EVERGREEN MUNICIPAL TRUST
497, 1998-02-04
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                                THE VIRTUS FUNDS
                         THE TAX FREE MONEY MARKET FUND
                            FEDERATED INVESTORS TOWER
                       PITTSBURGH, PENNSYLVANIA 15222-3779

   
February 2, 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 Tax Free Money Market Fund (the "Fund"),  to
inform you of a Special  Shareholders'  meeting to be held on February 20, 1998.
Before that meeting,  I would like your vote on the important  issues  affecting
your Fund as described in the attached Prospectus/Proxy Statement.

   
The  Prospectus/Proxy  Statement  includes  two  proposals.  The first  proposal
requests  that  shareholders  consider  and act  upon an  Agreement  and Plan of
Reorganization  whereby  all of the  assets  of the Fund  would be  acquired  by
Evergreen  Municipal  (formerly  Evergreen  Tax Exempt  Money Market Fund) Money
Market Fund in exchange for Class Y shares of Evergreen  Municipal  Money Market
Fund and the  assumption  by  Evergreen  Municipal  Money Market Fund of certain
liabilities of the Fund. You will receive  shares of Evergreen  Municipal  Money
Market Fund having an aggregate net asset value equal to the aggregate net asset
value of your Fund shares. Details about Evergreen Municipal Money Market Fund's
investment objective, portfolio management team, performance, etc. are contained
in the attached  Prospectus/Proxy  Statement.  The  transaction is a non-taxable
event for shareholders.
    

The second proposal requests shareholder  consideration of an Interim Investment
Advisory Agreement between the Fund and Virtus Capital
Management, Inc.

Information  relating to the Interim Investment  Advisory Agreement is contained
in the attached Prospectus/Proxy Statement.


The Board of Trustees has approved the  proposals and  recommends  that you vote
FOR these proposals.


I realize that this  Prospectus/Proxy  Statement  will take time to review,  but
your vote is very important.  Please take the time to familiarize  yourself with
the  proposals  presented  and sign and return  your proxy card in the  enclosed
postage paid envelope today.
   
We need your vote before the Shareholder meeting on Feburary 20, 1998. Normally,
we would provide you with more time to read the proxy and return your vote,  but
there was a delay in obtaining  shareholder  approval on a matter  affecting the
fund into which your Fund is merging, the Evergreen Municipal Money Market Fund.
Please accept our apologies for the short time frame.
    
If you have any  questions  about this proxy,  please call our proxy  solicitor,
Shareholder Communications  Corporation,  at 800-733-8481 ext. 437. You may also
FAX your completed and signed proxy card to  800-733-1885.  If we do not receive
your  completed  proxy  card  after  several  weeks,  you  may be  contacted  by
Shareholder Communications Corporation who will remind you to vote your shares.



                                                          -1-

<PAGE>



Thank you for taking this matter  seriously and  participating in this important
process.

Sincerely,


 Edward C. Gonzales
 President
The Virtus Funds



                                                          -2-

<PAGE>


   
    

                                THE VIRTUS FUNDS
                         THE TAX FREE MONEY MARKET 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 Tax Free Money  Market  Fund,  a series of The Virtus Funds
(the "Fund"),  will be held at the offices of the Evergreen  Funds, 200 Berkeley
Street,  26th Floor,  Boston,  Massachusetts  02116 on February 20, 1998 at 2:00
p.m. for the following purposes:

   
     1. To consider and act upon the Agreement and Plan of  Reorganization  (the
"Plan") dated as of November 26, 1997,  providing for the  acquisition of all of
the  assets of the Fund by  Evergreen  Municipal  Money  Market  Fund  (formerly
Evergreen  Tax Exempt Money  Market  Fund),  a series of Evergreen  Money Market
Trust, ("Evergreen Municipal") in exchange for shares of Evergreen Municipal and
the assumption by Evergreen  Municipal of certain identified  liabilities of the
Fund.  The Plan also  provides  for  distribution  of such  shares of  Evergreen
Municipal to shareholders of the Fund in liquidation and subsequent  termination
of the Fund.  A vote in favor of the Plan is a vote in favor of the  liquidation
and dissolution of the Fund.
    

         2. To consider and act upon the Interim  Investment  Advisory Agreement
between the Fund and Virtus Capital Management, Inc.

         3. To transact any other  business  which may properly  come before the
Meeting or any adjournment or adjournments thereof.


         The  Trustees of The Virtus  Funds on behalf of the Fund have fixed the
close of business on December 26, 1997 as the record date for the  determination
of  shareholders of the Fund entitled to notice of and to vote at the Meeting or
any adjournment thereof.


         IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.  SHAREHOLDERS WHO DO
NOT  EXPECT TO ATTEND IN PERSON ARE URGED  WITHOUT  DELAY TO SIGN AND RETURN THE
ENCLOSED  PROXY IN THE ENCLOSED  ENVELOPE,  WHICH  REQUIRES NO POSTAGE,  SO THAT
THEIR SHARES MAY BE  REPRESENTED  AT THE MEETING.  YOUR PROMPT  ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.

                        By Order of the Board of Trustees

                                                              John W. McGonigle
                                                              Secretary

   
February 2, 1998
    

                                                          -1-

<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




                                                          -1-

<PAGE>
   
                     PROSPECTUS/PROXY STATEMENT DATED FEBRUARY 2, 1998
    
                                 Acquisition of Assets of

                              THE TAX FREE MONEY MARKET FUND
                                        a series of
                                     The Virtus Funds
                                 Federated Investors Tower
                            Pittsburgh, Pennsylvania 15222-3779

                             By and in Exchange for Shares of

   
                           EVERGREEN MUNICIPAL MONEY MARKET FUND
                     (FORMERLY EVERGREEN TAX EXEMPT MONEY MARKET FUND)
    
                                        a series of
                               Evergreen Money Market Trust
                                    200 Berkeley Street
                               Boston, Massachusetts  02116

   
         This  Prospectus/Proxy  Statement is being furnished to shareholders of
The Tax Free Money Market Fund ("Virtus Tax Free") in connection with a proposed
Agreement  and  Plan  of   Reorganization   (the  "Plan")  to  be  submitted  to
shareholders  of  Virtus  Tax Free for  consideration  at a Special  Meeting  of
Shareholders  to be held on February 20, 1998 at 2:00 p.m. at the offices of the
Evergreen  Funds,  200 Berkeley  Street,  Boston,  Massachusetts  02116, and any
adjournments thereof (the "Meeting"). The Plan provides for all of the assets of
Virtus  Tax  Free to be  acquired  by  Evergreen  Municipal  Money  Market  Fund
(formerly Evergreen Tax Exempt Money Market Fund) ("Evergreen
Municipal") in exchange for shares of Evergreen  Municipal and the assumption by
Evergreen  Municipal  of  certain  identified  liabilities  of  Virtus  Tax Free
(hereinafter  referred  to as the  "Reorganization").  Evergreen  Municipal  and
Virtus Tax Free are sometimes hereinafter referred to individually as the "Fund"
and  collectively  as the  "Funds."  Following  the  Reorganization,  shares  of
Evergreen  Municipal will be distributed to  shareholders  of Virtus Tax Free in
liquidation of Virtus Tax Free and such Fund will be terminated. Shareholders of
Virtus Tax Free will  receive  Class Y shares of  Evergreen  Municipal.  Class Y
shares of  Evergreen  Municipal  have no  initial  sales  charges  or Rule 12b-1
distribution fees. As a result of the proposed  Reorganization,  shareholders of
Virtus  Tax Free  will  receive  that  number of full and  fractional  shares of
Evergreen  Municipal  having an aggregate net asset value equal to the aggregate
net  asset  value  of  such  shareholder's   shares  of  Virtus  Tax  Free.  The
Reorganization  is being  structured  as a tax-free  reorganization  for federal
income tax purposes.

         Evergreen  Municipal  is a separate  series of  Evergreen  Money Market
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  Municipal is to achieve as high a level of current income exempt from
federal  income tax as is  consistent  with  preserving  capital  and  providing
liquidity.  The  investment  objective  of  Virtus  Tax  Free  is  substantially
identical -- to provide current income exempt from federal income tax consistent
with  stability of principal  by  investing in municipal  securities.  Each Fund
seeks to  maintain  a stable  net asset  value of $1.00 per  share  although  no
assurances can be given that such a stable net asset value will be maintained.
    

         Shareholders  of Virtus  Tax Free are also being  asked to approve  the
Interim Investment  Advisory Agreement with Virtus Capital  Management,  Inc., a
subsidiary  of  First  Union  Corporation   ("Virtus")  (the  "Interim  Advisory
Agreement"),  with the same terms and fees as the  previous  advisory  agreement
between Virtus Tax Free and Virtus.  The Interim  Advisory  Agreement will be in
effect for the period of time between  November 28, 1997,  the date on which the
merger of Signet Banking Corporation with and into a wholly-owned  subsidiary of
First Union  Corporation  was  consummated,  and the date of the  Reorganization
(scheduled for on or about February 27, 1998).

   
     This  Prospectus/Proxy  Statement,  which  should be  retained  for  future
reference,  sets forth concisely the information about Evergreen  Municipal that
shareholders of Virtus Tax Free 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  February 2, 1998,
relating  to  this  Prospectus/Proxy  Statement  and  the  Reorganization  which
includes the financial  statements of Evergreen  Municipal dated August 31, 1997
and of Virtus Tax Free 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  Municipal  at 200 Berkeley
Street, Boston, Massachusetts 02116 or by calling toll-free 1-800-343- 2898.

     The Prospectus of Evergreen  Municipal  dated October 31, 1996, as amended,
and its Annual Report for the fiscal year ended August 31, 1997 are incorporated
herein by  reference  in their  entirety,  insofar as they  relate to  Evergreen
Municipal  only, and not to any other funds described  therein.  Shareholders of
Virtus Tax Free will receive,  with this Prospectus/Proxy  Statement,  copies of
the Prospectus pertaining to the Class Y shares of Evergreen Municipal that they
will receive as a result of the consummation of the  Reorganization.  Additional
information  about  Evergreen   Municipal  is  contained  in  its  Statement  of
Additional  Information  of the same date  which has been filed with the SEC and
which is  available  upon  request and  without  charge by writing to or calling
Evergreen  Municipal at the address or telephone  number listed in the preceding
paragraph.
    

         The two  Prospectuses  of Virtus  Tax Free  dated  November  30,  1997,
insofar  as they  relate to Virtus  Tax Free  only,  and not to any other  funds
described  therein,  are  incorporated  herein in their  entirety by  reference.
Copies of the  Prospectuses  and related  Statements of  Additional  Information
dated the same date,  are available  upon request  without  charge by writing to
Virtus Tax Free at the address listed on the cover page of this Prospectus/Proxy
Statement or by calling toll-free 1-800-829- 3863.

         Included as Exhibits A and B to this  Prospectus/Proxy  Statement are a
copy of the Plan and the Interim Advisory Agreement, respectively.

         THESE   SECURITIES  HAVE  NOT  BEEN  APPROVED  OR  DISAPPROVED  BY  THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES  COMMISSION,  NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON  THE  ACCURACY  OR  ADEQUACY  OF  THIS  PROSPECTUS/PROXY   STATEMENT.   ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

         The shares offered by this Prospectus/Proxy  Statement are not deposits
or  obligations  of any bank and are not insured or  otherwise  protected by the
U.S. government, the Federal Deposit Insurance Corporation,  the Federal Reserve
Board or any other  government  agency and involve  investment  risk,  including
possible
loss of capital.

                                                        -1-

<PAGE>




                                                 TABLE OF CONTENTS


                                                                         Page

COMPARISON OF FEES AND EXPENSES............................................6

SUMMARY  ..................................................................9
         Proposed Plan of Reorganization..................................10
         Tax Consequences.................................................11
         Investment Objectives and Policies of the Funds..................12
         Comparative Performance Information for each Fund................12
         Management of the Funds..........................................13
         Investment Advisers and Sub-Adviser..............................14
         Administrator....................................................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.............................22
         Federal Income Tax Consequences..................................24
         Pro-forma Capitalization.........................................26
         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 Virtus Tax Free's Investment
              Adviser.....................................................36

ADDITIONAL INFORMATION....................................................37

VOTING INFORMATION CONCERNING THE MEETING.................................37

FINANCIAL STATEMENTS AND EXPERTS..........................................40

LEGAL MATTERS.............................................................40

OTHER BUSINESS............................................................40

APPENDIX A................................................................42

EXHIBIT A

EXHIBIT B

EXHIBIT C

                                                        -2-

<PAGE>



                                          COMPARISON OF FEES AND EXPENSES

   
         The amounts for Class Y shares of Evergreen  Municipal set forth in the
following  tables and in the  examples  are based on the  expenses of  Evergreen
Municipal  for the fiscal year ended August 31, 1997.  The amounts for shares of
Virtus Tax Free set forth in the following  tables and in the examples are based
on the  expenses  for Virtus Tax Free for the fiscal  year ended  September  30,
1997. The pro forma amounts for Class Y shares of Evergreen  Municipal are based
on what the combined  expenses  would have been for Evergreen  Municipal for the
fiscal year ending  August 31,  1997.  All amounts are  adjusted  for  voluntary
expense waivers.

         The following tables show for Evergreen Municipal,  Virtus Tax Free and
Evergreen Municipal pro forma, assuming consummation of the Reorganization,  the
shareholder  transaction  expenses and annual fund operating expenses associated
with an  investment  in the Class Y shares of Evergreen  Municipal and shares of
Virtus Tax Free.
<TABLE>
<CAPTION>

                                           Comparison of Class Y Shares
                                      of Evergreen  Municipal With
    
                                             Shares of Virtus Tax Free


   
                                            Evergreen               Virtus                Evergreen
                                            Municipal               Tax Free              Municipal
    
                                                                                          Pro Forma
                                            Class Y                  Shares               Class Y
<S>                                         <C>                      <C>                  <C>

Shareholder
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)

Contingent Deferred                         None                      None (1)              None
Sales Charge (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower)

Exchange Fee                                None                      None                  None

Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)

Management Fee (After                       0.47%                     0.36%                 0.47%
Waiver)(2)

12b-1 Fees                                  None                      0.00% (3)             None

Other Expenses (After                       0.06%                     0.43%                 0.06%
                                            -----                     -----                 -----
Reimbursement)

Annual Fund Operating                       0.53%                     0.79%                 0.53%
                                            =====                     =====                 =====
Expenses (4)
</TABLE>



(1)  A contingent  deferred sales charge will be imposed on the shares of Virtus
     Tax Free only in the limited  circumstances  in which shares being redeemed
     were acquired in exchange for Investment shares in those Virtus Funds which
     charge a contingent  deferred sales charge.  The contingent  deferred sales
     charge is 2.00% of the  lesser of the  original  purchase  price or the net
     asset value of shares  redeemed,  within five years  following the purchase
     date of such shares, and 0.00% thereafter.

   
(2)  The management fee has been reduced to reflect the voluntary  waiver by the
     investment  adviser.  Each investment  adviser can terminate this voluntary
     waiver at any time in its sole  discretion.  The maximum  management fee is
     0.49% in the case of  Evergreen  Municipal  and 0.50% for  Virtus Tax Free.
     Currently, no management fee waiver is in effect for Virtus Tax Free.
    

(3)  Shares  of  Virtus  Tax Free can pay up to 0.25% of its  average  daily net
     assets as a 12b-1  fee.  However,  Virtus  Tax Free will not  accrue or pay
     12b-1 fees until a separate  class of shares has been  created  for certain
     institutional investors.

   
(4)  Annual Fund  Operating  Expenses for Class Y shares of Evergreen  Municipal
     would have been 0.55% for the fiscal year ended  August 31, 1997 absent the
     fee waiver  described in footnote 2 above.  Annual Fund Operating  Expenses
     for shares of Virtus Tax Free for the fiscal year ended  September 30, 1997
     would have been 0.95%  absent the fee waiver  described in footnote 2 above
     and absent expense reimbursement of 0.02%.

         Examples.  The following tables show for Evergreen Municipal and Virtus
Tax Free, and for Evergreen  Municipal 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 Virtus Tax Free, no redemption at the end of each period.

<TABLE>
<CAPTION>

                                             Evergreen  Municipal
    

                            One Year            Three Years               Five Years                 Ten Years
<S>                         <C>                 <C>                       <C>                        <C>

Class Y                     $5                  $17                       $30                        $66

</TABLE>

<TABLE>
<CAPTION>

                                                    Virtus Tax Free

                            One Year            Three Years               Five Years                 Ten Years

<S>                         <C>                 <C>                       <C>                        <C>


Shares                      $28                 $45                       $44                        $98
(Assuming
redemption at
end of
period)

Shares                      $8                  $25                       $44                        $98
(Assuming no
redemption at
end of
period)


</TABLE>
<TABLE>
<CAPTION>

   
                                        Evergreen  Municipal Pro Forma
    

                            One Year            Three Years               Five Years                 Ten Years
<S>                         <C>                 <C>                       <C>                        <C>

Class Y                     $5                  $17                       $30                        $66
</TABLE>

   
         The  purpose of the  foregoing  examples  is to assist  Virtus Tax Free
shareholders in understanding the various costs and expenses that an investor in
Evergreen  Municipal  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 Virtus Tax Free.  These examples should not
be  considered a  representation  of past or future  expenses or annual  return.
Actual expenses may be greater or less than those shown.
    

                                                      SUMMARY

   
         This  summary  is  qualified  in  its  entirety  by  reference  to  the
additional  information contained elsewhere in this  Prospectus/Proxy  Statement
and,  to the extent  not  inconsistent  with such  additional  information,  the
Prospectus of Evergreen  Municipal  dated October 31, 1996, as amended,  and the
Prospectuses of Virtus Tax Free dated November 30, 1997 (which are  incorporated
herein by  reference),  the Plan and the Interim  Advisory  Agreement,  forms of
which are  attached  to this  Prospectus/Proxy  Statement  as  Exhibits A and B,
respectively.
    

Proposed Plan of Reorganization

   
         The Plan  provides  for the transfer of all of the assets of Virtus Tax
Free in  exchange  for  shares of  Evergreen  Municipal  and the  assumption  by
Evergreen  Municipal of certain  identified  liabilities of Virtus Tax Free. 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
Municipal to Virtus Tax Free  shareholders  in liquidation of Virtus Tax Free as
part of the Reorganization. As a result of the Reorganization,  the shareholders
of Virtus Tax Free will become the owners of that number of full and  fractional
Class Y shares of Evergreen  Municipal  which have an aggregate  net asset value
equal to the aggregate net asset value of the shareholders' shares of Virtus Tax
Free,  as of  the  close  of  business  immediately  prior  to the  date  of the
Reorganization.  See "Reasons  for the  Reorganization  - Agreement  and Plan of
Reorganization."
    

         The Trustees of The Virtus  Funds,  including  the Trustees who are not
"interested  persons," as such term is defined in the 1940 Act (the "Independent
Trustees"),  have  concluded  that  the  Reorganization  would  be in  the  best
interests  of  shareholders  of Virtus Tax Free,  and that the  interests of the
shareholders  of  Virtus  Tax  Free  will  not be  diluted  as a  result  of the
transactions contemplated by the Reorganization.  Accordingly, the Trustees have
submitted the Plan for the approval of Virtus Tax Free's shareholders.

                          THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS
                   RECOMMENDS APPROVAL BY SHAREHOLDERS OF VIRTUS TAX FREE
                          OF THE PLAN EFFECTING THE REORGANIZATION.

   
         The Trustees of Evergreen Money Market Trust have also
approved the Plan and, accordingly, Evergreen  Municipal's
    
participation in the Reorganization.

         Approval  of the  Reorganization  on the part of  Virtus  Tax Free will
require the affirmative vote of a majority of Virtus Tax Free's shares voted and
entitled  to vote,  with all  classes  voting  together  as a single  class at a
Meeting at which a quorum of the Fund's  shares is  present.  A majority  of the
outstanding  shares  entitled  to vote,  represented  in person or by proxy,  is
required  to  constitute  a  quorum  at the  Meeting.  See  "Voting  Information
Concerning the Meeting."

         The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned  subsidiary of First Union  Corporation  ("First Union")
has  been  consummated  and,  as a  result,  by law the  Merger  terminated  the
investment  advisory  agreement  between  Virtus and  Virtus Tax Free.  Prior to
consummation of the Merger, Virtus Tax Free received an order from the SEC which
permitted the  implementation,  without formal  shareholder  approval,  of a new
investment  advisory  agreement  between the Fund and Virtus for a period of not
more  than 120 days  beginning  on the date of the  closing  of the  Merger  and
continuing  through the date the Interim  Advisory  Agreement is approved by the
Fund's  shareholders  (but in no event later than April 30,  1998).  The Interim
Advisory  Agreement  has the  same  terms  and fees as the  previous  investment
advisory  agreement  between Virtus Tax Free and Virtus.  The  Reorganization is
scheduled to take place on or about February 27, 1998.

         Approval of the Interim  Advisory  Agreement  requires the  affirmative
vote of (i) 67% or more of the shares of Virtus Tax Free present in person or by
proxy at the  Meeting,  if  holders of more than 50% of the shares of Virtus Tax
Free outstanding on the record date are present,  in person or by proxy, or (ii)
more than 50% of the outstanding  shares of Virtus Tax Free,  whichever is less.
See "Voting Information Concerning the Meeting."

         If the  shareholders  of  Virtus  Tax Free do not vote to  approve  the
Reorganization,  the Trustees will consider other possible  courses of action in
the best interests of shareholders.

Tax Consequences

   
         Prior to or at the  completion of the  Reorganization,  Virtus Tax Free
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  Municipal  in the  Reorganization.  The holding
period  and  aggregate  tax  basis of  shares of  Evergreen  Municipal  that are
received  by Virtus  Tax  Free's  shareholders  will be the same as the  holding
period and  aggregate  tax basis of shares of the Fund  previously  held by such
shareholders,  provided that shares of the Fund are held as capital  assets.  In
addition,  the holding  period and tax basis of the assets of Virtus Tax Free in
the hands of Evergreen  Municipal 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  Municipal  upon the receipt of the assets of the Fund in exchange for
shares of Evergreen  Municipal  and the  assumption  by  Evergreen  Municipal of
certain identified liabilities.
    

Investment Objectives and Policies of the Funds

   
         The  investment  objectives  and  policies of Evergreen  Municipal  and
Virtus Tax Free are substantially identical.

         The investment objective of Evergreen Municipal is to achieve as high a
level of current  income exempt from federal  income tax as is  consistent  with
preserving capital and providing  liquidity.  The investment objective of Virtus
Tax Free is current  income  exempt  from  federal  income tax  consistent  with
stability of principal and liquidity.

         Both Funds maintain a  dollar-weighted  average  portfolio  maturity of
ninety days.  Both Funds follow policies to maintain a stable net asset value of
$1.00 per share, although there is no assurance that either or both can do so on
a  continuing  basis.  Evergreen  Municipal  seeks to achieve its  objective  by
investing  substantially  all  of  its  assets  in a  diversified  portfolio  of
short-term (i.e. with maturities not exceeding 397 days) debt obligations issued
by states,  territories and possessions of the United States and by the District
of Columbia and their political  subdivisions and duly constituted  authorities,
the  interest  from which is exempt from  federal  income  tax.  Virtus Tax Free
pursues  its  investment  objective  in the same  manner.  In  addition,  unlike
Evergreen  Tax Free,  at least 80% of the annual  interest  income of Virtus Tax
Free  will be  exempt  from the  alternative  income  tax.  See  "Comparison  of
Investment Objectives and Policies" below.
    

Comparative Performance Information for each Fund

   
         Discussions  of the manner of calculation of total return and yield are
contained  in  the   respective   Prospectuses   and  Statements  of  Additional
Information of the Funds.  The following  tables set forth the current yield and
effective  yield of the Class Y shares of Evergreen  Municipal  and of shares of
Virtus  Tax Free for the 7 day period  ended  September  30,  1997 and the total
return of each such Class of the Funds for the one and five year  periods  ended
September 30, 1997 and for the period from inception through September 30, 1997.
The  calculations  of total return assume the  reinvestment of all dividends and
capital gains  distributions on the  reinvestment  date and the deduction of all
recurring expenses  (including sales charges) that were charged to shareholders'
accounts.
    
<TABLE>
<CAPTION>


                                               Current Yield-7 Days Ended    Effective Yield-7 Days Ended
                                               September 30,                 September 30,
                                               1997 (1)                      1997 (1)
   
Evergreen  Municipal
    
<S>                                            <C>                           <C>

  Class Y ...................................  3.43%                         3.49%
Virtus Tax Free  . . .                         3.06%                         3.11%
</TABLE>
<TABLE>
<CAPTION>

                                          Average Annual Total Return (1)


                       1 Year                                    From
                       Ended                5 Years              Inception
                       September            Ended                To
                       30,                  September            September            Inception
                       1997                 30, 1997             30, 1997             Date
                       -------              -------              ---------            ---------

   
<S>                    <C>                  <C>                  <C>                  <C>

Evergreen
 Municipal
    

Class Y                3.45%                3.14%                4.12%                11/2/88
shares

Virtus Tax
Free
shares                 2.83%                N/A                  3.09%                7/27/94
- --------------
</TABLE>

(1)      Reflects waiver of advisory fees and  reimbursements  and/or waivers of
         expenses.  Without such  reimbursements  and/or waivers,  the yield and
         average annual total return during the periods would have been lower.

   
         Important  information  about Evergreen  Municipal is also contained in
management's discussion of Evergreen Municipal's performance, attached hereto as
Exhibit C. This  information  also appears in Evergreen  Municipal's most recent
Annual Report.
    

Management of the Funds

   
         The overall management of Evergreen Municipal and of Virtus Tax Free is
the  responsibility of, and is supervised by, the Board of Trustees of Evergreen
Money Market Trust and The Virtus
    
Funds, respectively.

Investment Advisers and Sub-Adviser

   
         Evergreen  Asset  Management  Corp.   ("Evergreen   Asset")  serves  as
investment   adviser  to  Evergreen   Municipal.   Evergreen  Asset,   with  its
predecessors  has served as an  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.  Evergreen  Asset and its  affiliates  manage the Evergreen
family of mutual funds with assets of  approximately  $40 billion as of November
30, 1997. For further  information  regarding  Evergreen  Asset,  FUNB and First
Union, see "Management of the Funds - Investment  Advisers" in the Prospectus of
Evergreen Municipal.

         Evergreen  Asset manages  investments and supervises the daily business
affairs  of  Evergreen  Municipal  subject  to the  authority  of the  Trustees.
Evergreen Asset is entitled to receive from the Fund an annual fee equal to 0.50
of 1% of the Fund's  average daily net assets on the first $1 billion,  and 0.45
of 1% of average daily net assets in excess of $1 billion.

         Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company, an indirect wholly-owned subsidiary of FUNB, 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 the portfolio of Evergreen  Municipal.
Lieber & Company is reimbursed by Evergreen Asset on the basis of the direct and
indirect  costs of performing  such services.  There is no additional  charge to
Evergreen Municipal.
    

         Virtus  serves as the  investment  adviser  for  Virtus  Tax  Free.  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.  For its  services as  investment  adviser,  Virtus is
entitled to receive a fee at an annual rate of 0.50 of 1% 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 Virtus Tax Free with
certain  administrative  personnel  and  services  including  certain  legal and
accounting  services.  FAS is entitled to receive a fee for such services at the
following  annual  rates:  0.15% on the first $250 million of average  daily net
assets of the combined assets of the funds in the  Blanchard/Virtus  mutual fund
family,  0.125% on the next $250 million of such assets,  0.10% on the next $250
million of such assets, and 0.075% on assets in excess of $750 million.

Distribution of Shares

   
         Evergreen  Distributor,  Inc.  ("EDI"),  an  affiliate  of  BISYS  Fund
Services,  acts as underwriter of Evergreen  Municipal's shares. EDI distributes
the Fund's shares directly or through broker-dealers, banks (including FUNB), or
other  financial  intermediaries.  Evergreen  Municipal  offers  two  classes of
shares: Class A and Class Y. Each class has separate distribution  arrangements.
(See   "Distribution-Related   Expenses"   below.)   Neither   class  bears  the
distribution expenses relating to the shares of the other class.

         In the proposed  Reorganization,  shareholders  of Virtus Tax Free will
receive  Class Y shares of  Evergreen  Municipal.  Class Y shares  of  Evergreen
Municipal 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
Municipal  shares  acquired by  shareholders  of Virtus Tax Free pursuant to the
proposed  Reorganization  will not be subject  to any  initial  sales  charge or
contingent deferred sales charge ("CDSC") as a result of the Reorganization.

         The  following  is a summary  description  of charges  and fees for the
Class Y shares of Evergreen  Municipal which will be received by Virtus Tax Free
shareholders  in  the   Reorganization.   More  detailed   descriptions  of  the
distribution  arrangements  applicable to the classes of shares are contained in
the  respective   Evergreen  Municipal   Prospectus  and  the  Virtus  Tax  Free
Prospectuses and in each Fund's respective Statements of Additional Information.
    

     Class Y Shares.  Class Y shares  are sold at net  asset  value  without  an
initial  sales  charge or a CDSC.  Class Y shares are only  available to (i) all
shareholders of record in one or more of the Evergreen family of funds for which
Evergreen  Asset served as  investment  adviser as of December  30,  1994,  (ii)
certain  institutional  investors and (iii) investment advisory clients of FUNB,
Evergreen Asset or their affiliates. Virtus Tax Free
   
shareholders   who   receive   Evergreen   Municipal   Class  Y  shares  in  the
Reorganization  will be able to purchase  additional Class Y shares of Evergreen
Municipal and 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. Virtus Tax Free has adopted a Rule 12b-1
plan  with   respect  to  its  shares  under  which  such  shares  may  pay  for
distribution-related  expenses at an annual rate of 0.25 of 1% of average  daily
net assets.  However,  the plan will not become effective until a separate class
of shares has been created for certain institutional investors.

         Additional  information regarding the Rule 12b-1 plan adopted by Virtus
Tax  Free  is  included  in  its   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 Evergreen  Municipal is
$1,000;   with  respect  to  Virtus  Tax  Free,  the  minimum  initial  purchase
requirement   is  $1,000  for   noninstitutional   purchasers  and  $10,000  for
institutional   purchasers.   Except  for  the  minimum  subsequent   investment
requirement  of $100 for  non-institutional  purchasers  of shares of Virtus Tax
Free,  there is no minimum for  subsequent  purchases  of shares of either Fund.
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value  (less any CDSC in the case of Virtus Tax Free) as next  determined  after
receipt of a redemption request on each day the New York Stock Exchange ("NYSE")
is open for trading. Additional information concerning purchases and redemptions
of shares, including how each Fund's net asset value is determined, is contained
in the respective Prospectuses for each Fund. Each Fund may involuntarily redeem
shareholders'  accounts that have less than $1,000 of invested funds.  All funds
invested in each Fund are  invested  in full and  fractional  shares.  The Funds
reserve the right to reject any purchase order.
    

Exchange Privileges

   
         Virtus Tax Free  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  Municipal  generally  may exchange  their shares for shares of the
same class of any other Evergreen  fund.  Virtus Tax Free  shareholders  will be
receiving  Class Y shares of  Evergreen  Municipal  in the  Reorganization  and,
accordingly,  with respect to shares of Evergreen  Municipal  received by Virtus
Tax Free shareholders in the  Reorganization,  the exchange privilege is limited
to the Class Y shares  of other  Evergreen  funds.  Evergreen  Municipal  limits
exchanges to five per calendar  year and three per  calendar  quarter.  No sales
charge is imposed on an exchange of shares within the Evergreen  group of funds.
An exchange which represents an initial  investment in another Evergreen fund is
subject to the minimum investment and suitability requirements of such Fund. The
current exchange  privileges,  and the  requirements  and limitations  attendant
thereto, are described in each Fund's respective  Prospectuses and Statements of
Additional Information.
    

Dividend Policy

         Each Fund declares  substantially  all of its net investment  income as
dividends  each  business  day and each Fund  distributes  its income  dividends
monthly. Distributions of any net realized gains of a Fund will be made at least
annually.  Shareholders  begin to earn dividends on the first business day after
shares are purchased  unless  shares were not paid for, in which case  dividends
are not earned until the next business day after payment is received.  Dividends
and  distributions  are reinvested in additional shares of the same class of the
respective  Fund,  or  paid in  cash,  as a  shareholder  has  elected.  See the
respective   Prospectuses  of  each  Fund  for  further  information  concerning
dividends and distributions.

         After the  Reorganization,  shareholders  of  Virtus  Tax Free who have
elected  to have  their  dividends  and/or  distributions  reinvested  will have
dividends and/or distributions received from
   
Evergreen Municipal reinvested in shares of Evergreen Municipal. Shareholders of
Virtus Tax Free who have elected to receive  dividends  and/or  distributions in
cash will receive  dividends and/or  distributions  from Evergreen  Municipal 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 Municipal.

         Each of  Evergreen  Municipal  and  Virtus Tax Free 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  the same,  the risks  involved in investing in each Fund's shares
are similar. There is no assurance that investment performances will be positive
and that the Funds will meet their  investment  objectives.  For a discussion of
each Fund's  objectives and policies,  see "Comparison of Investment  Objectives
and Policies."

   
         Virtus Tax Free is a non-diversified investment company. As such, there
is no limit on the percentage of assets which it can invest in the securities of
a single issuer. An investment in Virtus Tax Free, therefore, may entail greater
risk than would exist by investing in a diversified  investment  company such as
Evergreen  Municipal  because the higher  percentage of investments  among fewer
issuers may result in greater fluctuations in the total market value of a Fund's
portfolio.  Any adverse developments affecting the value of the securities of an
issuer in which Virtus Tax Free has  concentrated  its  investments  will have a
greater impact on the total value of the portfolio than would be the case if the
portfolio were diversified among more issuers; the opposite is also true.
    

         Municipal bond yields are dependent on several factors including market
conditions,  the size of an offering,  the maturity of the bond,  ratings of the
bond and the ability of issuers to meet their  obligations.  The prices of bonds
fluctuate  inversely in relation to the  direction of interest  rates,  i.e., as
interest  rates  decline  the  values of the  bonds  increase,  and vice  versa.
Investors  should  recognize that, in periods of declining  interest rates,  the
yield of a Fund will tend to be somewhat  higher than  prevailing  market rates,
and in periods of rising interest rates, the yield of a Fund will tend to be
somewhat  lower.  Also,  when interest rates are falling,  the inflow of net new
money to a Fund from the  continuous  sale of its shares will likely be invested
in portfolio  instruments  producing lower yields than the balance of the Fund's
portfolio,  thereby reducing the current yield of the Fund. In periods of rising
interest rates, the opposite can be expected to occur.

         It should be noted that municipal  securities may be adversely affected
by local political and economic  conditions and developments within a state. For
example,  adverse  conditions in a significant  industry within a state may from
time to time have a  correspondingly  adverse effect on specific  issuers within
that  state or on  anticipated  revenue  to the  state  itself;  conversely,  an
improving economic outlook for a significant industry may have a positive effect
on such issuers or revenues.

         The value of  municipal  securities  may also be  affected  by  general
conditions  in the money markets or the  municipal  bond markets,  the levels of
federal and state income tax rates, the supply of tax-exempt  bonds, the size of
the particular offering, the maturity of the obligation,  the credit quality and
rating of the issue,  and  perceptions  with  respect  to the level of  interest
rates.

   
         Each Fund is permitted to make taxable temporary  investments.  Neither
Fund has a current  intention of generating  income  subject to federal  regular
income tax. However,  certain temporary  investments may generate income that is
subject to state taxes. Interest income from Evergreen  Municipal's  investments
may be subject to the federal alternative minimum tax.
    

                                          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  Virtus Tax Free by various
units of Signet and  various  unaffiliated  parties.  It is also  expected  that
Signet  will no  longer,  upon  completion  of the  Reorganization  and  similar
reorganizations  of other  funds  in the  Signet  mutual  fund  family,  provide
investment advisory or administrative services to investment companies.

         At a meeting held on September 16, 1997, the Board of
Trustees of The Virtus Funds  considered and approved the  Reorganization  as in
the best interests of  shareholders  of Virtus Tax Free and determined  that the
interests of existing  shareholders  of Virtus Tax Free will not be diluted as a
result of the transactions contemplated by the Reorganization.  In addition, the
Trustees  approved  the Interim  Advisory  Agreement  with respect to Virtus Tax
Free.

         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.  The Virtus  Funds have  received an
order from the SEC which permits  Virtus to continue to act as Virtus Tax Free's
investment adviser,  without shareholder approval, for a period of not more than
120 days from the date the Merger was  consummated  (November  28,  1997) to the
date  of  shareholder   approval  of  a  new  investment   advisory   agreement.
Accordingly,  the Trustees  have  considered  the  recommendations  of Signet in
approving the proposed Reorganization.

   
         In approving the Plan, the Trustees  reviewed various factors about the
Funds  and the  proposed  Reorganization.  There  are  substantial  similarities
between  Evergreen  Municipal  and  Virtus  Tax  Free.  Specifically,  Evergreen
Municipal and Virtus Tax Free have substantially  similar investment  objectives
and policies  and  comparable  risk  profiles.  See  "Comparison  of  Investment
Objectives  and  Policies"  below.  At the same  time,  the  Board  of  Trustees
evaluated the potential  economies of scale  associated with larger mutual funds
and concluded that operational efficiencies may be achieved upon the combination
of Virtus Tax Free with an Evergreen fund with a greater level of assets.  As of
September 30, 1997,  Evergreen  Municipal's net assets were approximately $1,014
million and Virtus Tax Free's net assets were approximately $57 million.

         In addition,  assuming that an alternative to the Reorganization  would
be to propose that Virtus Tax Free  continue  its  existence  and be  separately
managed by Evergreen  Asset or one of its  affiliates,  Virtus Tax Free would be
offered  through common  distribution  channels with the  substantially  similar
Evergreen  Municipal.  Virtus  Tax  Free  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  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  Municipal and Virtus Tax
Free;  (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  Virtus  Tax Free in
connection with the  Reorganization;  (x) the fact that Evergreen Municipal will
assume certain identified  liabilities of Virtus Tax Free; and (xi) the expected
federal income tax consequences of the Reorganization.

         The Trustees also considered the benefits to be derived by shareholders
of Virtus Tax Free from the sale of its assets to Evergreen  Municipal.  In this
regard, the Trustees  considered the potential benefits of being associated with
a larger  entity  and the  economies  of scale  that  could be  realized  by the
participation in such an entity by shareholders of Virtus Tax Free.
    

         In  addition,  the  Trustees  considered  that  there are  alternatives
available to  shareholders  of Virtus Tax Free,  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  Money  Market  Trust also  concluded at a
meeting on September 16, 1997 that the proposed  Reorganization  would be in the
best interests of shareholders of Evergreen  Municipal and that the interests of
the shareholders of Evergreen  Municipal would not be diluted as a result of the
transactions contemplated by the Reorganization.
    

                       THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
                    THAT THE SHAREHOLDERS OF VIRTUS TAX FREE APPROVE
                              THE PROPOSED REORGANIZATION.

Agreement and Plan of Reorganization

         The following  summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).

   
         The Plan  provides  that  Evergreen  Municipal  will acquire all of the
assets of Virtus Tax Free in exchange for shares of Evergreen  Municipal and the
assumption by Evergreen  Municipal of certain  identified  liabilities of Virtus
Tax Free on or about  February 27, 1998 or such other date as may be agreed upon
by the parties (the "Closing Date").  Prior to the Closing Date, Virtus Tax Free
will  endeavor  to  discharge  all of its  known  liabilities  and  obligations.
Evergreen Municipal will not assume any liabilities or obligations of Virtus Tax
Free  other  than  those  reflected  in an  unaudited  statement  of assets  and
liabilities  of Virtus Tax Free  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  Municipal to be received by the  shareholders  of Virtus Tax
Free will be determined  by  multiplying  the  respective  outstanding  class of
shares of Virtus Tax Free by a factor  which shall be  computed by dividing  the
net asset value per share of the  respective  class of shares of Virtus Tax Free
by the net asset value per share of the respective  class of shares of Evergreen
Municipal.  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
Municipal,   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   Municipal,   Rule  22c-1  under  the  1940  Act,  and  with  the
interpretations of such Rule by the SEC's Division of Investment Management.
    

         At or prior to the Closing  Date,  Virtus Tax Free will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and
distributions,  shall have the effect of distributing to the Fund's shareholders
(in shares of the Fund, or in cash, as the shareholder  has previously  elected)
all of the Fund's net investment  company  taxable income for the taxable period
ending  on the  Closing  Date  (computed  without  regard to any  deduction  for
dividends paid) and all of its net capital gains realized in all taxable periods
ending on the Closing Date (after reductions for any capital loss carryforward).

   
         As soon after the Closing Date as conveniently practicable,  Virtus Tax
Free 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   Municipal   received  by  Virtus  Tax  Free.  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  Municipal's
transfer  agent.  Each account will  represent the respective pro rata number of
full  and   fractional   shares  of  Evergreen   Municipal  due  to  the  Fund's
shareholders.  All issued and outstanding  shares of Virtus Tax Free,  including
those  represented by  certificates,  will be canceled.  The shares of Evergreen
Municipal to be issued will have no preemptive or conversion rights.  After such
distributions  and the  winding  up of its  affairs,  Virtus  Tax  Free  will be
terminated. In connection with such termination, The Virtus Funds will file with
the SEC an application for termination as a registered investment company.

         The consummation of the Reorganization is subject to the conditions set
forth in the  Plan,  including  approval  by  Virtus  Tax  Free's  shareholders,
accuracy of various  representations  and  warranties and receipt of opinions of
counsel,  including  opinions  with  respect  to those  matters  referred  to in
"Federal Income Tax Consequences" below.  Notwithstanding approval of Virtus Tax
Free's  shareholders,  the Plan may be terminated (a) by the mutual agreement of
Virtus Tax Free and Evergreen Municipal;  or (b) at or prior to the Closing Date
by  either   party  (i)   because  of  a  breach  by  the  other  party  of  any
representation,  warranty,  or agreement contained therein to be performed at or
prior to the  Closing  Date if not  cured  within  30 days,  or (ii)  because  a
condition to the  obligation  of the  terminating  party has not been met and it
reasonably appears that it cannot be met.
    

         The expenses of Virtus Tax Free in connection  with the  Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the  Reorganization  is consummated.  No portion of such expenses will be
borne directly or indirectly by Virtus Tax Free or its shareholders. There are
   
not any liabilities or any expected  reimbursement  in connection with the 12b-1
plan of Virtus Tax Free. As a result,  no 12b-1  liabilities  will be assumed by
Evergreen Municipal following the Reorganization.
    

         If the  Reorganization  is not approved by  shareholders  of Virtus Tax
Free,  the Board of Trustees of The Virtus Funds will  consider  other  possible
courses of action in the best interests of shareholders.

Federal Income Tax Consequences

         The  Reorganization  is  intended  to qualify  for  federal  income tax
purposes as a tax-free  reorganization  under  section  368(a) of the Code. As a
condition to the closing of the Reorganization,  Virtus Tax Free 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 Virtus  Tax Free  solely in
exchange  for shares of  Evergreen  Municipal  and the  assumption  by Evergreen
Municipal of certain  identified  liabilities,  followed by the  distribution of
Evergreen  Municipal's  shares by Virtus Tax Free in dissolution and liquidation
of Virtus Tax Free,  will  constitute a  "reorganization"  within the meaning of
section  368(a)(1)(C)  of the Code, and Evergreen  Municipal and Virtus Tax Free
will each be a "party to a reorganization"  within the meaning of section 368(b)
of the Code;

         (2) No gain or  loss  will be  recognized  by  Virtus  Tax  Free on the
transfer of all of its assets to  Evergreen  Municipal  solely in  exchange  for
Evergreen  Municipal's  shares and the  assumption  by  Evergreen  Municipal  of
certain  identified  liabilities of Virtus Tax Free or upon the  distribution of
Evergreen  Municipal's  shares to Virtus Tax Free  shareholders  in exchange for
their shares of Virtus Tax Free;

         (3)  The tax  basis  of the  assets  transferred  will  be the  same to
Evergreen  Municipal  as the tax  basis  of  such  assets  to  Virtus  Tax  Free
immediately prior to the  Reorganization,  and the holding period of such assets
in the hands of Evergreen  Municipal  will  include the period  during which the
assets were held by Virtus Tax Free;

         (4) No gain or loss will be recognized by Evergreen  Municipal upon the
receipt of the assets from Virtus Tax Free solely in exchange  for the shares of
Evergreen  Municipal  and the  assumption  by  Evergreen  Municipal  of  certain
identified liabilities of Virtus Tax Free;

         (5)  No  gain  or  loss  will  be   recognized  by  Virtus  Tax  Free's
shareholders  upon the  issuance of the shares of  Evergreen  Municipal to them,
provided  they  receive  solely such  shares  (including  fractional  shares) in
exchange for their shares of Virtus Tax Free; and

         (6) The  aggregate  tax  basis of the  shares of  Evergreen  Municipal,
including any fractional shares,  received by each of the shareholders of Virtus
Tax Free  pursuant to the  Reorganization  will be the same as the aggregate tax
basis of the  shares of Virtus  Tax Free  held by such  shareholder  immediately
prior to the  Reorganization,  and the holding period of the shares of Evergreen
Municipal,  including fractional shares,  received by each such shareholder will
include the period during which the shares of Virtus Tax Free exchanged therefor
were held by such shareholder  (provided that the shares of Virtus Tax Free 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 Virtus Tax Free 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 Municipal
shares he or she received.  Shareholders of Virtus Tax Free 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
Municipal. Since the foregoing discussion relates only to the federal income tax
consequences of the Reorganization,  shareholders of Virtus Tax Free 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
Municipal and Virtus Tax Free as of September 30, 1997 and the capitalization of
Evergreen  Municipal on a pro forma basis as of that date,  giving effect to the
proposed  acquisition of assets at net asset value.  The pro forma data reflects
an exchange  ratio of  approximately  1.00 Class Y share of Evergreen  Municipal
issued for each share of Virtus Tax Free.

<TABLE>
<CAPTION>


                                        Capitalization of Virtus Tax Free,
                                   Evergreen  Municipal and Evergreen
    
                                              Municipal  (Pro Forma)


   
                                                                                                    Evergreen
                                                                                                     Municipal
                                             Virtus Tax               Evergreen                     (After
                                             Free                      Municipal                    Reorgani-
                                             ----------               --------------                zation)
    
<S>                                          <C>                      <C>                           <C>
                                                                                                    --------------
Net Assets
   Shares..............................      $57,369,580              N/A                           N/A
   Class A.............................      N/A                      $646,298,530                  $646,298,530
   Class Y.............................      N/A                      $367,492,310                  $424,861,890
                                             -----------              --------------                --------------
   Total Net Assets....................      $57,369,580              $1,013,790,840                $1,071,160,420
Net Asset Value
   Per Share
   Shares..............................      $1.00                    N/A
   Class A.............................      N/A                      $1.00                         $1.00
   Class Y.............................      N/A                      $1.00                         $1.00
Shares Outstanding
   Shares..............................      57,369,580               N/A                           N/A
   Class A.............................      N/A                      646,419,117                   646,419,117
   Class Y.............................      N/A                      367,593,643                   424,963,223
                                             ------------             --------------                --------------
   All Classes.........................      57,369,580               1,014,012,760                 1,071,382,340
</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 58,898,704 of
shares of beneficial interest of Virtus Tax Free 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 Virtus
Tax  Free.  To  Virtus  Tax  Free's  knowledge,   the  following  persons  owned
beneficially  or of record more than 5% of Virtus Tax Free's  total  outstanding
shares as of November 30, 1997:

<TABLE>
<CAPTION>


                                                                 Percentage              Percentage of
                                                                 of Shares               Shares of
                                                                 Before                  Class After
                                   No. of                        Reorgani-               Reorgani-
Name and Address                   Shares                        zation                  zation

<S>                                <C>                           <C>                     <C>

Stephens, Inc.                     4,490,670                     8.69%                   1.08% Class Y
111 Center Street
Little Rock, AR
72201-3507

Bova & Co.                         37,232,160                    72.03%                  8.98% Class Y
Signet Trust
Company
P.O. Box 26311
Richmond, VA
23260-6311
</TABLE>



                     COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES

   
         The following discussion is based upon and qualified in its entirety by
the  descriptions  of  the  respective  investment   objectives,   policies  and
restrictions  set  forth  in  the  respective  Prospectuses  and  Statements  of
Additional  Information of the Funds.  The investment  objectives,  policies and
restrictions of Evergreen  Municipal can be found in the Prospectus of Evergreen
Municipal  under the caption  "Investment  Objectives and  Policies."  Evergreen
Municipal's  Prospectus  also  offers  additional  funds  advised by FUNB or its
affiliates. These additional funds are not involved in the Reorganization, their
investment  objectives  and policies are not discussed in this  Prospectus/Proxy
Statement and their shares are not offered  hereby.  The  investment  objective,
policies and restrictions of Virtus Tax Free can be
found in the  Prospectuses of the Fund under the caption  "Investment  Objective
and Policies of each Fund." Unlike the investment  objective of Virtus Tax Free,
which is fundamental,  the investment  objective of Evergreen  Municipal is non-
fundamental  and can be changed  by the Board of  Trustees  without  shareholder
approval.

         The  investment  objectives  and  policies of Evergreen  Municipal  and
Virtus  Tax  Free are  substantially  identical.  The  investment  objective  of
Evergreen  Municipal is to achieve as high a level of current income exempt from
federal  income tax as is  consistent  with  preserving  capital  and  providing
liquidity.  The investment objective of Virtus Tax Free is current income exempt
from federal income tax consistent with stability of principal and liquidity.

         Both Funds maintain a  dollar-weighted  average  portfolio  maturity of
ninety days.  Both Funds follow policies to maintain a stable net asset value of
$1.00 per share, although there is no assurance that either or both can do so on
a  continuing  basis.  Evergreen  Municipal  seeks to achieve its  objective  by
investing  substantially  all  of  its  assets  in a  diversified  portfolio  of
short-term debt obligations issued by states, territories and possessions of the
United States and by the District of Columbia,  and their political subdivisions
and duly constituted authorities, the interest from which is exempt from federal
income tax. Virtus Tax Free pursues its investment objective in the same manner.

         Both  Funds   pursue   their   investment   objectives   by   investing
substantially  all of  their  assets  in a  portfolio  of  municipal  securities
maturing  in 13 months  (397 days) or less.  As a matter of  investment  policy,
which cannot be changed without shareholder approval, at least 80% of the annual
interest  income of  Virtus  Tax Free will be exempt  from  federal  income  tax
(including the alternative minimum tax). As a matter of investment policy, which
may be changed without shareholder approval, at least 80% of the annual interest
income of Evergreen  Municipal will be exempt from federal income tax. Evergreen
Municipal  may  invest  without   limitation  in  obligations   subject  to  the
alternative  minimum tax.  Evergreen  Municipal  limits  investments  in taxable
securities to 20% of its net assets as a temporary  measure when (1) proceeds of
the sale of Fund shares or of portfolio  securities are pending investment,  (2)
settlements of purchases of portfolio  securities are pending, and (3) liquidity
is needed to meet anticipated redemptions. In addition,  Evergreen Municipal may
temporarily  invest more than 20% of its total assets in taxable  securities for
defensive purposes.
    

         Both Funds invest in municipal securities which are determined to be of
eligible  quality under SEC rules and to present minimal credit risk.  Municipal
securities in which the Funds may invest include:  (1) municipal securities that
are  rated  in one of the top two  short-term  rating  categories  by any two of
Standard  & Poor's  Ratings  Group or  Moody's  Investors  Service  or any other
nationally  recognized  statistical rating organization  ("SRO") (or by a single
rating  agency  if only  one of these  agencies  has  assigned  a  rating);  (2)
municipal  securities  that are issued by an issuer that has outstanding a class
of  short-term  instruments  that (A) is  comparable in priority and security to
such  instruments,  and (B) meets the rating  requirements  above; and (3) bonds
with a  remaining  maturity of 397 days or less that are rated no lower than one
of the top two  long-term  rating  categories  by any SRO and  determined by the
investment adviser to be of comparable quality.

   
         Evergreen Municipal may lend portfolio  securities to brokers,  dealers
and other  financial  organizations.  Such loans may not exceed 30% of Evergreen
Municipal's total assets,  and must be collateralized by cash, letters of credit
or U. S.  government  securities that are at all times equal to at least 100% of
the current market value of the loaned  securities,  including accrued interest.
Virtus Tax Free may not lend its portfolio securities.
    

         The  characteristics of each investment policy and the associated risks
are  described  in  each  Fund's  respective   Prospectuses  and  Statements  of
Additional   Information.   The  Funds  have  other   investment   policies  and
restrictions  which are also set forth in the  Prospectuses  and  Statements  of
Additional Information of each Fund.

                           COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS

Forms of Organization

   
         Evergreen  Money  Market  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 Money Market 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  Municipal is a series of
Evergreen  Money  Market  Trust and  Virtus  Tax Free is a series of The  Virtus
Funds.

     As set  forth in the  Supplement  to  Evergreen  Municipal's  Prospectuses,
effective February 2, 1998,  Evergreen  Municipal Money Market Fund, a series of
The Evergreen  Municipal Trust, a Massachusetts  business trust, was reorganized
(the  "Delaware   Reorganization")   into  a  corresponding   series  (Evergreen
Municipal)  of Evergreen  Money Market 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. On January 16, 1998 Evergreen Tax Exempt Money Market Fund changed
its name to Evergreen Municipal .
    

Capitalization

   
         The beneficial  interests in Evergreen  Municipal are represented by an
unlimited number of transferable shares of beneficial interest,  $.001 par value
per share.  The  beneficial  interests in Virtus Tax Free are  represented by an
unlimited  number of  transferable  shares of  beneficial  interest  without par
value.  The  respective  Declaration  of Trust  under  which  each Fund has been
established  permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder  approval.  Fractional  shares may be  issued.  Each  Fund's  shares
represent equal  proportionate  interests in the assets  belonging to the Funds.
Shareholders of each Fund are entitled to receive dividends and other amounts as
determined by the Trustees. Shareholders of each Fund vote separately, by class,
as to  matters,  such as approval of or  amendments  to Rule 12b-1  distribution
plans, that affect only their particular class and by series as to matters, such
as approval of or  amendments  to  investment  advisory  agreements  or proposed
reorganizations, that affect only their particular series.
    

Shareholder Liability

         Under Massachusetts law,  shareholders of a business trust could, under
certain  circumstances,  be held  personally  liable for the  obligations of the
business  trust.  However,  the Declaration of Trust under which Virtus Tax Free
was established  disclaims  shareholder liability for acts or obligations of the
series and requires that notice of such  disclaimer be given in each  agreement,
obligation or  instrument  entered into or executed by the Fund or the Trustees.
The Virtus Funds' Declaration of Trust
provides  for  indemnification  out of the  series  property  for all losses and
expenses of any shareholder  held  personally  liable for the obligations of the
series.  Thus, the risk of a shareholder  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  Money Market Trust or a shareholder is subject to the
jurisdiction  of courts in those states,  the courts may not apply Delaware law,
and may thereby subject  shareholders of a Delaware business trust to liability.
To guard against this risk, the  Declaration of Trust of Evergreen  Money Market
Trust (a)  provides  that any  written  obligation  of the  Trust may  contain a
statement that such  obligation  may only be enforced  against the assets of the
Trust or the  particular  series in question and the  obligation  is not binding
upon the shareholders of the Trust;  however,  the omission of such a disclaimer
will not  operate to create  personal  liability  for any  shareholder;  and (b)
provides  for  indemnification  out of Trust  property of any  shareholder  held
personally liable for the obligations of the Trust.  Accordingly,  the risk of a
shareholder of Evergreen Money Market Trust incurring financial loss beyond that
shareholder's   investment  because  of  shareholder  liability  is  limited  to
circumstances  in which:  (i) the court  refuses to apply  Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its  obligations.  In light of  Delaware  law,  the nature of the
Trust's business,  and the nature of its assets,  the risk of personal liability
to a shareholder of Evergreen Money Market Trust is remote.

Shareholder Meetings and Voting Rights

   
         Neither  Evergreen Money Market Trust on behalf of Evergreen  Municipal
nor The Virtus  Funds on behalf of Virtus Tax Free 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
Money Market 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  Municipal,  twenty-five percent (25%)
of the outstanding shares entitled to vote, and with respect to Virtus Tax Free,
a majority of the outstanding  shares entitled to vote  constitutes a quorum for
consideration of such matter. For Evergreen Municipal and for Virtus Tax Free, 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  Money Market Trust,  each
share of  Evergreen  Municipal  is  entitled  to one vote for each dollar of net
asset value  applicable  to each share.  Under the voting  provisions  governing
Virtus Tax Free,  each share is entitled to one vote.  Over time,  the net asset
values of the  mutual  funds  which are each a series of The  Virtus  Funds have
changed in relation to one another and are  expected to continue to do so in the
future. Because of the divergence in net asset values, a given dollar investment
in a fund which is a series of The Virtus  Funds and which has a lower net asset
value will purchase more shares and, under the current voting  provisions of The
Virtus Funds,  will have more votes, than the same investment in a series with a
higher net asset value. Under the Declaration of Trust of Evergreen Money Market
Trust,  voting  power  is  related  to the  dollar  value  of the  shareholders'
investment rather than to the number of shares held.
    

Liquidation or Dissolution

   
         In the event of the  liquidation of Evergreen  Municipal and Virtus Tax
Free 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  Money Market  Trust,  a
Trustee is liable to the Trust and its shareholders  only for such Trustee's own
willful misfeasance,  bad faith, gross negligence,  or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's  functions.  As provided in the Declaration of Trust,  each Trustee of
the Trust is entitled to be indemnified  against all liabilities  against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good  faith in the  reasonable  belief  that  such  Trustee's
action was in or not opposed to the best interests of the Trust;  (ii) had acted
with willful  misfeasance,  bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding,  had reasonable cause
to believe that such Trustee's  conduct was unlawful  (collectively,  "disabling
conduct").  A determination that the Trustee did not engage in disabling conduct
and is, therefore,  entitled to indemnification may be based upon the outcome of
a court action or  administrative  proceeding  or by (a) a vote of a majority of
those Trustees who are neither  "interested  persons"  within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent  legal counsel in a
written opinion.  The Trust may also advance money for such litigation  expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later  determined to preclude  indemnification  and certain other conditions are
met.

         The  foregoing  is only a summary  of  certain  characteristics  of the
operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such  Declarations  of Trust,  By-Laws,  Delaware and
Massachusetts
law directly for more complete information.


                  INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT

Introduction

         In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of The Virtus Funds recommends that shareholders of Virtus
Tax Free approve the Interim Advisory Agreement.  The Merger became effective on
November 28, 1997.  Pursuant to an order  received from the SEC all fees payable
under the Interim Advisory Agreement will be placed in escrow and paid to Virtus
if shareholders  approve the contract within 120 days of its effective date. The
Interim  Advisory  Agreement  will  remain in effect  until the  earlier  of the
Closing Date for the  Reorganization  or two years from its effective  date. The
terms of the Interim Advisory Agreement are essentially the same as the Previous
Advisory  Agreement (as defined below). The only difference between the Previous
Advisory  Agreement  and  the  Interim  Advisory   Agreement,   if  approved  by
shareholders,  is the length of time each Agreement is in effect.  A description
of the  Interim  Advisory  Agreement  pursuant  to  which  Virtus  continues  as
investment adviser to Virtus Tax Free, as well as the services to be provided by
Virtus  pursuant  thereto is set forth  below  under  "Advisory  Services."  The
description of the Interim Advisory Agreement in this Prospectus/Proxy Statement
is qualified in its  entirety by  reference to the Interim  Advisory  Agreement,
attached hereto as Exhibit B.

         Virtus,  a  Maryland  corporation  formed  in  1995 to  succeed  to the
business of Signet  Asset  Management  (adviser to the Fund since  1990),  is an
indirect  wholly-owned  subsidiary of First Union.  Virtus'  address is 707 East
Main  Street,  Suite  1300,  Richmond,  Virginia  23219.  Virtus  has  served as
investment  adviser pursuant to an Investment  Advisory  Contract dated March 1,
1995, as amended on October 21, 1996. As used herein,  the  Investment  Advisory
Agreement,  as  amended,  for Virtus Tax Free 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 Virtus Tax
Free.

         The Trustees have  authorized The Virtus Funds, on behalf of Virtus Tax
Free, to enter into the Interim Advisory  Agreement with Virtus.  Such Agreement
became  effective on November 28, 1997.  If the Interim  Advisory  Agreement for
Virtus Tax Free is not approved by the shareholders, the Trustees will consider
appropriate  actions  to be taken with  respect to Virtus Tax Free's  investment
advisory  arrangements  at that time. The Previous  Advisory  Agreement was last
approved by the Trustees,  including a majority of the Independent  Trustees, on
February 24, 1997.

Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement.

         Advisory Services.  The management and advisory services to be provided
by Virtus under the Interim Advisory  Agreement are identical to those currently
provided by Virtus under the  Previous  Advisory  Agreement.  Under the Previous
Advisory  Agreement and Interim  Advisory  Agreement,  Virtus manages Virtus Tax
Free and continually  conducts  investment research and supervision for the Fund
and is responsible for the purchase and sale of portfolio securities.

         FAS  currently  acts as  administrator  of Virtus  Tax  Free.  FAS will
continue during the term of the Interim Advisory  Agreement as Virtus Tax Free's
administrator for the same compensation as currently  received.  An affiliate of
FAS  currently   performs   transfer  agency  services  for  Virtus  Tax  Free's
shareholders. Commencing February 9, 1998 Evergreen Service Company will provide
such  transfer  agency  services  for the same fees charged by Virtus Tax Free's
current transfer agent. See "Summary -Administrator."

     Fees and Expenses. The investment advisory fees and expense limitations for
Virtus Tax Free under the Previous  Advisory  Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers and Sub-Adviser."

         Expense  Reimbursement.  The  Previous  Advisory  Agreement  included a
provision  which provides that Virtus may from time to time and for such periods
as it deems  appropriate  reduce its  compensation to the extent that the Fund's
expenses  exceed such lower  expense  limitation as Virtus may, by notice to The
Virtus Funds, voluntarily declare to be effective.  Furthermore,  Virtus may, if
it deems appropriate,  assume expenses of the Fund or a class to the extent that
the Fund's or classes'  expenses exceed such lower expense  limitation as Virtus
may, by notice to The Virtus Funds, voluntarily declare to be effective.

         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 Virtus Tax Free (as defined in the 1940 Act) or by a vote
of a majority of The Virtus  Funds' entire Board of Trustees on 60 days' written
notice to Virtus or by Virtus on 60 days'  written  notice to The Virtus  Funds.
Also, the Interim Advisory Agreement will  automatically  terminate in the event
of its assignment (as defined in the 1940 Act). The Previous Advisory  Agreement
contained identical provisions as to termination and assignment.

Information about Virtus Tax Free'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  are set  forth  in  Appendix  A to  this  Prospectus/Proxy
Statement.

         During the fiscal years ended September 30, 1997, 1996 and 1995, Virtus
received  from  Virtus  Tax  Free  management  fees of  $302,027,  $462,900  and
$262,792,  respectively, of which $94,455, $184,473 and $262,792,  respectively,
were  voluntarily  waived.  Signet  acts as  custodian  for  Virtus Tax Free and
received $34,273 for the fiscal year ended September 30, 1997.  Commencing on or
about January 20, 1998 FUNB will act as Virtus Tax Free'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 VIRTUS TAX FREE
                       APPROVE THE INTERIM ADVISORY AGREEMENT

                               ADDITIONAL INFORMATION

   
         Evergreen   Municipal.   Information   concerning   the  operation  and
management of Evergreen  Municipal is incorporated  herein by reference from the
Prospectus dated October 31, 1996, as amended, a copy of which is enclosed,  and
Statement of Additional  Information  of the same date. A copy of such Statement
of  Additional  Information  is  available  upon  request and without  charge by
writing to Evergreen  Municipal at the address  listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
    

         Virtus Tax Free.  Information about the Fund is included in its current
Prospectuses  dated  November  30,  1997  and in the  Statements  of  Additional
Information  of the same date,  that have been filed with the SEC,  all of which
are incorporated herein by reference.  Copies of the Prospectuses and Statements
of  Additional  Information  are  available  upon request and without  charge by
writing  to Virtus  Tax Free at the  address  listed  on the cover  page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863.

   
         Evergreen  Municipal  and  Virtus  Tax  Free are  each  subject  to the
informational  requirements of the Securities  Exchange Act of 1934 and the 1940
Act, and in accordance  therewith file reports and other  information  including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities  maintained by the SEC at
450 Fifth  Street,  N.W.,  Washington,  D.C.  20549,  and at the SEC's  Regional
Offices located at Northwest  Atrium Center,  500 West Madison Street,  Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
    

                                     VOTING INFORMATION CONCERNING THE MEETING

   
     This   Prospectus/Proxy   Statement  is  furnished  in  connection  with  a
solicitation  of proxies by the  Trustees of The Virtus  Funds to be used at the
Special Meeting of  Shareholders to be held at 2:00 p.m.,  February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street,  Boston,  Massachusetts
02116 and at any adjournments thereof. This  Prospectus/Proxy  Statement,  along
with a Notice  of the  meeting  and a proxy  card,  is  first  being  mailed  to
shareholders of Virtus Tax Free on or about February 2, 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  and FOR any other matters
deemed  appropriate.  Proxies that reflect  abstentions  and "broker  non-votes"
(i.e.,  shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote or (ii)
the broker or nominee does not have  discretionary  voting power on a particular
matter)  will be counted as shares  that are  present  and  entitled to vote for
purposes of  determining  the  presence of a quorum,  but will not be counted as
shares voted and will have no effect on the vote  regarding  the Plan.  However,
such "broker  non-votes"  will have the effect of being counted as votes against
the Interim  Advisory  Agreement  which must be approved by a percentage  of the
shares  present  at  the  Meeting  or  a  majority  of  the  outstanding  voting
securities.  A proxy may be  revoked  at any time on or before  the  Meeting  by
written notice to the Secretary of The Virtus Funds,  Federated Investors Tower,
Pittsburgh,  Pennsylvania 15222-3779.  Unless revoked, all valid proxies will be
voted in accordance with the  specifications  thereon or, in the absence of such
specifications,  FOR  approval of the Plan and the  Reorganization  contemplated
thereby and FOR approval of the Interim Advisory Agreement.
    
     Approval of the Plan will require the affirmative vote of a majority of the
shares voted and entitled to vote,  with all classes voting together as a single
class at the Meeting at which a quorum of the Fund's shares is present. Approval
of the Interim  Advisory  Agreement will require the affirmative vote of (i) 67%
or more of the outstanding  voting securities if holders of more than 50% of the
outstanding  voting  securities  are  present,  in person  or by  proxy,  at the
Meeting,  or (ii) more than 50% of the outstanding voting securities,  whichever
is less,  with all  classes  voting  together  as one  class.  Each  full  share
outstanding  is entitled to one vote and each  fractional  share  outstanding is
entitled to a proportionate share of one vote.

         Proxy   solicitations  will  be  made  primarily  by  mail,  but  proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of FUNB or Signet, their affiliates or other
representatives  of Virtus  Tax Free (who will not be paid for their  soliciting
activities).  Shareholder  Communications Corporation has been engaged by Virtus
Tax Free to assist in soliciting proxies.

         If you wish to  participate  in the  Meeting,  you may submit the proxy
card  included  with this  Prospectus/Proxy  Statement or attend in person.  Any
proxy given by you is revocable.

         In the event that sufficient  votes to approve the  Reorganization  are
not received by February 20 , 1998, the persons named as proxies may propose one
or more  adjournments of the Meeting to permit further  solicitation of proxies.
In  determining  whether to adjourn the Meeting,  the  following  factors may be
considered:  the  percentage of votes  actually cast, the percentage of negative
votes actually cast, the nature of any further  solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such  adjournment  will  require  an  affirmative  vote by the  holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting.  The persons  named as proxies  will vote upon such  adjournment  after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.

   
         A shareholder  who objects to the proposed  Reorganization  will not be
entitled  under  either  Massachusetts  law or the  Declaration  of Trust of The
Virtus  Funds to demand  payment  for,  or an  appraisal  of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in  recognition of gain or loss to  shareholders  for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of Evergreen  Municipal  which they receive in
the transaction at their then-current net asset value. Shares of Virtus Tax Free
may be redeemed  at any time prior to the  consummation  of the  Reorganization.
Shareholders of Virtus Tax Free may wish to consult their tax advisers as to any
differing  consequences of redeeming Fund shares prior to the  Reorganization or
exchanging such shares in the Reorganization.
    

         Virtus  Tax Free  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  Municipal  are not being
solicited by this Prospectus/Proxy Statement and are not
    

required to carry out the Reorganization.

         NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Virtus Tax Free 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 Municipal as of August 31, 1997,
and the financial  statements and financial highlights for the periods indicated
therein,  have been  incorporated  by reference  herein and in the  Registration
Statement  in  reliance  upon the report of Price  Waterhouse  LLP,  independent
certified public  accountants,  incorporated by reference  herein,  and upon the
authority of said firm as experts in accounting and auditing.
    

         The financial  statements  and financial  highlights of Virtus Tax Free
incorporated  in this  Prospectus/Proxy  Statement by reference  from the Annual
Report of The  Virtus  Funds for the year  ended  September  30,  1997 have been
audited  by  Deloitte & Touche  LLP,  independent  auditors,  as stated in their
report,  which is incorporated herein by reference and have been so incorporated
in reliance  upon the report of such firm given upon their  authority as experts
in accounting and auditing.

                                                   LEGAL MATTERS

   
         Certain  legal matters  concerning  the issuance of shares of Evergreen
Municipal will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
    

                                                  OTHER BUSINESS

         The  Trustees  of The Virtus  Funds do not intend to present  any other
business at the Meeting.  If,  however,  any other matters are properly  brought
before the Meeting,  the persons  named in the  accompanying  form of proxy will
vote thereon in accordance with their judgment.

         THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND APPROVAL OF THE PLAN AND THE
INTERIM ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN AND THE INTERIM ADVISORY
AGREEMENT.
   
February 2, 1998
    
                                                        -3-

<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:



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




                                                        -4-


<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  Money Market
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 Tax Exempt Money Market 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 Tax-Free Money Market 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;


                                                          -39-

<PAGE>



         NOW,  THEREFORE,  in consideration of the premises and of the covenants
and agreements  hereinafter set forth,  the parties hereto covenant and agree as
follows:

                                    ARTICLE I

         TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
            THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
                 LIABILITIES AND LIQUIDATION OF THE SELLING FUND

     1.1 THE EXCHANGE.  Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund  agrees  to  transfer  all of the  Selling  Fund's  assets  as set forth in
paragraph  1.2 to the  Acquiring  Fund.  The  Acquiring  Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding  of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling  Fund by the net
asset  value per  share of the  corresponding  class of  Acquiring  Fund  Shares
computed in the manner and as of the time and date set forth in  paragraph  2.2;
and (ii) to assume  certain  identified  liabilities of the Selling Fund, as set
forth in  paragraph  1.3.  Such  transactions  shall take  place at the  closing
provided for in paragraph 3.1 (the "Closing Date").

         1.2  ASSETS  TO BE  ACQUIRED.  The  assets  of the  Selling  Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation,  all cash,  securities,  commodities,  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.  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

                                                          -40-

<PAGE>



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 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 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.


                                                          -41-

<PAGE>



         1.5  OWNERSHIP OF SHARES.  Ownership  of Acquiring  Fund Shares will be
shown  on the  books of the  Acquiring  Fund's  transfer  agent.  Shares  of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and  Proxy  Statement  on Form N-14 to be  distributed  to  shareholders  of the
Selling Fund as described in paragraph 5.7.

         1.6 TRANSFER  TAXES.  Any transfer  taxes  payable upon issuance of the
Acquiring Fund Shares in a name other than the registered  holder of the Selling
Fund  shares  on the  books of the  Selling  Fund as of that  time  shall,  as a
condition  of such  issuance  and  transfer,  be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.

         1.7  REPORTING  RESPONSIBILITY.  Any  reporting  responsibility  of the
Selling  Fund is and shall remain the  responsibility  of the Selling Fund up to
and  including the Closing Date and such later date on which the Selling Fund is
terminated.

         1.8  TERMINATION.   The  Selling  Fund  shall  be  terminated  promptly
following  the  Closing  Date and the making of all  distributions  pursuant  to
paragraph 1.4.

                                   ARTICLE II

                                    VALUATION

         2.1 VALUATION OF ASSETS.  The value of the Selling  Fund's assets to be
acquired  by the  Acquiring  Fund  hereunder  shall be the value of such  assets
computed  as of the close of  business  on the New York  Stock  Exchange  on the
business  day next  preceding  the  Closing  Date  (such  time  and  date  being
hereinafter  called the "Valuation  Date"),  using the valuation  procedures set
forth in the Trust's  Declaration of Trust and the Acquiring Fund's then current
prospectuses  and statement of additional  information  or such other  valuation
procedures as shall be mutually agreed upon by the parties.

         2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares  shall be the net asset value per share  computed as of the close of
business  on the New York  Stock  Exchange  on the  Valuation  Date,  using  the
valuation  procedures  set  forth in the  Trust's  Declaration  of Trust and the
Acquiring   Fund's  then  current   prospectuses  and  statement  of  additional
information.

         2.3 SHARES TO BE ISSUED.  The number of the  Acquiring  Fund  Shares of
each class to be issued  (including  fractional  shares, if any) in exchange for
the  Selling  Fund's  assets  shall be  determined  by  multiplying  the  shares
outstanding  of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling  Fund  attributable  to each of its
classes  by the net  asset  value  per share of the  respective  classes  of the
Acquiring Fund determined in accordance with paragraph 2.2.  Shareholders of the
Selling Fund will receive Class Y shares of the Acquiring Fund.


                                                          -42-

<PAGE>



         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.



                                                          -43-

<PAGE>




                                   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 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

                                                          -44-

<PAGE>



         4.1      REPRESENTATIONS OF THE SELLING FUND.  The Selling Fund
represents and warrants to the Acquiring Fund as follows:

                  (a) The  Selling  Fund is a  separate  investment  series of a
Massachusetts  business  trust duly  organized,  validly  existing,  and in good
standing under the laws of The Commonwealth of Massachusetts.

                  (b) The  Selling  Fund is a  separate  investment  series of a
Massachusetts  business  trust  that  is  registered  as an  investment  company
classified as a management  company of the open-end type,  and its  registration
with the Securities and Exchange  Commission (the "Commission") as an investment
company under the  Investment  Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.

                  (c) The  current  prospectuses  and  statement  of  additional
information  of the  Selling  Fund  conform  in  all  material  respects  to the
applicable  requirements  of the  Securities  Act of 1933, as amended (the "1933
Act"),  and the  1940  Act and  the  rules  and  regulations  of the  Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact  required to be stated  therein or necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not misleading.

                  (d) The Selling Fund is not, and the execution,  delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Virtus Funds'  Declaration  of Trust or By-Laws
or of any material agreement, indenture,  instrument,  contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.


                                                          -45-

<PAGE>




                  (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 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.


                                                          -46-

<PAGE>



                  (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.

                  (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.

                                                          -47-

<PAGE>



                  (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  affects its business or its ability to consummate
the transactions contemplated herein.

                  (f) The financial  statements of the Acquiring  Fund at August
31,  1997  are in  accordance  with  generally  accepted  accounting  principles
consistently  applied,  and such statements (copies of which have been furnished
to the Selling  Fund) fairly  reflect the  financial  condition of the Acquiring
Fund as of such  date,  and there  are no known  contingent  liabilities  of the
Acquiring Fund as of such date not disclosed therein.

                  (g) Since  August 31,  1997,  there has not been any  material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business,  or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred,  except as otherwise  disclosed to
and accepted by the Selling Fund. For the purposes of this  subparagraph  (g), a
decline in the net asset  value of the  Acquiring  Fund shall not  constitute  a
material adverse change.


                                                          -48-

<PAGE>



                  (h) At the Closing Date, all federal and other tax returns and
reports of the  Acquiring  Fund  required  by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and  reports  shall  have been paid or  provision  shall  have been made for the
payment thereof.  To the best of the Acquiring Fund's knowledge,  no such return
is currently  under audit,  and no assessment  has been asserted with respect to
such returns.

                  (i) For each fiscal year of its operation,  the Acquiring Fund
has met the  requirements  of  Subchapter  M of the Code for  qualification  and
treatment as a regulated  investment  company and has  distributed  in each such
year all net investment income and realized capital gains.

                  (j) All issued and outstanding  Acquiring Fund Shares are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and  non-assessable.  The Acquiring Fund does not have  outstanding any options,
warrants,  or other  rights to  subscribe  for or purchase  any  Acquiring  Fund
Shares,  nor is there  outstanding any security  convertible  into any Acquiring
Fund Shares.

                  (k) The execution, delivery, and performance of this Agreement
have been duly  authorized by all necessary  action on the part of the Acquiring
Fund,  and this  Agreement  constitutes  a valid and binding  obligation  of the
Acquiring  Fund  enforceable  in  accordance  with  its  terms,  subject  as  to
enforcement, to bankruptcy,  insolvency,  reorganization,  moratorium, and other
laws  relating  to  or  affecting   creditors'  rights  and  to  general  equity
principles.

                  (l) The  Acquiring  Fund Shares to be issued and  delivered to
the Selling Fund, for the account of the Selling Fund Shareholders,  pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and  delivered,  will be duly and validly  issued  Acquiring
Fund Shares, and will be fully paid and non-assessable.

                  (m) The  information to be furnished by the Acquiring Fund for
use in no-action  letters,  applications  for orders,  registration  statements,
proxy  materials,  and other  documents that may be necessary in connection with
the  transactions  contemplated  hereby  shall be accurate  and  complete in all
material  respects  and  shall  comply in all  material  respects  with  federal
securities and other laws and regulations applicable thereto.

                  (n)  The  Prospectus  and  Proxy   Statement  (as  defined  in
paragraph 5.7) to be included in the Registration  Statement (only 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

                                                          -49-

<PAGE>



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
Tax Exempt Money Market Fund (the "Predecessor Fund"), a series of The Evergreen
Municipal  Trust, a Massachusetts  business  trust,  as of the date hereof.  The
Acquiring  Fund  shall  deliver  to  the  Selling  Fund  a  certificate  of  the
Predecessor  Fund of even date making the  representations  set forth in Section
4.2.1 with  respect to the  Predecessor  Fund to the  extent  applicable  to the
Predecessor Fund as of the date hereof.

                                    ARTICLE V

              COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND

         5.1 OPERATION IN ORDINARY  COURSE.  The Acquiring  Fund and the Selling
Fund each will  operate its  business in the  ordinary  course  between the date
hereof and the Closing Date, it being  understood  that such ordinary  course of
business will include customary dividends and distributions.

         5.2 APPROVAL OF  SHAREHOLDERS.  Virtus Funds will call a meeting of the
Selling Fund  Shareholders  to consider and act upon this  Agreement and to take
all other action necessary to obtain approval of the  transactions  contemplated
herein.

         5.3  INVESTMENT  REPRESENTATION.  The Selling Fund  covenants  that the
Acquiring  Fund Shares to be issued  hereunder  are not being  acquired  for the
purpose of making any  distribution  thereof other than in  accordance  with the
terms of this Agreement.

         5.4 ADDITIONAL INFORMATION.  The Selling Fund will assist the Acquiring
Fund in obtaining such  information as the Acquiring  Fund  reasonably  requests
concerning the beneficial ownership of the Selling Fund shares.

         5.5 FURTHER ACTION.  Subject to the provisions of this  Agreement,  the
Acquiring  Fund and the Selling Fund will each take,  or cause to be taken,  all
action, and do or cause to be done, all things reasonably  necessary,  proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.

         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

                                                          -50-

<PAGE>



will be  reviewed  by  Price  Waterhouse  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 Price Waterhouse LLP to issue a letter addressed to the
Acquiring Fund and the Selling Fund, in form and substance  satisfactory  to the
Funds,  setting forth the federal  income tax  implications  relating to capital
loss  carryforwards (if any) of the Selling Fund and the related impact, if any,
of the  proposed  transfer  of all of the  assets  of the  Selling  Fund  to the
Acquiring  Fund and the  ultimate  dissolution  of the  Selling  Fund,  upon the
shareholders of the Selling Fund.

                                   ARTICLE VI

             CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND

         The  obligations  of the Selling Fund to  consummate  the  transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring  Fund of all the  obligations  to be  performed  by it hereunder on or
before the Closing  Date,  and,  in  addition  thereto,  the  following  further
conditions:

         6.1 All  representations,  covenants,  and  warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the  Closing  Date with the same force and effect as if made on and as
of the Closing Date,  and the Acquiring Fund shall have delivered to the Selling
Fund a  certificate  executed  in its  name  by the  Trust's  President  or Vice
President  and its  Treasurer  or  Assistant  Treasurer,  in form and  substance
reasonably satisfactory to the Selling Fund and dated as of the Closing Date, to
such effect and as to such other  matters as the Selling  Fund shall  reasonably
request.

         6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP,  counsel to the Acquiring  Fund,  dated as of the
Closing Date, in a form reasonably  satisfactory  to the Selling Fund,  covering
the following points:

                  (a) The Acquiring  Fund is a separate  investment  series of a
Delaware  business trust duly organized,  validly  existing and in good standing
under the laws of the State of Delaware and has the

                                                          -51-

<PAGE>



power to own all of its properties and assets and to carry on its
business as presently conducted.

                  (b) The Acquiring  Fund is a separate  investment  series of a
Delaware business trust registered as an investment  company under the 1940 Act,
and, to such counsel's  knowledge,  such  registration with the Commission as an
investment company under the 1940 Act is in full force and effect.

                  (c) This  Agreement has been duly  authorized,  executed,  and
delivered by the Acquiring Fund and, assuming due  authorization,  execution and
delivery  of  this  Agreement  by the  Selling  Fund,  is a  valid  and  binding
obligation  of the Acquiring  Fund  enforceable  against the  Acquiring  Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization,  moratorium,  and other laws relating to or affecting creditors'
rights generally and to general equity principles.

                  (d) Assuming that a  consideration  therefor not less than the
net asset value thereof has been paid,  the  Acquiring  Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund  Shareholders as
provided by this  Agreement are duly  authorized  and upon such delivery will be
legally  issued  and  outstanding  and  fully  paid and  non-assessable,  and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.

                  (e) The Registration  Statement,  to such counsel's knowledge,
has been declared  effective by the  Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United  States or the State of Delaware is required for  consummation  by
the Acquiring Fund of the transactions  contemplated herein, except such as have
been  obtained  under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.

                  (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

                                                          -52-

<PAGE>



Registration  Statement  or the Closing  Date  required to be  described  in the
Registration  Statement or to be filed as exhibits to the Registration Statement
which are not described or filed as required.

                  (i) To  the  knowledge  of  such  counsel,  no  litigation  or
administrative   proceeding  or   investigation   of  or  before  any  court  or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its  properties  or assets  and the  Acquiring  Fund is not a party to or
subject to the  provisions  of any  order,  decree or  judgment  of any court or
governmental  body, which materially and adversely  affects its business,  other
than as previously disclosed in the Registration Statement.

         Such  counsel  shall  also  state  that  they  have   participated   in
conferences  with officers and other  representatives  of the Acquiring  Fund at
which the contents of the  Prospectus  and Proxy  Statement and related  matters
were  discussed  and,  although  they are not passing upon and do not assume any
responsibility  for the  accuracy,  completeness  or fairness of the  statements
contained in the Prospectus and Proxy Statement  (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to  materiality  to a large extent upon the opinions of the Trust's  officers
and other  representatives  of the Acquiring  Fund), no facts have come to their
attention that lead them to believe that the  Prospectus and Proxy  Statement as
of its date, as of the date of the Selling Fund Shareholders' meeting, and as of
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding the Acquiring Fund
or necessary,  in the light of the circumstances  under which they were made, to
make the statements  therein  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


                                                          -53-

<PAGE>



         The  obligations  of the  Acquiring  Fund to complete the  transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:

         7.1 All representations,  covenants, and warranties of the Selling Fund
contained in this Agreement  shall be true and correct as of the date hereof and
as of the  Closing  Date with the same  force and effect as if made on and as of
the Closing  Date,  and the Selling Fund shall have  delivered to the  Acquiring
Fund on the Closing  Date a  certificate  executed in its name by Virtus  Funds'
President or Vice  President and the Treasurer or Assistant  Treasurer,  in form
and substance  satisfactory  to the  Acquiring  Fund and dated as of the Closing
Date, to such effect and as to such other  matters as the  Acquiring  Fund shall
reasonably request.

         7.2 The  Selling  Fund shall have  delivered  to the  Acquiring  Fund a
statement of the Selling Fund's assets and liabilities,  together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the  holding  periods of such  securities,  as of the  Closing  Date,
certified by the Treasurer of Virtus Funds.

         7.3.1 The  Acquiring  Fund shall have  received on the Closing  Date an
opinion of Dickstein  Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:

                  (a) The  Selling  Fund is a  separate  investment  series of a
Massachusetts  business  trust  duly  organized,  validly  existing  and in good
standing under the laws of The Commonwealth of  Massachusetts  and has the power
to own  all of its  properties  and  assets  and to  carry  on its  business  as
presently conducted.

                  (b) The  Selling  Fund is a  separate  investment  series of a
Massachusetts  business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge,  such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.

                  (c) This  Agreement  has been duly  authorized,  executed  and
delivered by the Selling Fund and, assuming due  authorization,  execution,  and
delivery  of this  Agreement  by the  Acquiring  Fund,  is a valid  and  binding
obligation  of  the  Selling  Fund  enforceable  against  the  Selling  Fund  in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization,  moratorium  and other laws relating to or affecting  creditors'
rights generally and to general equity principles.

                  (d) To the  knowledge of such counsel,  no consent,  approval,
authorization  or order of any court or  governmental  authority  of the  United
States or The  Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions  contemplated herein,  except such as have been
obtained under the

                                                          -54-

<PAGE>



1933 Act,  the 1934 Act and the 1940 Act,  and as may be  required  under  state
securities laws.

                  (e) The execution and delivery of this  Agreement did not, and
the consummation of the transactions  contemplated  hereby will not, result in a
violation of Virtus Funds' Declaration of Trust or By-laws,  or any provision of
any  material  agreement,  indenture,   instrument,  contract,  lease  or  other
undertaking  (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its  properties may be bound or, to the knowledge
of such counsel,  result in the acceleration of any obligation or the imposition
of any penalty,  under any agreement,  judgment,  or decree to which the Selling
Fund is a party or by which it is bound.

                  (f) The  descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of  Reorganization,"  the Interim Advisory  Agreement and the
Previous  Advisory  Agreement,  as set  forth  under  the  caption  "Information
Regarding  the  Interim  Advisory  Agreement,"  and the  description  of  voting
requirements  applicable to approval of the Interim Advisory  Agreement,  as set
forth under the caption "Voting Information  Concerning the Meeting," insofar as
the latter  constitutes a summary of applicable  voting  requirements  under the
Investment  Company Act of 1940,  as amended,  are, in each case,  accurate  and
fairly  present  the  information   required  to  be  shown  by  the  applicable
requirements of Form N-14.

                  (g) Such  counsel  does not know of any legal or  governmental
proceedings,  insofar as they relate to the Selling  Fund  existing on or before
the date of mailing of the Prospectus and Proxy  Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the  Registration  Statement  which are not  described or filed as
required.

                  (h) To  the  knowledge  of  such  counsel,  no  litigation  or
administrative   proceeding  or   investigation   of  or  before  any  court  or
governmental  body is presently  pending or threatened as to the Selling Fund or
any of its  respective  properties  or assets and the Selling  Fund is neither a
party to nor subject to the  provisions of any order,  decree or judgment of any
court or governmental  body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.

                  7.3.2 The  Acquiring  Fund shall have  received on the Closing
Date an opinion of C. Grant Anderson, Esq., Assistant Secretary of Virtus Funds,
in  form  satisfactory  to  the  Acquiring  Fund  as  follows:  Assuming  that a
consideration  therefor  of not less than the net asset  value  thereof has been
paid, and assuming that such shares were issued in accordance  with the terms of
the Selling Fund's registration  statement,  or any amendment thereto, in effect
at the time of such issuance,  all issued and outstanding  shares of the Selling
Fund are legally issued and fully paid and  non-assessable  (except that,  under
Massachusetts law, Selling Fund Shareholders  could under certain  circumstances
be held personally liable for obligations of the Selling Fund).

                                                          -55-

<PAGE>



         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.

         The  opinions  set forth in  paragraphs  7.3.1 and 7.3.2 may state that
such  opinions are solely for the benefit of the Acquiring  Fund.  Such opinions
shall contain such other  assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson,  as applicable,
appropriate to render the opinions expressed therein,  and shall indicate,  with
respect to matters of  Massachusetts  law,  that as  Dickstein  Shapiro  Morin &
Oshinsky LLP and C. Grant Anderson are not admitted to the bar of Massachusetts,
such opinions are based either upon the review of published statutes,  cases and
rules and regulations of the Commonwealth of Massachusetts or upon an opinion of
Massachusetts counsel.


         In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such  Prospectus and Proxy  Statement and
not to any exhibits or attachments  thereto or to any documents  incorporated by
reference therein.


         7.4 The merger  between  First  Union  Corporation  and Signet  Banking
Corporation shall be completed prior to the Closing Date.

                                  ARTICLE VIII

        FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
                            FUND AND THE SELLING FUND

         If any of the  conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring  Fund,  the other
party to this Agreement shall, at its option,  not be required to consummate the
transactions contemplated by this Agreement:

         8.1 This Agreement and the transactions  contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding  shares of
the Selling Fund in accordance with the provisions of Virtus Funds'  Declaration
of Trust and By-Laws and certified  copies of the  resolutions  evidencing  such
approval  shall  have been  delivered  to the  Acquiring  Fund.  Notwithstanding
anything

                                                          -56-

<PAGE>



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, 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.

                                                          -57-

<PAGE>



                  (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).

                  (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 Price  Waterhouse 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

                                                          -58-

<PAGE>



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  Price
Waterhouse  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 Price  Waterhouse  LLP a
letter addressed to the Selling Fund, in form and substance  satisfactory to the
Selling Fund, to the effect that:

                  (a) they are independent  certified  public  accountants  with
respect  to the  Acquiring  Fund  within  the  meaning  of the  1933 Act and the
applicable published rules and regulations thereunder;

                  (b) on the  basis of  limited  procedures  agreed  upon by the
Selling Fund and described in such letter (but not an  examination in accordance
with generally accepted auditing standards),  the Capitalization Table appearing
in the  Registration  Statement  and  Prospectus  and Proxy  Statement  has been
obtained from and is  consistent  with the  accounting  records of the Acquiring
Fund; and

                  (c) on the  basis of  limited  procedures  agreed  upon by the
Selling Fund (but not an  examination  in  accordance  with  generally  accepted
auditing  standards),  the data  utilized in the  calculations  of the projected
expense ratio appearing in the  Registration  Statement and Prospectus and Proxy
Statement agree with written  estimates by each Fund's management and were found
to be mathematically correct.

                                   ARTICLE IX

                                    EXPENSES

         9.1 Except as  otherwise  provided  for  herein,  all  expenses  of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring  Fund  will be borne by  First  Union  National  Bank.  Such  expenses
include,  without  limitation,  (a)  expenses  incurred in  connection  with the
entering  into and the carrying out of the  provisions  of this  Agreement;  (b)
expenses  associated  with  the  preparation  and  filing  of  the  Registration
Statement  under the 1933 Act  covering the  Acquiring  Fund Shares to be issued
pursuant to the provisions of this Agreement;  (c) registration or qualification
fees and  expenses of  preparing  and filing such forms as are  necessary  under
applicable  state  securities  laws to qualify the  Acquiring  Fund Shares to be
issued in connection

                                                          -59-

<PAGE>



herewith in each state in which the Selling Fund Shareholders are resident as of
the  date  of  the  mailing  of the  Prospectus  and  Proxy  Statement  to  such
shareholders;  (d) postage;  (e) printing;  (f) accounting fees; (g) legal fees;
and (h) solicitation  costs of the transaction.  Notwithstanding  the foregoing,
the Acquiring Fund shall pay its own federal and state registration fees.

                                    ARTICLE X

                    ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES

         10.1 The  Acquiring  Fund and the Selling Fund agree that neither party
has made any representation,  warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.

         10.2 The representations,  warranties,  and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.

                                   ARTICLE XI

                                   TERMINATION

         11.1 This  Agreement may be  terminated by the mutual  agreement of the
Acquiring  Fund and the Selling Fund. In addition,  either the Acquiring Fund or
the Selling Fund may at its option  terminate  this Agreement at or prior to the
Closing Date because:

                  (a) of a breach by the other of any representation,  warranty,
or agreement  contained  herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or

                  (b) a  condition  herein  expressed  to be  precedent  to  the
obligations of the terminating party has not been met and it reasonably  appears
that it will not or cannot be met.

         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


                                                          -60-

<PAGE>



Agreement to the detriment of such shareholders without their further approval.

                                  ARTICLE XIII

               HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
                             LIMITATION OF LIABILITY

         13.1 The Article and paragraph headings contained in this Agreement are
for  reference  purposes  only and shall not  affect in any way the  meaning  or
interpretation of this Agreement.

         13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.

         13.3 This  Agreement  shall be governed by and  construed in accordance
with the laws of the State of Delaware,  without  giving effect to the conflicts
of laws  provisions  thereof;  provided,  however,  that the due  authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in  accordance  with the laws of The  Commonwealth  of
Massachusetts,  without  giving  effect  to the  conflicts  of  laws  provisions
thereof.

         13.4 This Agreement  shall bind and inure to the benefit of the parties
hereto and their respective  successors and assigns,  but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder  shall be made by any party  without the written  consent of the other
party.  Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person,  firm,  or  corporation,  other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.

         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.


                                                          -61-

<PAGE>




         IN WITNESS WHEREOF, the parties have duly executed this Agreement,  all
as of the date first written above.


                                                EVERGREEN    MONEY
                                                MARKET   TRUST  ON
                                                BEHALF          OF
                                                EVERGREEN      TAX
                                                EXEMPT       MONEY
                                                MARKET FUND By:

                                                Name:

                                                Title:



                                                THE VIRTUS FUNDS
                                                ON BEHALF OF THE TAX-FREE
                                                MONEY MARKET FUND
                                                By:

                                                Name:

                                                Title:


                                                          -62-

<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 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

                                                          -63-

<PAGE>



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 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

                                                          -64-

<PAGE>



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.

                                                          -65-

<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


                                                          -1-

<PAGE>

                                                                     EXHIBIT C


                                    EVERGREEN
                           TAX EXEMPT MONEY MARKET FUND
(Evergreen Graphic
  Goes Here)

                                FUND AT A GLANCE
                             As of August 31, 1997


<TABLE>
<CAPTION>
PERFORMANCE
                                   AVERAGE ANNUALIZED TOTAL
                                           RETURNS                            YIELDS & DISTRIBUTIONS
                                 ----------------------------              -----------------------------
SHARE     INCEPTION               3         5         SINCE        7-DAY YIELD     30-DAY YIELD       12-MONTH
CLASS       DATE      1 YEAR    YEARS     YEARS     INCEPTION     (ANNUALIZED)     (ANNUALIZED)     DISTRIBUTION
<S>       <C>         <C>       <C>       <C>       <C>           <C>              <C>              <C>
  A        1/5/95     3.13%       --        --        3.24%           2.89%            2.93%           $0.03
  Y       11/2/88     3.44%     3.52%     3.13%       4.13%           3.19%            3.23%           $0.03
</TABLE>

PORTFOLIO CHARACTERISTICS

TOTAL NET ASSETS (ALL CLASSES):   $1,044,426,214

AVERAGE MATURITY:                 36 days

OBJECTIVE: Stability of principal and tax-free income

STRATEGY: Invests in short-term municipal securities


                             PORTFOLIO COMPOSITION
                     (AS A PERCENTAGE OF PORTFOLIO ASSETS)


(Pie chart appears here with the following plot points.)


Anticipation Notes           4.2%
Commercial Paper and Bonds   7.0%
Put Bonds                   15.5%
Variable Rate Demand Notes  73.3%

PORTFOLIO MANAGER
              Steven C. Shachat joined Lieber & Co. in 1988 and has been
              managing short-term tax-exempt investments. He is Portfolio
              Manager of Evergreen Tax-Exempt Money Market Fund and Evergreen
              Short-Intermediate Municipal Fund. Prior to joining Lieber & Co.,
              Mr. Shachat was employed by Mitchell Hutchings Asset Management
              Inc., a subsidiary of Paine Webber Inc., as a Portfolio Manager of
              the Paine Webber Resource Management Account Tax-Free Fund. His
              previous experience was with Donald Sheldon & Co., a firm
              specializing in tax-exempt securities. Mr. Shachat earned a B.S.
              degree from Boston University.


   (Photo of
Steven C. Shachat
   Goes Here)
STEVEN C. SHACHAT

AN INVESTMENT IN THE FUND IS NEITHER INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN
A STABLE NAV OF $1.00 PER SHARE. YIELDS WILL FLUCTUATE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS.

<PAGE>

                       STATEMENT OF ADDITIONAL INFORMATION

                          Acquisition of the Assets of

                         THE TAX FREE MONEY MARKET FUND
                                   a Series of

                                THE VIRTUS FUNDS
                            Federated Investors Tower
                       Pittsburgh, Pennsylvania 15222-3779
                                 (800) 829-3863

                        By and In Exchange For Shares of
   
                     EVERGREEN MUNICIPAL MONEY MARKET FUND
    
                                   a Series of

                          EVERGREEN MONEY MARKET TRUST
                               200 Berkeley Street
                           Boston, Massachusetts 02116
                                 (800) 343-2898

   
     This  Statement of Additional  Information,  relating  specifically  to the
proposed  transfer of the assets and  liabilities  of The Tax Free Money  Market
Fund ("Virtus Tax Free"),  a series of The Virtus Funds, to Evergreen  Municipal
Money Market Fund (formerly  Evergreen Tax Exempt Money Market Fund) ("Evergreen
Municipal"), a series of the Evergreen Money Market Trust, in exchange for Class
Y shares  of  beneficial  interest,  $.001 par value  per  share,  of  Evergreen
Municipal,  consists of this cover page and the following  described  documents,
each of which is attached hereto and incorporated by reference herein:
    
   
         (1)      The  Statement  of  Additional  Information  of Evergreen
                  Municipal  dated October 31, 1996, as amended;
    
         (2)      The  Statement of  Additional  Information  of Virtus Tax Free
                  dated November 30, 1997;

         (3)      Annual Report of Virtus Tax Free for the year ended  September
                  30, 1997; and

   
         (4)      Annual  Report of  Evergreen  Municipal  for the year  ended
                  August 31, 1997.
    

   
     This  Statement  of  Additional  Information,  which  is not a  prospectus,
supplements,  and  should  be read in  conjunction  with,  the  Prospectus/Proxy
Statement of Evergreen  Municipal and Virtus Tax Free dated  February 2, 1998. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Municipal or Virtus Tax Free at the telephone numbers or
addresses set forth above.
    


                                                          -2-

<PAGE>


   
      The date of this Statement of Additional Information is February 2, 1998.
    


                                                          -3-

<PAGE>





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