety by reference to the
Interim Sub-Advisory Agreement, attached hereto as Exhibit C.
Trend, 956 Interchange Tower, 600 S. Highway 169, Minneapolis,
Minnesota 55426, has served as sub-investment adviser to Large Cap pursuant to a
Sub-Advisory Agreement, dated October 21, 1996. Trend was founded in 1992 by
Thomas G. Fox, its President and Chief Investment Officer. Trend provides
advisory services to individuals and institutions. Trend does not provide
investment advisory services to any other mutual fund. See "Summary - Investment
Advisers and Sub-Adviser." As used herein, the Sub-Advisory Agreement for Large
Cap is referred to as the "Previous Sub-Advisory Agreement." At a meeting 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
Sub-Advisory Agreement for Large Cap.
<PAGE>
The Trustees have authorized The Virtus Funds, on behalf of Large Cap,
to enter into the Interim Sub-Advisory Agreement with Virtus and Trend. Such
Agreement became effective on November 28, 1997. If the Interim Sub-Advisory
Agreement for Large Cap is not approved by shareholders, the Trustees will
consider appropriate actions to be taken with respect to Large Cap's investment
sub-advisory arrangements at that time. The Previous Sub-Advisory Agreement was
last approved by the Trustees, including a majority of the Independent Trustees,
on November 21, 1996.
Comparison of the Interim Sub-Advisory Agreement and the Previous
Sub-Advisory Agreement
Sub-Advisory Services. The management and advisory services to be
provided by Trend under the Interim Sub-Advisory Agreement are identical to
those currently provided by Trend under the Previous Sub-Advisory Agreement.
Under the Previous Sub-Advisory Agreement, Trend furnished to Virtus such
investment advice, statistical and other factual information, as from time to
time, was reasonably requested by Virtus for Large Cap.
Fees and Expenses. The investment sub-advisory fees under the Previous
Sub-Advisory Agreement and the Interim Sub-Advisory Agreement are identical. As
compensation for its sub-advisory services under the Previous Sub-Advisory
Agreement Trend was paid by Virtus a monthly fee in an amount equal to 0.15% of
the first $100 million of the Fund's average daily net assets and 0.33 1/3% of
the Fund's average daily net assets in excess of $100 million. For the year
ended September 30, 1997 Trend received an aggregate of $144,886 in advisory
fees.
The names and addresses of the principal executive officers and
directors of Trend are set forth in Appendix B to this Prospectus/Proxy
Statement.
Expense Reimbursement. The Previous Sub-Advisory Agreement provided
that in the event Virtus' fee from Large Cap was reduced in order to meet
expense limitations imposed on the Fund by state securities laws, the
sub-advisory fee shall be reduced by the same percentage as is the existing
percentage Trend receives of Virtus' fee. The Interim Sub-Advisory Agreement
contains an identical provision as to the expense reimbursement arrangement
between Trend and Virtus.
Limitation of Liability. The Previous Sub-Advisory Agreement provided
that in the absence of willful misfeasance, bad faith or gross negligence on the
part of Trend or reckless disregard by Trend of its duties under the Agreement,
Trend shall not be liable to Virtus, The Virtus Funds or to any shareholder of
The Virtus Funds for any act or omission in the course of, or connected with,
rendering services thereunder or for any losses that may be sustained in the
purchase, holding or sale of any
<PAGE>
security. The Interim Sub-Advisory Agreement contains an
identical provision.
Termination; Assignment. The Interim Sub-Advisory Agreement provides
that it may be terminated without penalty by vote of a majority of the
outstanding voting securities of Large Cap (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 Trend or by Virtus or Trend on 120 days' written notice to the
other party to the Agreement. Also, the Interim Sub-Advisory Agreement will
automatically terminate in the event of its assignment (as defined in the 1940
Act). The Previous Sub- Advisory Agreement contained identical provisions as to
termination and assignment.
The Board of Trustees considered the Interim Sub-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 also considered the fact that there were
no material differences between the terms of the Interim Sub-Advisory Agreement
and the terms of the Previous Sub-Advisory Agreement.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF LARGE CAP
APPROVE THE INTERIM SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen Value. Information concerning the operation and management of
Evergreen Value is incorporated herein by reference from the Prospectuses dated
May 1, 1997, as amended, copies of which are enclosed, and Statement of
Additional Information dated December 1, 1997, as amended. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Evergreen Value at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Large Cap. 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 Large Cap at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
Evergreen Value and Large Cap 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
<PAGE>
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 Large Cap 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 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, FOR the Interim Sub-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 and the Interim
Sub- 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, FOR approval of the Interim Advisory Agreement and FOR approval of the
Interim Sub-Advisory Agreement.
<PAGE>
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 and Interim Sub-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 Large Cap (who will not be paid for their soliciting
activities). Shareholder Communications Corporation has been engaged by Large
Cap to assist in soliciting proxies.
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 Value which they receive in the
transaction at their then-current net asset value. Shares of Large Cap may be
redeemed at any time prior to the consummation of the
<PAGE>
Reorganization. Shareholders of Large Cap 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.
Large Cap 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 Value 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 Large Cap whether other persons are beneficial owners of shares
for which proxies are being solicited and, if so, the number of copies of this
Prospectus/Proxy Statement needed to supply copies to the beneficial owners of
the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Value as of July 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 Large Cap
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
Value will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
<PAGE>
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, THE
INTERIM ADVISORY AGREEMENT AND THE INTERIM SUB-ADVISORY AGREEMENT, AND ANY
UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN, THE INTERIM ADVISORY AGREEMENT AND THE INTERIM
SUB-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>
APPENDIX B
The names and addresses of the principal executive officers
and directors of Trend Capital Management, Inc. are as follows:
OFFICERS AND DIRECTORS:
Name Address
- ---- -------
Thomas G. Fox, President Trend Capital Management, Inc.
600 S. Hwy 169, #950
Minneapolis, MN 55426
Wayne R. Eskew, Vice President Trend Capital Management, Inc.
600 S. Hwy 169, #950
Minneapolis, MN 55426
Darrel R. Lynn, CFO Trend Capital Management, Inc.
600 S. Hwy 169, #950
Minneapolis, MN 55426
Timothy W. O'Malley, Secretary Trend Capital Management, Inc.
600 S. Hwy 169, #950
Minneapolis, MN 55426
<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 Equity 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
Value 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 Style Manager: Large Cap Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of 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 interests of the existing shareholders of the
Selling Fund will not be diluted as a result of the transactions contemplated
herein;
<PAGE>
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, 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 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.
<PAGE>
In the event that the Selling Fund holds any investments that the Acquiring Fund
may not hold, the Selling Fund, if requested by the Acquiring Fund, will dispose
of such securities prior to the Closing Date. In addition, if it is determined
that the Selling Fund and the Acquiring Fund portfolios, when aggregated, would
contain investments exceeding certain percentage limitations imposed upon the
Acquiring Fund with respect to such investments, the Selling Fund if requested
by the Acquiring Fund will dispose of a sufficient amount of such investments as
may be necessary to avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein will require the Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund, such disposition would adversely affect the tax-free nature of the
Reorganization or would violate the Selling Fund's fiduciary duty to its
shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the
<PAGE>
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Selling Fund Shareholders and representing the respective pro
rata number of the Acquiring Fund Shares due such shareholders. All issued and
outstanding shares of the Selling Fund will simultaneously be canceled on the
books of the Selling Fund. The Acquiring Fund shall not issue certificates
representing the Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be 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
<PAGE>
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 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
<PAGE>
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:
(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.
<PAGE>
(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 in the Statement of Assets and Liabilities as provided
in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(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
<PAGE>
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
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
<PAGE>
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 prospectuses and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to
<PAGE>
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 July 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 July 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 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
<PAGE>
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.
(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
Value 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
<PAGE>
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.
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.
<PAGE>
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 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.
<PAGE>
(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.
(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
<PAGE>
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 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.
<PAGE>
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.
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
<PAGE>
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," the Interim Sub- Advisory Agreement
and the Previous Sub-Advisory Agreement, as set forth under the caption
"Information Regarding the Interim Sub-Advisory Agreement" and the description
of voting requirements applicable to approval of the Interim Advisory Agreement
and Interim Sub-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
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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)(C) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain 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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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.
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
<PAGE>
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.
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 EQUITY TRUST
ON BEHALF OF EVERGREEN
VALUE FUND
By:
Name:
Title:
THE VIRTUS FUNDS
ON BEHALF OF THE STYLE
MANAGER: LARGE CAP 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
INTERIM SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Virtus Capital Management,
Inc. (hereinafter referred to as "Adviser") and Trend Capital
Management, Inc. located in Minneapolis, Minnesota (hereinafter
referred to as "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Sub-Adviser hereby agrees to furnish to Adviser in its capacity as
investment adviser to The Virtus Funds (the "Trust") such investment advice,
statistical and other factual information, as may from time to time be
reasonably requested by Adviser for one or more of the portfolios ("Funds") of
the Trust, which may be offered in one or more classes of shares ("Classes").
2. For its services under this Agreement, Sub-Adviser shall receive
from Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in the exhibit
hereto. In the event that the fee due from the Trust to the Adviser on behalf of
the Funds is reduced in order to meet expense limitations imposed on the Funds
by state securities laws or regulations, the Sub-Advisory Fee shall be reduced
by the same percentage as is the existing percentage that it receives of the
Adviser's fee. (For example, if the total fee paid by the Trust to the Adviser
were 1.00% of average daily net assets of the Fund, and the Sub-Adviser was
entitled to receive a sub-advisory fee of .25% of the Fund's average daily net
assets, then in the event there was a reduction in fees from the Trust to the
Adviser for the above-stated reason, then the reduction in the sub-advisory fee
would be 25% of the reduction in the advisory fee).
Notwithstanding any other provision of this Agreement, the Sub-Adviser
may from time to time and for such periods as it deems appropriate, reduce its
compensation (and, if appropriate, assume expenses of the Fund or the Class of
the Fund) to the extent that the Fund's expenses exceed such lower expense
limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund,
voluntarily declare to be effective.
3. This Agreement shall begin for the Fund on the date that the parties
execute an exhibit to this Agreement relating to such Funds and shall continue
in effect for the 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
<PAGE>
to the 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 each Fund.
4. Notwithstanding any provision in this Agreement, it may be
terminated at any time without the payment of any penalty: (a) by the Trustees
of the Trust or by a vote of a majority of the outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act of 1940) of the Fund
on sixty (60) days' written notice to Adviser; (b) by Sub-Adviser or Adviser
upon 120 days' written notice to the other party to the Agreement.
5. This Agreement shall automatically terminate: (a) in the event of
its assignment (as defined in the Investment Company Act of 1940); or (b) in the
event of termination of the Interim Investment Advisory Agreement for any reason
whatsoever.
6. So long as both Adviser and Sub-Adviser shall be legally qualified
to act as an investment adviser to the Funds, neither Adviser nor Sub-Adviser
shall act as an investment adviser (as such term is defined in the Investment
Company Act of 1940) to the Funds except as provided herein and in the Interim
Investment Advisory Agreement or in such other manner as may be expressly agreed
between Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the Trustees
of the Trust pursuant to the provisions of Paragraph 3 of this Agreement or
Paragraph 6 of the Interim Investment Advisory Agreement, the remaining party,
Sub-Adviser or Adviser as the case may be, shall not be prohibited from serving
as an investment adviser to such Fund by reason of the provisions of this
Paragraph 6.
7. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by the vote
of a majority of Trustees of the Trust, including a majority of Trustees who are
not parties to this Agreement or interested persons, as defined in Section
2(a)(19) of the Investment Company Act of 1940, of any such party
<PAGE>
at a meeting called for that purpose, and, where required by Section 15(a)(2) of
the Investment Company Act of 1940, by the holders of a majority of the
outstanding voting securities (as defined in Section 2(a)(42) of the Investment
Company Act of 1940) of each Fund.
8. Adviser agrees that, except as otherwise provided by law or
agreement of the parties or as may be necessary to effect the purpose and intent
of this Agreement, the advice and information provided by Sub-Adviser to Adviser
hereunder, and the trends identified therein, shall be held as confidential by
Adviser and shall not be resold or passed on by Adviser in written or oral form
by Adviser to any other non-affiliated person without Sub- Adviser's express
prior written consent.
9. In the absence of willful misfeasance, bad faith or gross negligence
on the part of the Sub-Adviser or reckless disregard by the Sub-Adviser of its
duties under this Agreement, the Sub-Adviser shall not be liable to the Adviser,
the Trust or to any shareholder of the Trust for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
<PAGE>
EXHIBIT A
THE VIRTUS FUNDS
THE STYLE MANAGER: LARGE CAP FUND
INTERIM SUB-ADVISORY AGREEMENT
For all services rendered by Sub-Adviser hereunder, Adviser shall pay
Sub-Adviser a Sub-Advisory Fee equal to .15% of the first $100 million of the
Fund's average daily net assets; and .33 1/3% of the Fund's average daily net
assets in excess of $100 million. The Sub-Advisory Fee shall be accrued daily,
and paid monthly as set forth in the Interim Advisory Agreement dated November
28, 1997.
This Exhibit duly incorporates by reference the Interim Sub-
Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duly authorized officers, and their corporate
seals to be affixed hereto this 28th day of November, 1997.
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
________________________ By: ____________________________
Assistant Vice President President
TREND CAPITAL MANAGEMENT, INC.
________________________ By: _____________________________
Secretary President
<PAGE>
EXHIBIT D
EVERGREEN
VALUE FUND
[Value Fund logo appears here]
FUND-AT-A-GLANCE
As of July 31, 1997
ONE-YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
One year w/o sales
charge 42.44 % 41.20 % 41.24 % 42.58 %
One year with sales
charge 35.47 % 36.20 % 40.24 % 42.58 %
One year dividends per
share $0.356 $0.192 $0.191 $0.413
One year cap gains per
share $3.339 $3.339 $3.339 $3.339
AVERAGE
ANNUAL RETURNS CLASS A CLASS B CLASS C CLASS Y
Three years 21.60 % 22.04 % N/A 23.89 %
Five years 15.86 % N/A N/A 17.32
Ten years 12.37 % N/A N/A N/A
Since Inception* 14.42 % 16.82 % 22.25 % 17.96 %
CUMULATIVE RETURNS CLASS A CLASS B CLASS C CLASS Y
Seven months w/o sales
charge 20.78 % 20.23 % 20.25 % 20.93 %
Three years 79.80 % 81.76 % N/A 90.17 %
Five years 108.74 % N/A N/A 122.29 %
Ten years 221.12 % N/A N/A N/A
Since Inception* 425.19 % 101.19 % 79.59 % 196.62 %
* CLASS A BEGAN 4/12/85; CLASS B BEGAN 2/2/93;
CLASS C BEGAN 9/2/94; CLASS Y BEGAN 1/3/91.
[Graph appears here]
Comparison of change in value of a $10,000 investment in Evergreen Value Fund
Class A, the Standard & Poors 500 Index and the Consumer Price Index.
In Thousands from July 31, 1987 to July 31, 1997
PLOT POINTS
CLASS A: CPI S&P 500
- ------- ----- ------
$9,525 $10,000 $10,000
8,896 10,399 8,824
11,176 10,934 11,458
11,903 11,461 11,672
13,528 11,971 13,159
14,397 12,349 14,839
16,297 12,690 16,110
16,817 13,042 16,960
19,155 13,403 21,381
22,402 13,797 24,920
32,112 14,102 37,905
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 each class. The Standard & Poors 500 Index is an unmanaged market
index. This index does not include transaction costs associated with buying and
selling securities nor any management fees. The Consumer Price Index is from
July 31, 1997.
PORTFOLIO MANAGER
David C. Francis, C.F.A., Chief Investment Officer,
[Photo of Institutional, for First Union Capital Management Group, is
David C. Portfolio Management Team Leader for the Evergreen Value Fund.
Francis Mr. Francis is an investment professional with more than 17
appears here] years of equity analysis and management. He joined First Union
from Federated Investment Counseling, a division of Federated
Investors, Pittsburgh, where he managed equities for employee
benefit and tax-exempt separate accounts and mutual funds.
18
EVERGREEN
VALUE FUND
[Value Fund logo appears here]
OBJECTIVE
Evergreen Value Fund seeks long-term capital appreciation, with current income
as a secondary objective.
STRATEGY
The Fund normally invests at least 75% of its assets in the stocks of U.S.
companies with prospects for earnings growth and dividends. These companies have
minimum capitalizations of $100 million. The Fund also may invest in foreign
securities, American Depository Receipts and investment quality bonds.
LONG-TERM GROWTH
[Graph appears here]
Growth of an investment in Evergreen Value Fund, Class A
PLOT POINTS
Initial Investment Dividend Reinvestment
------------------ ---------------------
$ 9,525 $ 9,525
8,143 8,497
9,965 11,222
9,760 11,884
10,498 13,239
10,851 14,653
10,870 15,827
11,000 17,012
12,246 20,452
12,655 22,579
15,270 32,112
A $10,000 investment in Evergreen Value Fund, Class A, made on July 31, 1987
with all distributions reinvseted was worth $32,112 on July 31, 1997. Past
performance is no guarantee of future results. The performance of each class may
vary based on differences in loads and fees paid by shareholders investing in
the different classes.
TOP 10 STOCK HOLDINGS JULY 31, 1997
AS A PERCENTAGE OF NET ASSETS
% OF
NET
COMPANY INDUSTRY ASSETS
1. Nokia Corp. Telecommunication 3.0
Services & Equip.
2. Tyco International Limited Diversified 2.9
Companies
3. General Electric Co. Diversified 2.6
Companies
4. General Mills, Inc. Food & Beverage 2.4
Products
5. Bristol-Myers Squibb Co. Healthcare Products 2.4
& Services
6. Tosco Corp. Energy 2.3
7. CoreStates Financial Corp. Banks 2.3
8. Tenet Healthcare Corp. Healthcare Products 2.2
& Services
9. Philip Morris Companies Consumer Products & 2.2
Services
10. Williams Companies, Inc. Oil 2.1
TOP 10 INDUSTRY ALLOCATIONS JULY 31, 1997
AS A PERCENTAGE OF NET ASSETS
% OF
NET
INDUSTRY ASSETS
1. Banks 16.3
2. Diversified Companies 11.7
3. Energy 10.1
4. Utilities 7.7
5. Healthcare Products & Services 7.5
6. Oil 6.6
7. Food & Beverage Products 5.3
8. Electrical Equipment & Services 4.8
9. Transportation 3.4
10. Telecommunication Services & Equip. 3.0
PORTFOLIO CHARACTERISTICS
Total Net Assets (all classes) $1.82 billion
19
EVERGREEN
VALUE FUND
[Value Fund logo appears here]
MANAGEMENT REPORT
September 1997
Dear Shareholders:
We are pleased to report to you on the Evergreen Value Fund for the fiscal
period that ended July 31, 1997.
PERFORMANCE
The Evergreen Value Fund provided strong performance during the period. For
example, the Fund's Class Y Shares had a total return of 42.58% for the 12
months that ended on July 31, a period characterized by a positive environment
for equities that particularly rewarded the large cap, blue-chip companies
emphasized by your Fund. A complete review of the performance of each class of
shares can be found on page 18.
INVESTMENT ENVIRONMENT
The investment and economic environment during the fiscal period proved very
rewarding for investors. The U.S. economy witnessed phenomenal growth and,
surprisingly, did so without experiencing signs of inflationary pressure.
However, despite few overt signs of inflation, persistent economic growth
prompted the Federal Reserve Board, in a "pre-emptive strike" at inflation, to
increase interest rates by 0.25% on March 25. This Fed-induced rate hike-- the
only Federal Reserve action during the twelve months-- startled investors,
resulting in a short-lived decline in equities before they resumed their upward
ascent. Interest rates, despite some short-term swings, remained relatively low
and stable over the course of the fiscal year, providing more fuel to power the
equity rally.
Strong economic growth, low inflation and low interest rates set the stage for
the equity market's impressive advance. The stock market's powerful rally
featured larger "blue chip" companies, which outperformed their smaller
counterparts. Equities' narrow advance was most evident during the first three
months of 1997, as the broad market experienced modest gains versus the negative
returns for small cap stocks. Since that period, small- and mid-capitalized
stocks have provided excellent returns, and have gained some ground on their
larger counterparts. However, over the 12-month period, larger capitalization
stocks have been the best performers.
INVESTMENT STRATEGY
Throughout the period, the Evergreen Value Fund emphasized large-sized,
market-leading companies that have proven records of earnings growth. Consistent
with a traditional "value" fund, many of the holdings' share prices reflect
statistical measures of value. Such securities may be undervalued due to market
decline, poor economic conditions, actual or anticipated problems, or, simply,
lack of market attention.
Within the current market environment in which stocks, as a whole, have been bid
up to all-time highs and valuation levels that are inflated, it is increasingly
difficult to find companies which are undervalued. This investment environment
dictates that we remain focused on our "bottom-up" stock selection process,
which concentrates on analyzing security fundamentals rather than broad economic
forecasts.
FINANCE
The Fund's largest sector weighting, at approximately 19%, is the financial
sector. Within this group, banks have rebounded from the early 1990s, a period
in which many financial institutions were crippled by bad loans. Financial
companies (banks in particular) have ridden a wave of mergers, low interest
rates and productivity-enhancing technology to outstanding gains. The Fund's
bank holdings include Central Fidelity Banks, Union Planters, Citicorp and
NationsBank, all of which returned over 65% for the fiscal period. Financial
companies have provided investors handsome returns over the past three years,
and have done so with less volatility than other sectors. Going forward, the
fundamental outlook for the industry remains attractive, especially if interest
rates and inflation remain at their current benign levels.
TECHNOLOGY
The technology sector is among the best performing industries over the past two
years, although its advance over the past year has been somewhat narrow. A
relatively small number of spectacular performers such as
20
EVERGREEN
VALUE FUND
[Value Fund logo appears here]
Intel and Microsoft are largely responsible for the excellent overall
performance in the sector. Despite a mild correction in the first quarter of
1997, technology stocks have continued their powerful advance. Despite any
short-term volatility, we anticipate this trend to continue. The fundamental
outlook for technology-related companies remains positive as companies seek to
increase their productivity through technological improvements. Currently, close
to half of all capital spending is technology-related. The Fund's performance
during the fiscal period was enhanced by particularly strong technology
holdings such as Teradyne, Intel and IBM, which returned 245%, 145% and 98%,
respectively.
UTILITIES
Utilities comprise the Fund's third largest sector weighting. Within this
sector, the portfolio is buoyed by such holdings as Houston Industries and
Illinova Corporation. A strong utility exposure bolsters the Fund in two
specific ways. First, because utility companies tend to be high dividend-paying
companies, our utility weighting tends to increase the Fund's current yield.
Second, utilities provide the portfolio a somewhat defensive posture, as these
companies possess characteristics that allow them to better endure a market
downturn.
OUTLOOK
The outstanding performance of equities over the past couple of years can be
attributed to increased efficiency as well as a very favorable economic
environment. Companies have experienced surging profits as a direct result of
cost-cutting initiatives and productivity gains through technological
enhancements. In addition, a very cooperative economy, which has provided solid
growth, low interest rates and low inflation, has contributed to a stock market
that has doubled over the past three years.
The top individual performers during the fiscal period consisted primarily of
large, industry-leading companies, specifically, those within the financial and
technology industries. We expect these sectors to remain strongly represented in
the coming quarters, as their fundamental outlooks remain very favorable. In
addition we intend to maintain a strong representation of large,
industry-leading companies such as General Electric, Bristol-Myers, Philip
Morris and General Mills, which we believe have the potential to improve the
Fund's relative performance.
In light of the dramatic market performance over the past couple of years, we
approach the remainder of 1997 with a degree of caution. Judging from its
expensive valuation levels, the stock market's upside potential appears to be
limited. At this stage of a market cycle, a correction in equity prices is not
uncommon. Although painful, a correction would reduce stock valuations to more
reasonable levels. Should a market correction occur, we would view it as a
buying opportunity.
Thank you for your investment in Evergreen Value Fund.
Sincerely,
/s/ David C. Francis
DAVID C. FRANCIS
PORTFOLIO MANAGEMENT TEAM LEADER
Evergreen Value Fund
21
