THE VIRTUS FUNDS
THE STYLE MANAGER 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 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 Growth and Income Fund in exchange for Class Y shares of Evergreen
Growth and Income Fund and the assumption by Evergreen Growth and Income Fund of
certain liabilities of the Fund. You will receive shares of Evergreen Growth and
Income Fund having an aggregate net asset value equal to the aggregate net asset
value of your Fund shares. Details about Evergreen Growth and Income 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 800-773-8481 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 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 Fund, a series of The Virtus Funds ("Style
Manager"), 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 Style Manager by Evergreen Growth and Income Fund, a series of
Evergreen Equity Trust, ("Evergreen Growth and Income") in exchange for shares
of Evergreen Growth and Income and the assumption by Evergreen Growth and Income
of certain identified liabilities of Style Manager. The Plan also provides for
distribution of such shares of Evergreen Growth and Income to shareholders of
Style Manager in liquidation and subsequent termination of Style Manager. A vote
in favor of the Plan is a vote in favor of the liquidation and dissolution of
Style Manager.
2. To consider and act upon the Interim Investment
Advisory Agreement between Style Manager 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 Style Manager have fixed
the close of business on December 26, 1997 as the record date for the
determination of shareholders of Style Manager 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 FUND
a series of
The Virtus Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
EVERGREEN GROWTH AND INCOME 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 Fund ("Style Manager") in connection with a proposed Agreement
and Plan of Reorganization (the "Plan") to be submitted to shareholders of Style
Manager for consideration at a Special Meeting of Shareholders to be held on
February 20, 1998 at 2:00 p.m. at the offices of Evergreen Funds, 200 Berkeley
Street, Boston, Massachusetts 02116, and any adjournments thereof (the
"Meeting"). The Plan provides for all of the assets of Style Manager to be
acquired by Evergreen Growth and Income Fund ("Evergreen Growth and Income") in
exchange for shares of Evergreen Growth and Income and the assumption by
Evergreen Growth and Income of certain identified liabilities of Style Manager
(hereinafter referred to as the "Reorganization"). Evergreen Growth and Income
and Style Manager are sometimes hereinafter referred to individually as the
"Fund" and collectively as the "Funds." Following the Reorganization, shares of
Evergreen Growth and Income will be distributed to shareholders of Style Manager
in liquidation of Style Manager and such Fund will be terminated. Shareholders
of Style Manager will receive Class Y shares of Evergreen Growth and Income.
Class Y shares of Evergreen Growth and Income have no initial sales charges or
Rule 12b-1 distribution fees. As a result of the proposed Reorganization,
shareholders of Style Manager will receive that number of full and fractional
shares of Evergreen Growth and Income having an aggregate net asset value equal
to the aggregate net asset value of such shareholder's shares of Style Manager.
The Reorganization is being structured as a tax-free reorganization for federal
income tax purposes.
Evergreen Growth and Income 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"). The investment objective of
Evergreen Growth and Income is to achieve a return composed of capital
appreciation in the value of its shares and current income. Such
<PAGE>
investment objective is substantially similar to that of Style
Manager.
Shareholders of Style Manager 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 Style Manager 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 Growth and
Income that shareholders of Style Manager 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 Growth and Income dated July 31,
1997 and Style Manager 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 Growth and Income at 200
Berkeley Street, Boston, Massachusetts 02116 or by calling toll-free
1-800-343-2898.
The Prospectus of Evergreen Growth and Income 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 Growth and Income and not to any other fund described therein.
Shareholders of Style Manager will receive, with this Prospectus/Proxy
Statement, a copy of the Prospectus pertaining to the Class Y shares of
Evergreen Growth and Income. Additional information about Evergreen Growth and
Income 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 Evergreen Growth and Income
at the address or telephone number listed in the preceding paragraph.
The Prospectuses of Style Manager dated November 30, 1997, insofar as
they relate to Style Manager only, and not to any other funds described therein,
are incorporated herein in their
<PAGE>
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 Style Manager 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 ...............................................................9
Proposed Plan of Reorganization .....9
Tax Consequences ....11
Investment Objectives and Policies of the Funds ....11
Comparative Performance Information for each Fund ....12
Management of the Funds ....13
Investment Advisers and Sub-Advisers ....13
Administrator ....14
Portfolio Management ....15
Distribution of Shares ....15
Purchase and Redemption Procedures ....16
Exchange Privileges ....17
Dividend Policy ....17
Risks ....18
REASONS FOR THE REORGANIZATION.........................................19
Agreement and Plan of Reorganization ....21
Federal Income Tax Consequences ....23
Pro-forma Capitalization ....25
Shareholder Information ....26
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.......................27
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS........................29
Forms of Organization ....29
Capitalization ....30
Shareholder Liability ....30
Shareholder Meetings and Voting Rights ....31
Liquidation or Dissolution ....32
Liability and Indemnification of Trustees ....32
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT...................34
Introduction ....34
Comparison of the Interim Advisory Agreement
and the Previous Advisory Agreement ....35
Information about Style Manager's Investment Adviser ....36
INFORMATION REGARDING THE INTERIM SUB-ADVISORY AGREEMENT...............37
Introduction ....37
Comparison of the Interim Sub-Advisory Agreement
and the Previous Sub-Advisory Agreement ....38
ADDITIONAL INFORMATION.................................................39
<PAGE>
VOTING INFORMATION CONCERNING THE MEETING..............................40
FINANCIAL STATEMENTS AND EXPERTS.......................................43
LEGAL MATTERS..........................................................43
OTHER BUSINESS.........................................................43
APPENDIX A.............................................................45
APPENDIX B.............................................................46
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y shares of Evergreen Growth and Income set forth
in the following tables and in the examples are based on the expenses of
Evergreen Growth and Income for the fiscal year ended July 31, 1997. The amounts
for shares of Style Manager set forth in the following tables and in the
examples are based on the expenses for Style Manager for the fiscal year ended
September 30, 1997. The pro forma amounts for Class Y shares of Evergreen Growth
and Income are based on what the combined expenses would have been for Evergreen
Growth and Income for the fiscal year ending July 31, 1997. All amounts are
adjusted for voluntary expense waivers.
The following tables show for Evergreen Growth and Income, Style
Manager and Evergreen Growth and Income pro forma, assuming consummation of the
Reorganization, the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class Y and Investment shares of
each Fund, as applicable.
Comparison of Class Y Shares
of Evergreen Growth and Income With
Investment Shares of Style Manager
<TABLE>
<CAPTION>
Evergreen Evergreen
Growth Growth and
and Style Income Pro
Income Manager Forma
-------- ------- --------
<S> <C> <C> <C>
Shareholder Class Y Shares Class Y
Transaction ------- ------ -------
Expenses
Maximum Sales Load None None None
Imposed on
Purchases (as a
percentage of
offering price)
Maximum Sales Load None None None
Imposed on
Reinvested
Dividends (as a
percentage of
offering price)
<PAGE>
Contingent Deferred None 2.00% None
Sales Charge (as a within
percentage of five years
original purchase of
price or redemption purchase
proceeds, whichever date and
is lower) 0.00%
thereafter
Exchange Fee None None None
Annual Fund
Operating Expenses
(as a percentage of
average daily net
assets)
Management Fee (1) 1.00% 0.75% 1.00%
12b-1 Fees (2) 0.00% 0.00% 0.00%
Other Expenses 0.21% 0.42% 0.20%
------- ----- -----
Annual Fund 1.21% 1.17% 1.20%
Operating Expenses -------- ----- -----
(2) -------- ----- -----
</TABLE>
- ---------------
(1) Virtus is entitled to receive a management fee of 1.25% of Style
Manager's average daily net assets. The 0.75% management fee represents
a waiver by Virtus of 0.50%.
(2) Shares of Style Manager can pay up to 0.25% of average daily net assets as
a 12b-1 fee. However, Style Manager will not accrue or pay 12b-1 fees until
a separate class of shares has been created for certain institutional
investors. Absent waiver of the management fee, annual fund operating
expenses for Style Manager would have been 1.67% of average daily net
assets.
Examples. The following tables show for Evergreen Growth and Income and
Style Manager, and for Evergreen Growth and Income 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 shares of Style Manager, no redemption at the end of each
period.
<PAGE>
<TABLE>
<CAPTION>
Evergreen Growth and Income
---------------------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $12 $38 $66 $147
</TABLE>
<TABLE>
<CAPTION>
Style Manager
-------------
One Three Five Ten
Year Years Years Years
---- ----- ----- -----
<S> <C> <C> <C> <C>
Shares $32 $57 $64 $142
(Assuming
redemption at end
of period)
Shares $12 $37 $64 $142
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Growth and Income Pro Forma
-------------------------------------
One Three Five Ten
Year Years Years Years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class Y $12 $38 $66 $145
</TABLE>
The purpose of the foregoing examples is to assist Style Manager
shareholders in understanding the various costs and expenses that an investor in
Evergreen Growth and Income 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 Style Manager. 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
<PAGE>
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
Prospectus of Evergreen Growth and Income dated May 1, 1997, as amended, and the
Prospectuses of Style Manager 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 Style
Manager in exchange for shares of Evergreen Growth and Income and the assumption
by Evergreen Growth and Income of certain identified liabilities of Style
Manager. 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 Growth and Income to Style Manager shareholders in liquidation of
Style Manager as part of the Reorganization. As a result of the Reorganization,
the holders of Investment shares of Style Manager will become the owners of that
number of full and fractional Class Y shares of Evergreen Growth and Income
having an aggregate net asset value equal to the aggregate net asset value of
the shareholders' shares of Style Manager as of the close of business
immediately prior to the date that Style Manager's assets are exchanged for
shares of Evergreen Growth and Income. 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 Style Manager, and that the interests of the
shareholders of Style Manager 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 Style Manager's shareholders.
THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF STYLE MANAGER
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Equity Trust have also approved the Plan, and
accordingly, Evergreen Growth and Income's participation in the Reorganization.
Approval of the Reorganization on the part of Style Manager will
require the affirmative vote of a majority of Style Manager's shares voted and
entitled to vote, with all classes
<PAGE>
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 Style Manager and the
sub-advisory agreement between Virtus and Trend. Prior to consummation of the
Merger, Style Manager 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 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 Style Manager 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
Style Manager present in person or by proxy at the Meeting, if holders of more
than 50% of the shares of Style Manager outstanding on the record date are
present, in person or by proxy, or (ii) more than 50% of the outstanding shares
of Style Manager, whichever is less. See "Voting Information Concerning the
Meeting."
If the shareholders of Style Manager 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, Style Manager 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 Growth and Income in the Reorganization. The holding period
and aggregate tax basis of shares of Evergreen Growth and Income that are
received by Style Manager'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
<PAGE>
capital assets. In addition, the holding period and tax basis of the assets of
Style Manager in the hands of Evergreen Growth and Income 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 Growth
and Income upon the receipt of the assets of the Fund in exchange for shares of
Evergreen Growth and Income and the assumption by Evergreen Growth and Income of
certain identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Growth and Income
and Style Manager are similar.
The investment objective of Evergreen Growth and Income is to achieve a
return composed of capital appreciation in the value of its shares and current
income. The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
The Fund will invest primarily in common stocks and securities convertible into
or exchangeable for common stock. It is anticipated that the Fund's investments
in these securities will contribute to the Fund's return primarily through
capital appreciation. In addition, the Fund will invest in nonconvertible
preferred stocks and debt securities, which investments will also produce
capital appreciation. However, the current income component of return will be a
more significant factor in such securities selection.
The investment objective of Style Manager is to provide growth of
capital. The Fund pursues its investment objective by investing in common stocks
of large, medium and small capitalization companies which are either listed on
the New York or American Stock Exchanges 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 Prospectus and Statement of Additional Information of the
Funds. The total return of Evergreen Growth and Income and Style Manager for the
one, five and ten year periods ended September 30, 1997, for Style Manager for
the one year period ended September 30, 1997 and for both Funds for the periods
from inception through September 30, 1997 are set forth in the table below. The
calculations of total return assume the reinvestment of all dividends and
capital gains distributions on the reinvestment date and the deduction of all
recurring expenses (including sales charges) that were charged to shareholders'
accounts.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year 5 Years 10 Years From
Ended Ended Ended Inception
September September September To
30, 30, 1997 30, 1997 September Inception
1997 --------- -------- 30, 1997 Date
------- --------- ---------
<S> <C> <C> <C> <C> <C>
Evergreen 37.83% 21.99% 15.69% 15.96% 10/15/86
Growth and
Income
Class Y
shares
Style 41.85% N/A N/A 28.04% 3/7/95
Manager
(2)
</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 periods would have been lower.
(2) Effective October 21, 1996, Trend became the sub-adviser to Style
Manager.
Important information about Evergreen Growth and Income is also
contained in management's discussion of Evergreen Growth and Income's
performance, attached hereto as Exhibit D. This information also appears in
Evergreen Growth and Income's most recent Annual Report.
Management of the Funds
The overall management of Evergreen Growth and Income and of Style
Manager 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-Advisers
Evergreen Asset Management Corp. ("Evergreen Asset") serves as
investment adviser to Evergreen Growth and Income. Evergreen Asset, with its
predecessors, has served as investment adviser to the Evergreen family of mutual
funds since 1971. Evergreen Asset is a wholly-owned subsidiary 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, Evergreen Asset and Keystone
Investment Management Company manage the Evergreen family of mutual funds with
assets of approximately $40 billion as of November 30, 1997. For further
information
<PAGE>
regarding Evergreen Asset, FUNB and First Union, see "Management of the Funds -
Investment Advisers" in the Prospectus of Evergreen Growth and Income.
Evergreen Asset manages investments, provides various administrative
services and supervises the daily business affairs of Evergreen Growth and
Income subject to the authority of the Trustees. Evergreen Asset is entitled to
receive from Evergreen Growth and Income an annual fee equal to 1.00% of average
daily net assets of Evergreen Growth and Income on the first $750 million in
assets, 0.90% of average daily net assets on the next $250 million in assets,
and 0.80% of average daily net assets in excess of $1 billion. The fee paid by
Evergreen Growth and Income is higher than the rate paid by most other
investment companies.
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on
Evergreen Growth and Income. Lieber & Company will be reimbursed by Evergreen
Asset in connection with the rendering of services on the basis of the direct
and indirect costs of performing such services. There is no additional charge to
Evergreen Growth and Income for the services provided by Lieber & Company. The
address of both Evergreen Asset and Lieber & Company is 2500 Westchester Avenue,
Purchase, New York 10577. Lieber & Company is an indirect, wholly-owned
subsidiary of First Union.
Virtus serves as the investment adviser for Style Manager. 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 Style Manager. See
"Information Regarding the Interim Sub-Advisory Agreement." For its services as
investment adviser, Virtus receives a fee at an annual rate of 1.25% of the
Fund's average daily net assets.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Administrator
Federated Administrative Services ("FAS") provides Style Manager with
certain administrative personnel and service 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
<PAGE>
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
An investment team headed by Portfolio Managers Stephen A. Lieber and Gary
Buesser manages Evergreen Growth and Income. Mr. Lieber founded Evergreen Asset
in 1971 and is currently its Chairman and Co-Chief Executive Officer. Mr. Lieber
has more than 40 years of experience in investment management. Mr. Lieber also
serves as Portfolio Manager of several other funds, including the Evergreen Fund
and the Evergreen Foundation Fund. Mr. Buesser joined Evergreen Asset in 1996
following a 10-year career at Cowan Asset Management.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Growth and Income's shares. EDI
distributes the Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Evergreen Growth and Income
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 Style Manager will
receive Class Y shares of Evergreen Growth and Income. Class Y shares of
Evergreen Growth and Income have not adopted a Rule 12b-1 plan. Because the
Reorganization will be effected at net asset value without the imposition of a
sales charge, Evergreen Growth and Income shares acquired by shareholders of
Style Manager 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 shares of Evergreen Growth and Income which will be received by Style
Manager shareholders in the Reorganization. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the respective Evergreen Growth and Income Prospectus and the Style Manager
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
<PAGE>
a mutual fund advised by Evergreen Asset, (ii) certain institutional investors
and (iii) investment advisory clients of FUNB, Evergreen Asset or their
affiliates. Style Manager shareholders who receive Class Y shares of Evergreen
Growth and Income will be able to purchase additional Class Y shares of
Evergreen Growth and Income and of any other Evergreen fund at net asset value.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statements of Additional
Information.
Distribution Related Expenses. Style Manager 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.
Currently, no 12b-1 fees are being paid.
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. Style
Manager has a minimum investment requirement of $100 for subsequent investments.
There is no minimum for subsequent purchases of shares of Evergreen Growth and
Income. Each Fund provides for telephone, mail or wire redemption of shares at
net asset value (less any applicable contingent deferred sales charge in the
case of Style Manager) 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
Style Manager currently permits holders of shares to exchange such
shares for shares of other funds managed by Virtus. Holders of shares of a class
of Evergreen Growth and Income generally may exchange their shares for shares of
the same class of any other Evergreen fund. Style Manager shareholders will be
receiving Class Y shares of Evergreen Growth and Income in the Reorganization
and, accordingly, with respect to shares of Evergreen Growth and Income received
by Style Manager
<PAGE>
shareholders in the Reorganization, the exchange privilege is limited to the
Class Y shares 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.
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 Style Manager who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Evergreen Growth and Income
reinvested in shares of Evergreen Growth and Income. Shareholders of Style
Manager who have elected to receive dividends and/or distributions in cash will
receive dividends and/or distributions from Evergreen Growth and Income 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 Growth and Income.
Each of Evergreen Growth and Income and Style Manager 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 comparable, 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
<PAGE>
and Policies." There is no assurance that investment performances will be
positive and that the Funds will meet their investment objectives. Style Manager
may employ for hedging purposes the strategy of engaging in options and futures
transactions. Evergreen Growth and Income may only write covered call options.
See limitations discussed in "Comparison of Investment Objectives and Policies."
The risks involved in these strategies are described in the "Investment
Practices and Restrictions - Options, Futures and Derivatives" section in
Evergreen Growth and Income's Prospectus.
Style Manager, unlike Evergreen Growth and Income, may invest in
foreign securities or securities denominated in or indexed to foreign
currencies. Investment in foreign securities generally entails more risk than
investment in domestic issuers. Specifically, foreign securities 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.
Evergreen Growth and Income, unlike Style Manager, may invest up to 5%
of its total assets in securities rated below investment grade (i.e., "junk
bonds"). Such securities generally involve greater volatility of price and risk
of principal and income than bonds in the higher rating categories and are, on
balance, considered predominantly speculative.
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 Style Manager 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.
<PAGE>
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 Style Manager and determined that the interests of existing
shareholders of Style Manager 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 Style Manager.
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 Style Manager'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 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 similarities between Evergreen
Growth and Income and Style Manager. Specifically, Evergreen Growth and Income
and Style Manager have 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 Style Manager with an Evergreen fund
with a greater level of assets. As of September 30, 1997, Evergreen Growth and
Income's net assets were approximately $1.5 billion and Style Manager's net
assets were approximately $77 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Style Manager continue its existence and be separately
managed by Evergreen Asset or one of its affiliates, Style Manager would be
offered through common distribution channels with the substantially similar
Evergreen Growth and Income. Style Manager would also have to bear the cost of
maintaining its separate existence. Signet and Evergreen Asset believe that the
prospect of dividing the resources of the Evergreen mutual fund organization
between two similar funds could result in each Fund being disadvantaged due to
an inability to achieve optimum size, performance levels and the greatest
possible economies of scale. Accordingly, for the reasons noted
<PAGE>
above and recognizing that there can be no assurance that any economies of scale
or other benefits will be realized, Signet and Evergreen Asset 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 Evergreen Asset 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 Growth and Income and Style
Manager; (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 Evergreen Asset; (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 Style Manager in
connection with the Reorganization; (x) the fact that Evergreen Growth and
Income will assume certain identified liabilities of Style Manager; and (xi) the
expected federal income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Style Manager from the sale of its assets to Evergreen Growth and Income. 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 Style Manager.
In addition, the Trustees considered that there are alternatives
available to shareholders of Style Manager, 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 Growth and Income and that the interests
of the shareholders of Evergreen Growth and Income 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 STYLE MANAGER APPROVE
THE PROPOSED REORGANIZATION.
<PAGE>
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 Growth and Income will acquire all of
the assets of Style Manager in exchange for shares of Evergreen Growth and
Income and the assumption by Evergreen Growth and Income of certain identified
liabilities of Style Manager 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, Style Manager will endeavor to discharge all of its known liabilities and
obligations. Evergreen Growth and Income will not assume any liabilities or
obligations of Style Manager other than those reflected in an unaudited
statement of assets and liabilities of Style Manager 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 Growth and Income to be received by the
shareholders of Style Manager will be determined by multiplying the respective
outstanding class of shares of Style Manager by a factor which shall be computed
by dividing the net asset value per share of the respective class of shares of
Style Manager by the net asset value per share of the respective class of shares
of Evergreen Growth and Income. 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 Growth
and Income, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in the Prospectus and Statement of Additional Information
of Evergreen Growth and Income, 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, Style Manager will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
<PAGE>
As soon after the Closing Date as conveniently practicable, Style
Manager 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 Growth and Income received by Style Manager. 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 Growth and Income's
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Evergreen Growth and Income due to the Fund's
shareholders. All issued and outstanding shares of Style Manager, including
those represented by certificates, will be canceled. The shares of Evergreen
Growth and Income to be issued will have no preemptive or conversion rights.
After such distributions and the winding up of its affairs, Style Manager 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 Style Manager'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 Style Manager's
shareholders, the Plan may be terminated (a) by the mutual agreement of Style
Manager and Evergreen Growth and Income; or (b) at or prior to the Closing Date
by either party (i) because of a breach by the other party of any
representation, warranty, or agreement contained therein to be performed at or
prior to the Closing Date if not cured within 30 days, or (ii) because a
condition to the obligation of the terminating party has not been met and it
reasonably appears that it cannot be met.
The expenses of Style Manager 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 Style Manager or its shareholders. There are not
any liabilities or any expected reimbursements in connection with the 12b-1 Plan
of Style Manager. As a result, no 12b-1 liabilities will be assumed by Evergreen
Growth and Income following the Reorganization.
If the Reorganization is not approved by shareholders of Style Manager,
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
<PAGE>
the Code. As a condition to the closing of the Reorganization, Style Manager
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 Style Manager solely in
exchange for shares of Evergreen Growth and Income and the assumption by
Evergreen Growth and Income of certain identified liabilities, followed by the
distribution of Evergreen Growth and Income's shares by Style Manager in
dissolution and liquidation of Style Manager, will constitute a "reorganization"
within the meaning of section 368(a)(1)(C) of the Code, and Evergreen Growth and
Income and Style Manager 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 Style Manager on the transfer
of all of its assets to Evergreen Growth and Income solely in exchange for
Evergreen Growth and Income's shares and the assumption by Evergreen Growth and
Income of certain identified liabilities of Style Manager or upon the
distribution of Evergreen Growth and Income's shares to Style Manager's
shareholders in exchange for their shares of Style Manager;
(3) The tax basis of the assets transferred will be the same to
Evergreen Growth and Income as the tax basis of such assets to Style Manager
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Growth and Income will include the period during which
the assets were held by Style Manager;
(4) No gain or loss will be recognized by Evergreen Growth and Income
upon the receipt of the assets from Style Manager solely in exchange for the
shares of Evergreen Growth and Income and the assumption by Evergreen Growth and
Income of certain identified liabilities of Style Manager;
(5) No gain or loss will be recognized by Style Manager's shareholders
upon the issuance of the shares of Evergreen Growth and Income to them, provided
they receive solely such shares (including fractional shares) in exchange for
their shares of Style Manager; and
(6) The aggregate tax basis of the shares of Evergreen Growth and
Income, including any fractional shares, received by each of the shareholders of
Style Manager pursuant to the Reorganization will be the same as the aggregate
tax basis of the shares of Style Manager held by such shareholder immediately
prior to the Reorganization, and the holding period of the shares of Evergreen
Growth and Income, including fractional shares,
<PAGE>
received by each such shareholder will include the period during which the
shares of Style Manager exchanged therefor were held by such shareholder
(provided that the shares of Style Manager 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 Style Manager 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 Growth
and Income shares he or she received. Shareholders of Style Manager 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 Growth and Income. Since the foregoing discussion relates only to the
federal income tax consequences of the Reorganization, shareholders of Style
Manager 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 Growth
and Income and Style Manager as of September 30, 1997 and the capitalization of
Evergreen Growth and Income 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 0.53183 Class Y shares of Evergreen
Growth and Income issued for each share of Style Manager.
Capitalization of Style Manager,
Evergreen Growth and Income and Evergreen
Growth and Income (Pro Forma)
<TABLE>
<CAPTION>
Evergreen
Growth and
Evergreen Income (After
Style Growth and Reorgani-
Manager Income zation)
--------- -------- ------------
<S> <C> <C> <C>
Net Assets
Shares......................... $76,873,948 N/A N/A
Class A........................ N/A $195,283,081 $195,283,081
Class B........................ N/A $629,559,927 $629,559,927
Class C........................ N/A $28,813,416 $28,813,416
<PAGE>
Evergreen
Growth and
Evergreen Income (After
Style Growth and Reorgani-
Manager Income zation)
--------- -------- ------------
Class Y........................ N/A $671,871,763 $748,745,711
----------- -------------- --------------
Total Net
Assets....................... $76,873,948 $1,525,528,187 $1,602,402,135
Net Asset Value Per
Share
Shares......................... $15.37 N/A N/A
Class A........................ N/A $28.86 $28.86
Class B........................ N/A $28.68 $28.68
Class C........................ N/A $28.68 $28.68
Class Y........................ N/A $28.90 $28.90
Shares Outstanding
Shares......................... 5,002,112 N/A N/A
Class A........................ N/A 6,766,114 6,766,114
Class B........................ N/A 21,948,108 21,948,108
Class C........................ N/A 1,004,490 1,004,490
Class Y........................ N/A 23,251,104 25,915,084
---------- ---------- ----------
All Classes.................... 5,002,112 52,969,816 55,633,796
</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
As of December 26, 1997 (the "Record Date"), there were 4,921,283
shares of beneficial interest of Style Manager outstanding.
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 Style
Manager. To Style Manager's knowledge, the following persons owned beneficially
or of record more than 5% of Style Manager's total outstanding shares as of
November 30, 1997.
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Percentage of Shares of
Shares Before Class After
Name and Address No. of Shares Reorganization Reorganization
<S> <C> <C> <C>
Stephens, Inc. 1,724,123 34.41% 3.47% Class Y
111 Center Street
Little Rock, AR
72201-3507
Bova & Co. 1,702,347 33.98% 3.42% 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 Prospectus and Statement of Additional
Information of the Funds. The investment objective, policies and restrictions of
Evergreen Growth and Income can be found in the Prospectus of Evergreen Growth
and Income under the caption "Investment Objectives and Policies." Evergreen
Growth and Income's Prospectus also offers additional funds advised by Evergreen
Asset or its affiliates. These additional funds are not involved in the
Reorganization, their investment objectives and policies are not discussed in
this Prospectus/Proxy Statement and their shares are not offered hereby. The
investment objective, policies and restrictions of Style Manager can be found in
the Prospectuses of the Fund under the caption "Investment Objective and
Policies of each Fund." Unlike the investment objective of Style Manager, which
is fundamental, the investment objective of Evergreen Growth and Income is
non-fundamental and can be changed by the Board of Trustees without shareholder
approval.
The investment objective of Evergreen Growth and Income is to achieve a
return composed of capital appreciation in the value of its shares and current
income. The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
These companies are often found among those which have had a record of financial
success but are currently in disfavor in the marketplace for reasons the Fund's
investment adviser perceives as temporary or erroneous. Such investments when
successfully timed are expected to be the means for achieving the Fund's
investment objective. This inherently contrarian approach
<PAGE>
may require greater reliance upon the analytical and research capabilities of
the Fund's investment adviser than an investment in certain other equity funds.
Consequently, an investment in the Fund may involve more risk than other equity
funds.
The Fund will use the "value timing" approach as a process for
purchasing securities when events indicate that fundamental investment values
are being ignored in the marketplace. Fundamental investment value is based on
one or more of the following: assets - tangible and intangible (examples of the
latter include brand names or licenses), capitalization of earnings, cash flow
or potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities.
The Fund will invest primarily in common stocks and securities
convertible into or exchangeable for common stock. It is anticipated that the
Fund's investments in these securities will contribute to the Fund's return
primarily through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation,
but the current income component of return will be a more significant factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt securities only if the anticipated capital appreciation plus income
from such investments is equivalent to that anticipated from investments in
equity or equity-related securities. The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds." Evergreen Growth and Income does not intend to engage in
options and futures transactions.
The investment objective of Style Manager is to provide growth of
capital. Style Manager pursues its investment objective by investing primarily
(i.e., at least 65% of its assets under normal conditions) in common stocks of
large, medium and small capitalization companies which are listed either on the
New York or American Stock Exchanges or traded in the over-the-counter market.
Style Manager may also invest in corporate preferred stocks, bonds, notes,
warrants, rights and convertible securities, in American Depositary Receipts 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.
<PAGE>
The debt securities (including convertible securities) in which Style
Manager may invest must be rated, at the time of purchase, BBB or higher by
Standard & Poor's Ratings Group or Fitch Investor Services, L.P. or Baa or
higher by Moody's Investors Service or, if unrated, be of comparable quality as
determined by the Fund's investment adviser. If a security's rating is reduced
below the required minimum after Style Manager has purchased it, Style Manager
is not required to sell the security but may consider doing so.
Style Manager may enter into put and call options contracts and futures
contracts. Evergreen Growth and Income will only write covered call options and
will not engage in other options or futures transactions. With respect to puts
and calls, Style Manager 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. Style Manager will limit the margin
deposits entered into by the Fund to 5% of its net assets. Call options written
by Evergreen Growth and Income (i) must be listed on a national securities
exchange, and (ii) must have the aggregate market value of the underlying
securities not exceed 25% of the Fund's net assets, taken at current market
value on the date of any such writing.
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 Growth and Income is a series of
Evergreen Equity Trust and Style Manager is a series of The Virtus Funds.
As set forth in the Supplement to Evergreen Growth and Income's
Prospectus, effective December 22, 1997, Evergreen Growth and Income Fund, a
Massachusetts business trust, was reorganized (the "Delaware Reorganization")
into a corresponding series (Evergreen Growth and Income) of Evergreen Equity
Trust. In connection with the Delaware Reorganization, the Fund's investment
objective was reclassified from "fundamental" to "non- fundamental" and
therefore may be changed without shareholder approval; the Fund adopted certain
standardized investment restrictions; and the Fund eliminated or reclassified
from fundamental to non-fundamental certain of the Fund's other currently
fundamental investment restrictions.
Capitalization
The beneficial interests in Evergreen Growth and Income are represented
by an unlimited number of transferable shares of beneficial interest, $.001 par
value per share. The beneficial interests in Style Manager 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 Style Manager 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
<PAGE>
Delaware law, and may thereby subject shareholders of a Delaware trust to
liability. To guard against this risk, the Declaration 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 the 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 Growth and Income
nor The Virtus Funds on behalf of Style Manager 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 Growth and
Income, twenty-five percent (25%) of the outstanding shares entitled to vote,
and with respect to Style Manager, a majority of the outstanding shares entitled
to vote constitutes a quorum for consideration of such matter. For Evergreen
Growth and Income and Style Manager, 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 Growth and Income is entitled to one vote for each dollar of net asset
value applicable to each share. Under the voting provisions governing Style
Manager, 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
<PAGE>
values, a given dollar investment in a fund which is a series of The Virtus
Funds and which has a lower net asset value will purchase more shares and, under
the current voting provisions of The Virtus Funds, 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 Growth and Income and
Style Manager, 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
<PAGE>
(iii) in a criminal proceeding, had reasonable cause to believe that such
Trustee's conduct was unlawful (collectively, "disabling conduct"). A
determination that the Trustee did not engage in disabling conduct and is,
therefore, entitled to indemnification may be based upon the outcome of a court
action or administrative proceeding or by (a) a vote of a majority of those
Trustees who are neither "interested persons" within the meaning of the 1940 Act
nor parties to the proceeding or (b) an independent legal counsel in a written
opinion. The Trust may also advance money for such litigation expenses provided
that the Trustee undertakes to repay the Trust if his or her conduct is 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 Style
Manager 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 Style Manager, 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, 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
<PAGE>
Contract dated March 1, 1995, as amended on October 21, 1996. As used herein,
the Investment Advisory Agreement, as amended, for Style Manager 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 Style
Manager.
The Trustees have authorized The Virtus Funds, on behalf of Style
Manager, to enter into the Interim Advisory Agreement with Virtus. Such
Agreement became effective on November 28, 1997. If the Interim Advisory
Agreement for Style Manager is not approved by shareholders, the Trustees will
consider appropriate actions to be taken with respect to Style Manager'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 Style Manager
and continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio securities.
FAS currently acts as administrator of Style Manager. FAS will continue
during the term of the Interim Advisory Agreement as Style Manager's
administrator for the same compensation as currently received. An affiliate of
FAS currently performs transfer agency services for Style Manager's
shareholders. Commencing February 9, 1998 Evergreen Service Company will provide
such transfer agency services for the same fees charged by Style Manager's
current transfer agent. See "Summary Administrators."
Fees and Expenses. The investment advisory fees and expense
limitations for Style Manager under the Previous Advisory
Agreement and the Interim Advisory Agreement are identical. See
"Summary - Investment Advisers and Sub-Advisers."
Expense Reimbursement. The Previous Advisory Agreement included a
provision which provides that Virtus may from time to time and for such periods
as it deems appropriate reduce its compensation to the extent that the Fund's
expenses exceed such lower expense limitation as Virtus may, by notice to The
Virtus Funds, voluntarily declare to be effective. Furthermore, Virtus may, if
it deems appropriate, assume expenses of the Fund or a class to the extent that
the Fund's or classes' expenses exceed
<PAGE>
such lower expense limitation as Virtus may, by notice to The Virtus Funds,
voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
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 Style Manager (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 Style Manager'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 Style Manager management fees of $830,673, $657,611 and $374,393,
respectively, of which $326,846, $290,966 and $374,393, respectively, were
voluntarily waived. Virtus is currently waiving a portion of its management fee.
See "Comparison of Fees and Expenses." Signet acts as custodian for Style
Manager and received $31,329 for the fiscal year ended
<PAGE>
September 30, 1997. Commencing on or about January 20, 1998 FUNB will act as
Style Manager's custodian during the term of the Interim Advisory Agreement.
The Board of Trustees considered the Interim Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Reasons for the Reorganization."
The Board of Trustees 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 STYLE MANAGER
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 Style
Manager 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 Style
Manager, 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 Style Manager 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-Advisers." As used herein, the Sub-Advisory Agreement for Style
Manager is
<PAGE>
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 Style Manager.
The Trustees have authorized The Virtus Funds, on behalf of Style
Manager, 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 Style Manager is not approved by shareholders, the
Trustees will consider appropriate actions to be taken with respect to Style
Manager'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 Style Manager.
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 as follows: (a) an amount equal
to 0.10% of the first $60 million of the Fund's average daily net assets; and
(b) with respect to average daily net assets of the Fund in excess of $60
million, an amount equal to (i) one-third of Virtus' advisory fee to the extent
that such advisory fee is less than or equals 1% of the Fund's average daily net
assets (but not to exceed 0.25% of the Fund's average daily net assets); plus
(ii) to the extent that the annual advisory fee exceeds 1% of the Fund's average
daily net assets, an additional amount equal to two-thirds of such excess. For
the year ended September 30, 1997 Trend received an aggregate of $74,119 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 Style Manager 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
<PAGE>
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 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 Style Manager (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 STYLE MANAGER APPROVE
THE INTERIM SUB-ADVISORY AGREEMENT.
ADDITIONAL INFORMATION
Evergreen Growth and Income. Information concerning the operation and
management of Evergreen Growth and Income is incorporated herein by reference
from the Prospectus dated May 1, 1997, as amended, a copy of which is 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 Growth and Income at the address listed
on the cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-343- 2898.
<PAGE>
Style Manager. 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 Style Manager at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.
Evergreen Growth and Income and Style Manager are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information, including
proxy material and charter documents, with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661- 2511 and Seven World Trade Center, Suite 1300, New York, New
York 10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of The Virtus Funds to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts
02116, and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the meeting and a proxy card, is first being mailed to
shareholders of Style Manager 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,
<PAGE>
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.
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 Evergreen Asset or Signet, their
affiliates or other representatives of Style Manager (who will not be paid for
their soliciting activities). Shareholder Communications Corporation has been
engaged by Style Manager 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
<PAGE>
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 Growth and Income which they
receive in the transaction at their then-current net asset value. Shares of
Style Manager may be redeemed at any time prior to the consummation of the
Reorganization. Shareholders of Style Manager 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.
Style Manager 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 Growth and Income 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 Style Manager 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 Growth and Income 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 Style
Manager incorporated in this Prospectus/Proxy Statement by
<PAGE>
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
Growth and Income will be passed upon by Sullivan & Worcester LLP, Washington,
D.C.
OTHER BUSINESS
The Trustees of The Virtus Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND APPROVAL OF THE PLAN, 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
Growth and Income 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 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 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 corresponding class of Acquiring Fund Shares computed
in the manner and as of the time and date set forth in paragraph 2.2; and (ii)
to assume certain identified liabilities of the Selling Fund, as set forth in
paragraph 1.3. Such transactions shall take place at the closing provided for in
paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the 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 Acquiring
Fund to
<PAGE>
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
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring
<PAGE>
Fund's then current prospectus and statement of additional information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Shareholders of the
Selling Fund will receive Class Y shares 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 Valuation Date shall be postponed until the
first business day
<PAGE>
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 prospectus and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution,
delivery, and performance of this Agreement (subject to
<PAGE>
shareholder approval) will not result, in violation of any provision of Virtus
Funds' Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Selling Fund is a
party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date except for liabilities, if any, to be discharged
or reflected on the Statement of Assets and Liabilities as provided in paragraph
1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at September
30, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such
<PAGE>
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 federal
securities and other laws and regulations thereunder applicable thereto.
<PAGE>
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The
Acquiring Fund represents and warrants to the Selling Fund as
follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely
<PAGE>
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 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.
<PAGE>
(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
Growth and Income Fund (the "Predecessor Fund"), a Massachusetts business trust,
as of the date hereof. The Acquiring Fund shall deliver to the Selling Fund a
certificate of the Predecessor Fund of even date making the representations set
forth in Section 4.2.1 with respect to the Predecessor Fund to the extent
applicable to the Predecessor Fund as of the date hereof.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
<PAGE>
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.
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
<PAGE>
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.
(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
<PAGE>
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
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
<PAGE>
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 Acquiring Fund'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.
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
<PAGE>
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 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
<PAGE>
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 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.
<PAGE>
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 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.
<PAGE>
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 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,
<PAGE>
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 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).
<PAGE>
(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 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:
<PAGE>
(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
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.
<PAGE>
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
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of the 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 GROWTH AND INCOME FUND
By:
Name:
Title:
THE VIRTUS FUNDS
ON BEHALF OF THE STYLE
MANAGER 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 Agreement 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 to the Fund or for two years from the date of its execution and from
year to year thereafter, subject to the provisions for
<PAGE>
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 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
<PAGE>
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 FUND
INTERIM SUB-ADVISORY AGREEMENT
For all services rendered by Sub-Adviser hereunder, Adviser shall pay
Sub-Adviser a Sub-Advisory Fee as follows: (a) an amount equal to .10% of the
first $60 million of the Fund's average daily net assets; and (b) with respect
to average daily net assets of the Fund in excess of $60 million, an amount
equal to (i) one-third of the Adviser's advisory fee to the extent that such
advisory fee is less than or equals 1% of the Fund's average daily net assets
(but not to exceed .25% of the Fund's average daily net assets); plus (ii) to
the extent that the annual advisory fee exceeds 1% of the Fund's average daily
net assets, an additional amount equal to two-thirds of such excess. 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
GROWTH AND INCOME FUND
[G&I 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 40.38 % 39.32 % 39.25 % 40.66 %
One year with sales
charge 33.71 % 34.32 % 38.25 % 40.66 %
One year dividends per
share $0.134 -- -- $0.191
One year cap gains per
share $0.345 $0.345 $0.345 $0.345
AVERAGE
ANNUAL RETURNS CLASS A CLASS B CLASS C CLASS Y
Three years N/A N/A N/A 26.41 %
Five years N/A N/A N/A 20.43 %
Ten years N/A N/A N/A 15.06 %
Since Inception* 28.25 % 29.00 % 29.80 % 15.59 %
CUMULATIVE RETURNS CLASS A CLASS B CLASS C CLASS Y
Seven months w/o sales
charge 21.33 % 20.82 % 20.82 % 21.52 %
Three years N/A N/A N/A 101.98 %
Five years N/A N/A N/A 153.30 %
Ten years N/A N/A N/A 306.73 %
Since Inception* 89.91 % 92.79 % 95.89 % 378.40 %
* CLASSES A, B & C BEGAN 1/3/95; CLASS Y BEGAN 10/15/86.
PLOT POINTS
[Graph appears here]
Comparison of change in value of a $10,000 investment in Evergreen Growth and
Income Fund Class A, the Standard and Poors 500 Index, Lipper Growth and Income
Funds Average and the Consumer Price Index.
In Thousands From January 3, 1995 to July 31, 1997
CLASS A: CPI: S&P 500: LG&IFA:
- ------- ----- ------ -------
$9,525 $10,000 $10,000 $10,000
9,663 10,040 10,259 10,157
11,754 10,187 12,417 12,061
12,969 10,314 14,202 13,504
13,489 10,488 14,472 13,643
16,155 10,629 17,964 16,532
18,991 10,719 22,013 19,665
Post 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 maangement fees. The Lipper Growth and Income Funds
Average and Consumer Price Index is from July 31, 1997.
PORTFOLIO MANAGEMENT
An investment team headed by Portfolio Managers
Stephen A. Lieber and Gary Buesser manages the
[2 photos appear Fund. Mr. Lieber is Chairman and Co-Chief
here - Stephen A. Lieber Executive Officer of Evergreen Asset Management
and Gary Buesser] Corp. The founder of Evergreen, Mr. Lieber has
more than 40 years' experience in investment
management. He has been a guest lecturer at the
Investment Banking Association Annual Wharton
School Seminars, the New School for Social
School of Commerce. He is a member of the New
York Society of Security Analysts and the
Association for Investment Management and
Research. He also serves as Portfolio Manager of
several other funds, including the Evergreen Fund
and the Evergreen Foundation Fund. Mr. Buesser
joined Evergreen Asset Management in 1996
following a 10-year career at Cowan Asset
Management, where he was co-manager of a $1.5
billion private investment fund. Earlier in his
investment career, he was employed by E.F. Hutton
and Shearson Lehman Bros. He also is associate
portfolio manager of the Evergreen Foundation
Fund.
2
EVERGREEN
GROWTH AND INCOME FUND
[G&I logo appears here]
OBJECTIVE
Evergreen Growth and Income Fund seeks a return composed of capital appreciation
and current income.
STRATEGY
The Fund invests in common stocks, convertible preferred stocks and convertible
bonds of companies it believes the market has temporarily undervalued. It
considers such factors as the company's assets, cash flow and earnings
potential. The Fund selects securities that Fund management believes will rise
in value sooner than most observers anticipate. Among those securities it
frequently purchases are those of previously successful companies undergoing
financial downturns, which the Fund believes will be temporary. The Fund invests
in bonds and preferred stocks that are not convertible if Fund management
believes the potential return is equal to that expected from common stocks and
convertible securities.
[Graph appears here. Plot points are:]
LONG-TERM GROWTH
Growth of an investment in Evergreen Growth and Income Fund, Class A In
Thousands
Initial Investment Dividend Reinvestment
------------------ ---------------------
$ 9,525 $ 9,525
9,663 9,663
10,699 10,722
11,709 11,754
11,828 11,886
12,543 12,969
13,336 13,800
13,008 13,489
14,196 14,743
15,298 16,155
15,324 16,207
17,882 18,991
A $10,000 investment in Evergreen Growth and Income Fund, Class A, made on
January 3, 1995 with all distributions reinvested was worth $18,991 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. Webster Financial Corp. Thrift 1.9
Institutions
2. Reading & Bates Corp. Energy 1.9
3. Computer Associates International Business Equip. & 1.8
Services
4. Atlas Air, Inc. Transportation 1.7
5. Circle International Group Business Equip. & 1.6
Services
6. Pittston Brink's Group Industrial 1.5
Specialty Products
& Services
7. Gaylord Entertainment Co. Leisure & Tourism 1.4
8. Burlington Northern Santa Fe Transportation 1.4
9. Jacor Communications, Inc. Publishing, 1.4
Broadcasting &
Entertainment
10. Reynolds & Reynolds Co. Business Equip. & 1.3
Services
TOP 10 INDUSTRY ALLOCATIONS JULY 31, 1997
AS A PERCENTAGE OF NET ASSETS
% OF
NET
INDUSTRY ASSETS
1. Business Equipment & Services 11.4
2. Healthcare Products & Services 11.2
3. Publishing, Broadcasting & Entertainment 7.2
4. Energy 7.0
5. Electrical Equipment & Services 5.7
6. Industrial Specialty Products & Services 5.4
7. Transportation 5.2
8. Banks 4.7
9. Chemical & Agricultural Products 3.6
10. Finance & Insurance 3.4
PORTFOLIO CHARACTERISTICS
Total Net Assets (all classes) $1.35 billion
3
EVERGREEN
GROWTH AND INCOME FUND
[G&I logo appears here]
MANAGEMENT REPORT
September 1997
Dear Fellow Shareholders:
We are pleased to report on the Evergreen Growth and Income Fund for the fiscal
period that ended on July 31, 1997.
PERFORMANCE
We believe your Fund performed very well in an unusual environment,
characterized by periods of short-term volatility occurring within a remarkably
resilient, longer-term bull market. During the 12-month period, for example, the
total return on Class Y shares was 40.66%. During the seven months since the
previous fiscal year ended on December 31, 1996 (the fiscal year has been
changed so it now ends each July 31), the total return on Class Y Shares was
21.52%. A complete review of the performance of each class of shares can be
found on page 2.
The Fund's investment team maintained its discipline of searching for value
among growth companies, employing the "value timing strategy" of buying growth
stocks when the overall market is not paying a premium for growth. This
discipline has been used consistently since the Fund's inception in 1986 as the
Evergreen Value Timing Fund. A team of analysts and managers implements this
strategy by searching for new investment opportunities among growth stocks which
are temporarily out of favor because of either industry or company factors. We
believe this strategy is a comparatively low risk approach to growth stock
investing, and has resulted in a relatively consistent record of strong
performance. The Fund's Y share class, the oldest class, ranks in the top 10% of
all Growth and Income Funds (ninth of 127) for the past 10 years, according to
Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance. Morningstar, an independent monitor of mutual fund performance, has
given the Fund's Y shares a four-star rating for its risk-adjusted performance
through July 31, 1997. The rating reflects historical, risk-adjusted
performance, and is based on comparisons of 2,040 equity funds, using
Morningstar's proprietary rating system. Funds that fall within the top 32.5% of
the Morningstar rating system receive four stars.
ENVIRONMENT
The seven months since the last fiscal year end constituted, in general, a
period of impressive performance in the overall stock market. An environment of
moderate economic growth, stable to declining interest rates, constrained
inflation and rising corporate profits contributed to a feeling of confidence in
the market. Within this seven-month period, we had one excellent opportunity to
buy growth stocks as very attractive valuations occurred in late March and early
April, when concern about a possible over-heating economy and the possibility of
rising interest rates caused stock prices to retreat temporarily.
PORTFOLIO HIGHLIGHTS
During the seven-month period, the strong returns of portfolio stocks in the
technology, healthcare and banking industries led the Fund's performance. For
the seven months between January 1 and July 31, 1997, the healthcare products
and services industry, which had an 11.2% allocation in the portfolio at the end
of the fiscal year, had an asset-weighted average return of 34.1%. The
electrical equipment and services industry, which had a 5.7% allocation in the
Fund on July 31, on an asset-weighted basis had an average return of 36.6%. On
the same asset-weighted basis, banks, which had a 4.7% portfolio weighting, had
an average return of 35.5%. As the accompanying table indicates, other sectors
which contributed to your Fund's performance included building, construction and
furnishings, consumer products, and finance and insurance.
INDUSTRIES LEADING PERFORMANCE
(Asset-weighted*, December 31, 1996-July 31, 1997)
INDUSTRY AVERAGE % GAIN
Thrifts 47.6%
Building, Construction & Furnishings 42.4
Electrical Equipment & Services 36.6
Banks 35.5
Healthcare Products & Services 34.1
Entertainment, Publishing, Broadcasting 28.4
Finance & Insurance 26.6
Transportation 25.4
Consumer Products & Services 24.8
* Asset-weighted returns are based on average returns of stocks in industries,
adjusted proportionate to the size of investment in the portfolio.
PERFORMANCE OF STOCKS
Basic to the strategy of the Evergreen Growth and Income Fund is the search for
good growth companies to buy when they are temporarily selling at less than
their intrinsic value, as determined by Evergreen's fundamental research and
analysis.
During the seven months that ended on July 31, the top performing company in the
portfolio was Applied Materials, Inc., which had a 155.4% return for the seven
months. This was followed by: Compuware Corp., with a 148.2% return; Unitrode
Corp., with a 105.2%
4
EVERGREEN
GROWTH AND INCOME FUND
[G&I logo appears here]
return, and Warner-Lambert Co, with an 85.7% return. Completing the list of top
10 performing portfolio stocks were: Evergreen Media Corp., Class A, with a
83.6% return; Lam Research Corp., with a 76.3% return; State Street Corp., with
a 73.7% return; KLA-Tencor Corp., with a 70.4% return; Dallas Semiconductor
Corp., with a 69.7% return; and Schering-Plough Corp., with a 68.2% return.
Clearly, not all portfolio holdings were winners during the period. The worst
performing stock in the portfolio for the seven months was Aspect
Telecommunications Corp., which lost 33.2%. This was followed by: 3Com
Corporation, which lost 25.3%; Fresenius National Medical Care Holdings, Inc.,
Preferred, Class D, which lost 24.8%; Reynolds & Reynolds Co., Class A, which
lost 22.1%; and Sensormatic Electronics Corp., which lost 18.2%.
While these stock holdings lost ground during the period, their losses tended to
be significantly smaller than the gains of the leading companies. This
demonstrates the value of diversification of risk. It also reflects the fact
that not all stocks perform well at the same time. We continue to believe in the
long-term value of the companies that did not fare well during the seven-month
period.
RECENT FUND PURCHASES
During the period, your Fund made a number of purchases of the stocks of
companies that we believe were attractive opportunities, but were experiencing
some short-term price weakness, which enhanced their relative value.
The largest purchase was of Reading & Bates Corp., a major offshore oil and
gas-drilling operator. We believe this company, which contracts its drilling
rigs for oil and gas exploration worldwide, has the potential to benefit from an
increase in demand for drilling equipment, particularly in the Gulf of Mexico.
At the close of the fiscal period, Reading & Bates was the Fund's second largest
holding. We believe a very recent acquisition to the Fund's portfolio,
Transocean Offshore, Inc., should benefit from the same trend.
The second largest acquisition was of Atlas Air, Inc., a major factor in the
relatively small industry of outsourced air transport operations. This company
leases its fleet of 17 Boeing 747s to larger air carriers for freight transport.
Your Fund purchased shares in February, after the stock showed weakness because
of company problems in controlling maintenance expenses of several older planes.
We believe these problems will recede as the company purchases newer, more
efficient aircraft. At the close of the period, Atlas Air was the fourth largest
holding.
Other major acquisitions were of stock of: Computer Associates International,
Inc., a major provider of computer mainframe software services for business
applications that the Fund purchased in December 1996; and Reynolds & Reynolds,
Co., a major producer of business forms. Reynolds & Reynolds is a long-term
holding in which we added to our position.
PORTFOLIO MANAGEMENT
At the close of the fiscal year, the portfolio management team of your Fund was
changed as Portfolio Manager Edmund H. Nicklin has decided to leave Evergreen
Asset Management. The team now will be headed by Stephen A. Lieber, the Chairman
and Founder of Evergreen Asset Management, and Gary Buesser, a veteran
investment manager who joined Evergreen in 1996 following a successful career as
an institutional manager.
In the future, the Evergreen Growth and Income Fund will be managed very much as
it has been in the past. The Fund is an outgrowth of Evergreen's "value timing
strategy," which has been used in portfolios since the 1970s. The fundamental
goal of this strategy is to buy growth on a value basis. We have sought to
select growth opportunities at times when the markets are not paying a premium
for the growth. This means that we buy issues during periods of either market
uncertainty, where values are under pressure, or at times in specific companies
and industries where the investment community is not attaching growth values to
opportunities and business franchises which, we think, have the potential to
develop important capital gains. As an organization, we have refined these
strategies over many years, teaching our securities analysts and portfolio
managers the approach, and having them all work together to build the power of
this investment idea.
The same Evergreen research team that has supported the management of your Fund
will continue in operation and shareholders can expect continuity in the
approach that has built an outstanding, long-term record.
We thank you for your investment in Evergreen Growth and Income Fund.
Sincerely,
/s/ Stephen A. Lieber
STEPHEN A. LIEBER
CHAIRMAN
Evergreen Asset Management Corp.
5