SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)) [ ]
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Virtus Funds
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(Name of Registrants as Specified in Their Charters)
The Virtus Funds
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(Name of Persons Filing Proxy Statement)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary material
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[Virtus Funds Letterhead]
January ___, 1998
Dear Shareholder:
I am writing to shareholders of The Virtus Funds' Maryland Municipal Bond Fund
(the "Fund") to inform you of a special shareholders' meeting (the "Meeting") to
be held on February 20, 1998. Before the Meeting I would like your vote on the
important issues affecting your Fund as described in the attached Proxy
Statement.
The Meeting is necessitated by the events described below.
On July 18, 1997, Signet Banking Corporation ("Signet") agreed to merge with and
into a wholly-owned subsidiary of First Union Corporation ("First Union") (the
"Merger"). Prior to November 28, 1997, Signet was the ultimate parent of Virtus
Capital Management, Inc. ("Virtus"), the investment adviser to the Fund. Since
the consummation of the Merger on November 28, 1997, Virtus has been a
wholly-owned subsidiary of First Union.
First Union National Bank ("FUNB") is a subsidiary of First Union. The Capital
Management Group (the "CMG") of FUNB and its investment adviser affiliates
manage or otherwise oversee the investment of over $__ billion in assets
belonging to a wide-range of clients, including the Evergreen family of mutual
funds, which funds had assets of $__ billion as of November 30, 1997.
As a consequence of the Merger and in order to facilitate the investment
management of assets and the delivery of shareholder services to the Fund and to
integrate the Fund into the Evergreen family of mutual funds, the Trustees of
your Fund are proposing for your approval the reorganization of the Fund from a
series of a Massachusetts business trust (The Virtus Funds) to a series of a
Delaware business trust, Evergreen Municipal Trust (the "Successor Trust"), new
investment advisory arrangements with FUNB, an interim investment advisory
agreement with Virtus, the reclassification of the Fund's investment objective
from fundamental to nonfundamental, the adoption of standardized fundamental
investment restrictions for the Fund and the reclassification of certain
fundamental restrictions to nonfundamental.
Although we would like very much to have each shareholder attend the Meeting, we
realize this is not possible. Whether or not you plan to be present, we need
your vote. We urge you to complete, sign and return the enclosed proxy card
promptly. A postage-paid envelope is enclosed for this purpose.
If you return your proxy or proxies promptly you can help your Fund avoid
follow-up mailings to achieve a quorum. If your shares in the Fund are held in
street
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name, your bank or broker can vote your shares, but may do so only upon receipt
of your specific instructions. Please contact the person responsible for your
account and instruct him or her to execute a proxy card today. If you decide
between now and the meeting that you can attend the meeting in person, you can
revoke your proxy at that time and vote your shares at the meeting.
The Board of Trustees of the Fund has unanimously approved the proposal and
recommend that you vote FOR all of the proposals described in this proxy
statement.
If we do not receive your completed proxy card after several weeks, you may be
contacted by our proxy solicitor, Shareholder Communications Corporation. They
will remind you to vote your shares.
Thank you for taking these matters seriously and participating in this important
process.
Sincerely,
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[Name]
President
The Virtus Funds
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THE VIRTUS FUNDS
The Maryland Municipal Bond Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 20, 1998
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Notice Is Hereby Given that a Special Meeting (the "Meeting") of
Shareholders of The Maryland Municipal Bond Fund (the "Fund") of The Virtus
Funds (the "Current Trust"), will be held at the offices of the Evergreen Funds,
200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116 on Thursday,
February 20, 1998 at 2:00 p.m., Eastern time, for the following purposes:
1. To consider and act upon an Agreement and Plan of Conversion
(the "Plan") for the Fund providing for the reorganization
of the Fund from a series of the Current Trust, a
Massachusetts business trust, to a corresponding series, the
Evergreen Maryland Municipal Bond Fund (the "Successor
Fund") of Evergreen Municipal Trust, a Delaware business
trust (the "Successor Trust"), and in connection therewith,
the acquisition by the Successor Fund of all of the assets
of the Fund in exchange for shares of the Successor Fund,
and the assumption by the Successor Fund of all of the
liabilities of the Fund. The Plan also provides for the
distribution of such shares of the Successor Fund to
shareholders of the Fund in liquidation and subsequent
termination of the Fund.
2. To consider and act upon a new investment advisory agreement
between the Successor Trust on behalf of the Successor Fund
and the Capital Management Group (the "CMG") of First Union
National Bank ("FUNB"), a subsidiary of First Union
Corporation, ("First Union").
3. To consider and act upon an interim investment advisory agreement
between the Fund and Virtus Capital Management, Inc. ("Virtus"),
prior to November 28, 1997, a subsidiary of Signet Banking
Corporation ("Signet"), and since such date, as a result of a
merger of Signet with and into a subsidiary of First Union, a
subsidiary of First Union, and the Fund's current investment
adviser, such interim investment advisory agreement to be in
place until the reorganization of the Fund into the Successor
Fund, such reorganization currently being expected to occur on or
about February 27, 1998.
4. To consider approval of the reclassification of the investment
objective of the Fund from fundamental to nonfundamental.
5. To consider adoption of standardized investment restrictions
by amending or reclassifying the current fundamental
investment restrictions of the Fund.
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6. To transact any other business which may properly come before
the Meeting or any adjournments thereof.
The close of business on December 26, 1997 has been fixed as the record date for
the determination of shareholders of the Fund entitled to notice of and to vote
at the Meeting or any adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO
NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO SIGN WITHOUT DELAY 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
January 5, 1998
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INSTRUCTIONS FOR EXECUTING PROXY CARD
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears on the
proxy card.
2. Joint Accounts: Either party may sign, but the name of the
party signing should conform exactly to a name shown on the
proxy card.
3. All Other Accounts: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the
name on the proxy card. For example:
Registration Valid Signature
Corporate Accounts
(1) ABC Corp. (1) ABC Corp.
John Doe, Treasurer
(2) ABC Corp. (2) John Doe, Treasurer
c/o John Doe, Treasurer
(3) ABC Corp. Profit Sharing Plan (3) John Doe, Trustee
Trust Accounts
(1) ABC Trust (1) Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee (2) Jane B. Doe
u/t/d 12/28/78
Custodial or Estate Accounts
(1) John B. Smith, Cust. (1) John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. (2) John B. Smith, Jr.,
Executor
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THE VIRTUS FUNDS
The Maryland Municipal Bond Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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PROXY STATEMENT
Special Meeting of Shareholders
February 20, 1998
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Introduction
This proxy statement is furnished in connection with the solicitation
of proxies by the Trustees of The Virtus Funds (the "Current Trust") on behalf
of the Current Trust's Maryland Municipal Bond Fund (the "Fund") for the special
meeting of shareholders to be held on Thursday, February 20, 1998, at the
offices of the Evergreen Funds, at 200 Berkeley Street, 26th Floor, Boston,
Massachusetts 02116 at 2:00 p.m., and all adjournments thereof (the "Meeting").
Shareholders of record at the close of business on December 26, 1997 (the
"Record Date") are entitled to notice of, and to vote at, the Meeting. This
proxy statement and the accompanying notice of meeting and proxy card are first
being mailed to shareholders on or about January 5, 1998.
Background
On July 18, 1997, First Union Corporation ("First Union") entered into
an Agreement and Plan of Merger with Signet Bank Corporation ("Signet") which
provided, among other things, for the merger of Signet with and into a
wholly-owned subsidiary of First Union (the "Merger"). The Merger was
consummated on November 28, 1997. As a result of the Merger, it is expected that
First Union National Bank ("FUNB"), a subsidiary of First Union, and its
affiliates will succeed to the investment advisory, administrative and transfer
agency and dividend disbursing functions currently performed for the Fund by
various units of Signet and certain other parties unaffiliated with Signet.
As a matter of law, the Merger has caused termination of the investment
advisory agreement between the Fund and its investment adviser, Virtus Capital
Management, Inc. ("Virtus"). Prior to consummation of the Merger, Virtus was a
subsidiary of Signet but, as a consequence of the consummation of the Merger, it
is now a subsidiary of First Union. The Current Trust has, however, received an
order from the Securities and Exchange Commission (the "SEC") which permits
Virtus to continue to act as the Fund's investment adviser, without shareholder
approval, pursuant to an interim investment advisory agreement (the "Interim
Advisory Agreement") between the Current Trust, on behalf of the Fund, and
Virtus, 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 with FUNB (currently anticipated to be on or about
February 20, 1998).
In order for FUNB to serve as investment adviser to the series of the
Delaware business trust into which the Fund is to be reorganized, shareholders
are being asked
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to consider a new investment advisory agreement between the series of the
Delaware business trust succeeding to the Fund's assets and liabilities and
FUNB.
At the Meeting, shareholders will also be asked to vote on several
proposals relating to the Fund's investment restrictions. Currently, the Fund's
investment objective is classified as "fundamental" and, as such, may be changed
only by a vote of the Fund's shareholders. In order to provide the Fund with
enhanced flexibility to respond to market, industry or regulatory changes,
shareholders are being asked to reclassify the Fund's investment objective as
nonfundamental. A nonfundamental investment objective could be changed by the
Trustees at any time without approval of the Fund's shareholders. Shareholders
are being asked to standardize certain fundamental investment restrictions in
order to help provide operational efficiencies and to make it easier for the
Fund to monitor compliance with such restrictions. Finally, shareholders are
also being asked to reclassify certain fundamental investment restrictions from
fundamental to nonfundamental in order to give the Fund greater flexibility to
respond to market, regulatory or industry changes.
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PROPOSAL 1 - THE PROPOSED REORGANIZATION
OF THE FUND AS A SERIES OF DELAWARE BUSINESS TRUST
At the Meeting, the shareholders of the Fund will be asked to approve
an Agreement and Plan of Conversion (the "Plan"), which provides for the
reorganization (the "Reorganization") of the Fund into Evergreen Maryland
Municipal Bond Fund, a corresponding series (the "Successor Fund") of Evergreen
Municipal Trust, a Delaware business trust (the "Successor Trust"). The intended
result of the overall restructuring is to produce a more integrated mutual fund
complex with the potential for greater operational efficiencies.
Selection of Delaware Business Trust Form of Organization
At their September 16, 1997 meeting, the Board of Trustees of the
Current Trust unanimously approved the proposed reorganization of the Fund as a
separate series of the Successor Trust. The Current Trust is organized as a
Massachusetts business trust. The Fund is a series portfolio of the Current
Trust. The principal reason for reorganizing the Fund in Delaware is the
availability of certain advantages of Delaware law with respect to business
trusts. The Delaware Business Trust Act (the "Delaware Act") has been
specifically drafted to accommodate the unique governance needs of investment
companies and provides that its policy is to give maximum freedom of contract to
the trust instrument of a Delaware business trust.
Under the Delaware Act, a shareholder of a Delaware business trust is
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 Massachusetts, or in any other
state. As a result, Delaware law is generally considered to afford additional
protection to shareholders than Massachusetts business trusts against potential
shareholder liability. See "Certain Comparative Information About the Current
Trust and the Successor Trust - Shareholder Liability." Similarly, Delaware law
provides that should a Delaware business trust issue multiple series of shares,
each series shall not be liable for the debts of another series, another
potential, though remote, risk in the case of other business trusts.
Delaware has obtained a favorable national reputation for its business
laws and business environment. The Delaware courts, which may be called upon to
interpret the Delaware Act, are among the nation's most highly respected and
have an expertise in corporate matters which in part grew out of the fact that
Delaware legal issues are concentrated in the Court of Chancery where there are
no juries and where judges issue written opinions explaining their decisions.
Accordingly, there is a well established body of precedent which may be relevant
in deciding issues pertaining to a Delaware business trust.
There are other advantages that may be afforded by a Delaware business
trust. Under Delaware law, the Successor Fund will have the flexibility to
respond to future business contingencies. For example, the Trustees of the
Successor Trust will have the power to incorporate a Successor Trust, to merge
or consolidate it with another entity, to cause each series to become a separate
trust, and to change the Successor Trust's domicile without a shareholder vote.
This flexibility could help to assure that the Successor Trust
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operates under the most advanced form of organization and could reduce the
expense and frequency of future shareholder meetings for non-investment related
issues.
Description of the Reorganization
The detailed terms and conditions of the Reorganization are contained
in the Plan. The information in this proxy statement with respect to the Plan of
Reorganization is qualified in its entirety by reference to, and made subject
to, the complete text of the form of the Plan, a copy of which is attached to
this proxy statement as Exhibit A.
If the shareholders of the Fund approve the Reorganization and the
conditions of the Reorganization are satisfied, all of the assets and
liabilities of the Fund will be transferred to the corresponding Successor Fund
and each shareholder of the Fund will receive shares of the Successor Fund (the
"New Shares"). The New Shares of the Successor Fund will be issued to the Fund
in consideration of the transfer to the Successor Fund by the Fund of all assets
and liabilities of the Fund. Immediately thereafter, the Fund will liquidate and
distribute the New Shares to its shareholders. New Shares will be issued on a
class by class basis. As a result of the Reorganization, the holders of
Investment Shares and Trust Shares in the Fund will become the owners of that
number of full and fractional Class A and Class Y shares, respectively, of the
Successor Fund having an aggregate net asset value equal to the aggregate net
asset value of the shareholder's shares of the Fund as of the close of business
immediately prior to the date that the Fund's assets are transferred for shares
of the Successor Fund.
It will not be necessary for holders of share certificates of the Fund
to exchange their certificates for new certificates following consummation of
the Reorganization. Certificates for shares of the Fund issued prior to the
Reorganization will represent outstanding shares of the Successor Fund after the
Reorganization. Shareholders of the Fund who have not been issued certificates
and whose shares are held in an open account will automatically have those
shares designated as shares of the Successor Fund.
If approved by shareholders of the Fund, it is currently
contemplated that the Reorganization will become effective on or about the close
of business on February 27, 1998. However, the Reorganization may become
effective at another time and date should the Meeting be adjourned to a later
date or should any other condition to the Reorganization not be satisfied at
that time. Notwithstanding prior shareholder approval, the Plan of
Reorganization may be terminated at any time prior to its implementation by the
mutual agreement of the parties thereto.
The Successor Trust
The Successor Trust was established pursuant to an Agreement and
Declaration of Trust (the "Master Trust Agreement") under the laws of the State
of Delaware. The Successor Trust is organized as a "series company" as that term
is used in Rule 18f-2 under the Investment Company Act of 1940, as amended (the
"1940 Act"). The Successor Trust consists of the Successor Fund and other funds
of the same asset class.
The Board of Trustees of the Successor Trust is different from the
Board of Trustees of the Current Trust. The new Trustees will have ultimate
responsibility for the oversight and management of the Successor Fund subsequent
to the Reorganization.
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The Trustees of the Successor Trust are Laurence B. Ashkin, Charles
A. Austin III, K. Dun Gifford, James S. Howell, Leroy Keith, Jr.,
Gerald M. McDonnell, Thomas L. McVerry, David M. Richardson,
Russell A. Salton III, Michael S. Scofield, Richard J. Shima, and
William W. Pettit.
The Successor Trust is authorized to issue shares divisible into an
indefinite number of different series. At the time of the Reorganization, it is
expected that the Successor Trust will consist of 16 series portfolios in
addition to the Successor Fund. The interests of investors in the various series
of the Successor Trust will be separate and distinct. All consideration received
for the sales of shares of a particular series of the Successor Trust, all
assets in which such consideration is invested, and all income, earnings and
profits derived from such investments, will be allocated to that series. The
Trust Agreement of the Successor Trust provides that the Board of Trustees of
the Successor Trust may: (i) establish one or more additional series thereof;
(ii) issue the shares of any series in any number of classes; (iii) issue shares
of a series to different groups of investors; and (iv) convert a series into a
pooled fund structure, without any further action by the shareholders of the
Successor Trust. The Successor Trust will not engage in any activities prior to
the Reorganization with respect to the Successor Fund, except as may be required
in connection with effecting the Reorganization.
The Trust Agreement of the Successor Trust provides for shareholder
voting only for the following matters: (a) the election or removal of Trustees
as provided in the Trust Agreement; and (b) with respect to such additional
matters relating to the Successor Trust as may be required by (i) applicable
law, (ii) any by-laws adopted by the Trustees, or (iii) as the Trustees may
consider necessary or desirable. Certain of the foregoing matters will involve
separate votes of one or more of the affected series (or affected classes of a
series) of the Successor Trust, while others will require a vote of the
Successor Trust's shareholders as a whole.
All shares of all series vote together as a single class for the
election or removal of Trustees of the Successor Trust with each having one vote
for each dollar of net asset value applicable to each share, regardless of
series. See "Certain Comparative Information About the Trust and the Successor
Trust - Voting Rights" below.
As required by the 1940 Act, shareholders of each series of the
Successor Trust, voting separately, will have the power to vote at special
meetings for, among other things, changes in fundamental investment restrictions
applicable to such series, approval of any new or amended investment advisory
agreement, approval of any new or amended Rule 12b-1 distribution plan and
certain other matters that affect the shareholders of that series. If, at any
time, less than a majority of the Trustees holding office has been elected by
the shareholders, the Trustees then in office will call a shareholders' meeting
for the purpose of electing Trustees of the Successor Trust.
Certain Comparative Information About the Current Trust and the Successor Trust
As a Delaware business trust, the Successor Trust's operations are
governed by the Trust Agreement and applicable Delaware law, rather than by the
trust document of the Current Trust, which is organized under Massachusetts law.
For ease of reference, the organizational document of the Current Trust is
sometimes referred to as the "Charter". As discussed below, certain of the
differences between the Current Trust and the Successor Trust derive from
provisions of the Successor Trust's Trust
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Agreement and By-laws. Shareholders entitled to vote at the Meeting may obtain a
copy of the Successor Trust's Trust Agreement and By-laws, without charge, upon
written request to the Successor Trust at Evergreen Funds, 200 Berkeley Street,
Boston, Massachusetts 02116.
Capitalization. The beneficial interests in the Successor Trust are
issued as transferable shares of beneficial interest, $.001 par value per share.
The beneficial interests in the Fund are represented by unlimited number of
transferable shares of beneficial interest without par value. The Trust
Agreement permits the Trustees to issue an unlimited number of shares and to
divide such shares into an unlimited number of series or classes thereof, with
rights determined by the Trustees, all without shareholder approval. Each share
of the Successor Trust and each share of the Current Trust series represents an
equal proportionate interest in the assets and liabilities belonging to that
series (or class) as declared by the Board of Trustees. Both the Successor Trust
and the Trust are authorized to divide their shares into an unlimited number of
series, and the Trustees of both the Successor Trust and the Current Trust are
empowered to establish other classes. Both the Successor Trust and the Trust
have the authority to issue an unlimited number of transferable shares of
beneficial interest.
Amendments to Governing Instrument. Generally, the provisions of
the Trust Agreement of the Successor Trust may be amended without shareholder
approval so long as such amendment is not in contravention of applicable law, by
an instrument in writing signed by a majority of the then Trustees of the
Successor Trust (or by an officer of the Successor Trust pursuant to the vote of
a majority of such Trustees). Under the Trust Agreement of the Successor Trust,
except as provided by applicable law, a quorum is 25 percent of the shares
entitled to vote. The Current Trust's quorum requirement is presently a majority
of the shares entitled to vote. The affirmative vote of a majority of the shares
entitled to be cast is generally required to amend the Charter (unless otherwise
specifically required by applicable law, including the 1940 Act).
Voting Rights. The Charter of the Current Trust provides that a
special meeting of shareholders shall be called upon the written request of
shareholders representing 10 percent of the outstanding shares. The By-laws of
the Successor Trust provide that, to the extent required by the 1940 Act,
meetings of the shareholders for the purpose of voting on the removal of any
Trustee shall be called promptly by the Trustees upon the written request of
Shareholders holding at least 10 percent of the outstanding shares of the
Successor Trust entitled to vote. Like the Current Trust, the Successor Trust
will not be required to hold annual meetings of its shareholders and, at this
time, does not intend to do so. With respect to the Current Trust, the record
date for determining shareholders who are entitled to notice of, and to vote at,
a shareholders' meeting is may not be more than 60 days preceding the scheduled
meeting date under the Charter. Under the By-laws of the Successor Trust the
record date may not be more than 90 days nor less than 10 days preceding the
scheduled meeting date.
The Trust Agreement provides for shareholder voting in certain
circumstances. See "The Successor Trust" above. Shareholders of the Current
Trust generally have the power to vote with respect to the election of Trustees,
the removal of Trustees, the approval of any investment advisory or sub-advisory
agreement, certain amendments to the Charter, whether or not a court action,
proceeding or claim should be brought or maintained derivatively or as a class
action on behalf of the Current Trust to the same extent as shareholders of a
corporation, and with respect to certain other actions, such as a transfer of
all or substantially all of the Trust's assets or the dissolution of the Trust.
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A Trustee of the Successor Trust may be removed at any meeting of
shareholders by a vote of at least two-thirds of the outstanding shares of the
Successor Trust. The Charter of the Current Trust permits removal of a Trustee
by action of at least two-thirds of the other Trustees.
The Trust Agreement of the Successor Trust provides that a majority
of the shares voted at a meeting at which a quorum is present shall decide any
questions and that a plurality shall elect a Trustee, except when a different
vote is required or permitted by any provision of the 1940 Act or other
applicable law or by the Trust Agreement or the By-laws of the Successor Trust.
Similar requirements apply to the Current Trust. Shareholders of the Successor
Trust are not required to approve the termination or reorganization of the
Successor Trust. Unlike the Trust Agreement of the Successor Trust, the Charter
of the Current Trust requires that any termination or reorganization of a Fund
must be approved by the vote of a majority of the outstanding voting shares of
such Fund.
Under the Trust Agreement, each share of the Successor Fund is
entitled to one vote for each dollar of net asset value applicable to each
share. Under the current voting provisions governing the Fund each share of
beneficial interest is entitled to one vote, regardless of the specific Fund it
represents. Under the Charter of the Current Trust or applicable law, a matter
affecting only one Fund is voted on only by that Fund. Generally, the Charter of
the Current Trust further provides that, where required by law or applicable
regulation, certain matters will be voted on separately by each fund. In all
other matters, all funds vote together as a group. Over time, the net asset
values of such 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 with a lower net asset value will purchase
more shares, and under the present voting provisions, have more votes, than the
same investment in a fund with a higher net asset value. Under the Trust
Agreement, voting power is related to the dollar value of the shareholders'
investments rather than to the number of shares held.
Shareholder Liability. Under Delaware law, shareholders of a
Delaware business trust are entitled to the same limitation of personal
liability extended to stockholders of Delaware corporations. No similar
statutory or other authority limiting business trust shareholder liability
exists in any other state. As a result, to the extent that a Successor Trust or
a shareholder is subject to the jurisdiction of courts in those states, the
courts may not apply Delaware law, and may thereby subject shareholders of a
Delaware trust to liability. To guard against this risk, the Trust Agreement:
(a) provides that any written obligation of the Successor Trust may contain a
statement that such obligation may only be enforced against the assets of the
Successor 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 Successor Trust. Accordingly, the risk of a
shareholder of the Successor Trust incurring financial loss beyond that
shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) a court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Successor Trust
itself would be unable to meet its obligations. In light of Delaware law, the
nature of the Successor Trust's business, and the nature of its assets, the risk
of personal liability to a shareholder of the Successor Trust is remote.
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Shareholders of the Current Trust may, under certain circumstances,
be held personally liable under applicable state law for the obligations of the
Current Trust. However, the Charter of the Current Trust contains an express
disclaimer of shareholder liability and requires that notice of such disclaimer
be given in each agreement entered into or executed by the Current Trust or the
Trustees of the Current Trust. Such Charter also provides for indemnification
out of the property of the Trust.
Liability and Indemnification of Trustees. Under the Trust
Agreement, a Trustee of the Successor Trust is liable to the Successor 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 the duties of a Trustee. Trustees and
officers of the Successor Trust are entitled to be indemnified for the expenses
of litigation against them except with respect to any matter as to which it has
been determined that such person (i) did not act in good faith in the reasonable
belief that his or her action was in or not opposed to the best interests of the
Successor Trust; or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties; and (iii) for a criminal
proceeding, had reasonable cause to believe that his or her conduct was
unlawful, such determination to be based upon the outcome of a court action or
administrative proceeding or a reasonable determination, following a review of
the facts, 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
Successor Trust may also advance money to any Trustee or officer involved in a
proceeding discussed above provided that the Trustee or officer undertakes to
repay the Successor Trust if his or her conduct is later determined to preclude
indemnification and certain other conditions are met. It is currently the view
of the staff of the SEC that to the extent that any provisions such as those
described above are inconsistent with the 1940 Act, the provisions of the 1940
Act may preempt the foregoing provisions.
The Charter of the Current Trust generally provides that the
Current Trust's Trustees shall not be liable to the Current Trust or its
shareholders, except for the Trustees' acts of willful misfeasance, bad faith,
gross negligence, or reckless disregard of duties involved in the conduct of
their office. The Charter generally also provides that Trustees and officers of
the Current Trust will be indemnified against liability and expenses of
litigation against them unless their conduct constituted willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.
Right of Inspection. The By-laws of the Current Trust generally
provide that no shareholder shall have the right to inspect the books of account
and stock ledger of the Registrant except as conferred by law, or as authorized
by the Board of the Registrant or a resolution of shareholders. The By-laws of
the Successor Trust provide that no shareholder of the Successor Trust shall
have any right to inspect any account or book or document of the Successor Trust
except as conferred by law or otherwise by the Trustees or by resolution of the
shareholders.
The foregoing is only a summary of certain of the differences
between the governing instruments and laws generally applicable to the Current
Trust and Successor Trust. It is not a complete list of differences.
Shareholders should refer directly to the provisions of the governing
instruments and applicable law for more complete information.
-8-
<PAGE>
Current and Successor Distribution Arrangements
Federated Securities Corp., ("FSC"), Federated Tower, Pittsburgh,
Pennsylvania, 15222, currently serves as principal underwriter for the Fund.
Evergreen Distributor, Inc. ("EDI"), 125 West 55th Street, New York, New York
10019, will serve as principal distributor for the Successor Trust. It is
anticipated that no material change will occur in the Fund's Rule 12b-1
distribution plans as a result of the Reorganization.
Certain Votes to be Taken Prior to the Reorganizations
Prior to the Reorganization, EDI, the principal underwriter of the
Successor Fund and a subsidiary of the BISYS Group, Inc., 3435 Stelzer Road,
Columbus, Ohio 43219, will own a single outstanding share of the corresponding
Successor Fund. The purpose of the issuance by the Successor Fund of this
nominal share prior to the effective time of the Reorganization is to enable the
Successor Trust to eliminate the need to incur the additional expense by the
Successor Trust of having to hold a separate meeting of shareholders of the
Successor Funds in order to comply with certain shareholder approval
requirements of the 1940 Act.
Investment Objective and Restrictions
The Successor Fund will have the same investment objective as the
Fund except that, if Proposal 4 in this proxy statement is approved by
shareholders, the Successor Fund's investment objective will not be considered
"fundamental". As a result, the Successor Fund's investment objective could be
changed by the Trustees, without shareholder approval, after prior notice to
shareholders.
Except as described herein, FUNB does not presently intend to
change in any material way for the Successor Fund the investment strategy or
operations employed by the Fund.
Federal Income Tax Consequences
It is anticipated that the transactions contemplated by the Plan
will be tax-free. Sullivan & Worcester LLP, counsel to the Successor Trust, has
informed each Board that if substantially all of the assets and liabilities of
the Funds are transferred to the corresponding Successor Funds, it will issue an
opinion that a Reorganization will not give rise to the recognition of income,
gain or loss to the Fund, the Successor Fund, or shareholders of the Fund for
federal income tax purposes pursuant to sections 361, 1032 (a) and 354 (a) (1),
respectively, of the Internal Revenue Code of 1986, as amended. Such opinion
will be based upon customary representations of the Fund and the Successor Trust
and certain customary assumptions. The receipt of such an opinion is a condition
to the consummation of the Reorganization.
A shareholder's adjusted basis for tax purposes in shares of the
Successor Fund after the Reorganization will be the same as the shareholder's
adjusted basis for tax purposes in the shares of the Fund immediately before the
Reorganization. The holding period for the shares of the Successor Fund received
in the Reorganization will include a shareholder's holding period for shares of
the Fund (provided that the shares of the Fund were held as capital assets on
the date of the Reorganization). Shareholders should consult their own tax
advisers with respect to the state and local tax consequences of
-9-
<PAGE>
the proposed transaction.
Reorganization Expenses
The expenses of the Reorganization will be borne by FUNB.
Appraisal Rights
Neither the Charter nor Massachusetts law grants shareholders of
the Fund any rights in the nature of appraisal or dissenters' rights with
respect to any action upon which shareholders may be entitled to vote. However,
the customary right of mutual fund shareholders to redeem their shares is not
affected by the proposed Reorganization.
Recommendation of Trustees
The Trustees of the current Trust requested, received and
considered such information as they deemed reasonably necessary to enable the
members of such Board to evaluate the Plan. The Board reviewed the potential
benefits associated with the proposed Reorganization and adoption of the
proposed Trust Agreement. In this regard, the Trustees considered: (i) the
potential disadvantages which apply to operating the Fund under the Current
Trust's present form of organization; (ii) the advantages which apply to
operating the Successor Fund as series of the Successor Trust; (iii) the
advantages of adopting the new Trust Agreement under Delaware law; (iv) the
expected federal tax consequences to the Fund, the Successor Fund and
shareholders resulting from the proposed Reorganization, and the likelihood that
no recognition of income, gain or loss for federal shareholders will occur as a
result thereof.
At the meeting of the Board called for the purpose on September 16,
1997, the Board of Trustees of the Fund voted to approve the proposed Plan and
determined that participation in the Reorganization is in the best interests of
the Fund and that the interests of existing shareholders will not be diluted as
a result of the Reorganization.
Required Vote
The affirmative vote of the holders of a majority of the issued and
outstanding shares of the Fund is required to approve the Reorganization.
The Trustees recommend that shareholders vote to
approve Proposal 1.
PROPOSAL 2 - APPROVAL OR DISAPPROVAL OF THE PROPOSED NEW INVESTMENT
ADVISORY AGREEMENT
Introduction
New Investment Advisory Agreement. In view of the Merger, and the
factors discussed below, the Trustees of the Current Trust, including those
Trustees who are not "interested persons" (as such term is defined in the 1940
Act) (the "Independent Trustees") of the Current Trust, the Fund, Signet or
FUNB, are proposing that shareholders of the Fund approve a new investment
advisory agreement between the Successor Trust, on behalf of the Successor Fund,
and FUNB (the "New Advisory Agreement") to become effective on or about February
27, 1998. A description of the
-10-
<PAGE>
New Advisory Agreement pursuant to which, if it is approved by shareholders of
the Fund, FUNB would become the investment adviser to the Successor Fund, as
well as the services to be provided by FUNB pursuant thereto is set forth below
under "Advisory Services." Under the New Advisory Agreement, the same investment
advisory fee schedule as currently in effect for the Fund will remain in place.
The same general types of services currently provided to the Fund by Virtus will
be provided to the Successor Fund by FUNB. The description of the New Advisory
Agreement in this Proxy Statement is qualified in its entirety by reference to
the form of the New Advisory Agreement attached to this proxy statement as
Exhibit B.
Section 15(f) of the 1940 Act provides that an investment adviser
to a registered investment company may receive any amount or benefit in
connection with a sale of any interest in such adviser which results in an
assignment of an investment advisory contract if two conditions are satisfied.
One condition is that, for a period of three years after such assignment, at
least 75% of the board of Trustees of the investment company cannot be
"interested persons" (as defined in the 1940 Act) of the new investment adviser
or its predecessor. The second condition is that no "unfair burden" (as defined
in the 1940 Act) be imposed on the investment company as a result of the
assignment or any express or implied terms, conditions or understandings
applicable thereto. The parties to the Merger intend to meet the foregoing safe
harbor conditions.
Existing Investment Advisory Agreement. Virtus or its predecessor
has served as investment adviser to the Fund since the commencement of
operations of the Fund pursuant to an Investment Advisory Agreement, dated March
1, 1995. As used herein, such Investment Advisory Agreement is referred to as
the "Existing Investment Advisory Agreement." At a meeting of the Trustees of
the Current Trust held on September 16, 1997, the Trustees, including all of the
Independent Trustees, approved the proposed New Advisory Agreement for the Fund
to become effective on or about the close of business on February 27, 1998 and
approved submission of the New Advisory Agreement to the Fund's shareholders for
their approval. For a discussion of the reasons for the Trustee's approval of
the New Advisory Agreement, see "Evaluation of the New Investment Advisory
Agreement by the Trustees".
If the New Advisory Agreement for the Fund is not approved by
shareholders of the Fund, the Trustees of the Current Trust would make other
investment advisory arrangements which, in their judgment, would be in the best
interest of the Fund and its shareholders until such time as an investment
advisory agreement is approved by shareholders. The Existing Advisory Agreement
was last approved by the Trustees of the Current Trust, including a majority of
the Independent Trustees, on February 24, 1997.
During the fiscal year ended September 30, 1997, the Fund paid
$273,861 to Virtus for investment advisory services.
Comparison of the New Advisory Agreement and the Existing Investment Advisory
Agreement
Advisory Services. The investment advisory services to be provided by
FUNB under the New Advisory Agreement are similar to those
currently provided by Virtus under the Existing Advisory
Agreement. Under such Agreement, Virtus serves as
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<PAGE>
investment adviser and furnishes to the Fund investment guidance and policy
direction in connection therewith. Virtus provides to the Fund, among other
things, information relating to portfolio composition, credit conditions and
average maturity of the portfolio of the Fund. Virtus also furnishes to the
Trustees periodic reports on the investment performance of the Fund.
Pursuant to the Existing Advisory Agreement, Virtus is obligated to
provide certain administrative assistance in connection with the operation of
the Fund. Administrative services which Virtus is obligated to provide include,
among other things, (i) data processing, clerical and bookkeeping services
required in connection with maintaining the financial accounts and records for
the Fund, (ii) compiling statistical and research data required for the
preparation of reports and statements which are periodically distributed to the
Current Trust's officers and Trustees, (iii) handling general shareholder
relations with Fund investors, such as advice as to the status of shareholder
accounts, the current yield and dividends declared to date and assistance with
other questions related to their accounts, and (iv) compiling information
required in connection with the Current Trust's filings with the SEC.
Pursuant to an Administrative Services Agreement (the "Existing
Administrative Services Agreement") between the Trust and Federated
Administrative Services ("FAS"), Federated Tower, Pittsburgh, Pennsylvania
15222-3779, FAS acts as the Administrator of the Fund. FAS provides the Fund
with certain administrative personnel and services necessary to operate the
Fund. Such services include shareholder servicing and certain legal and
accounting services. FAS is entitled to receive from the Fund a fee based on the
net assets of the Fund as compensation for its provision of administrative
services to the Fund. For the fiscal year ended September 30, 1997, such fee was
$84,421.
The New Advisory Agreement provides that FUNB will furnish reports,
statistical and research services and make investment decisions with respect to
the Fund's portfolio of investments. While the New Advisory Agreement does not
expressly require that FUNB provide general supervision of the Fund's affairs,
if the New Advisory Agreement is approved by shareholders of the Fund and if the
Reorganization is consummated, the Successor Trust on behalf of the Successor
Fund, will enter into a "New Administrative Services Agreement" with Evergreen
Investment Services, Inc. ("EIS"). EIS will manage the day-to-day business
administration of the Fund and provide services similar to those currently
provided to the Fund by FAS. The New Administrative Services Agreement is not
subject to shareholder approval and it is expected that the Successor Trust
will, on behalf of the Fund, enter into such Agreement on behalf of the Fund
only if the events described above in this paragraph occur. It is also expected
that if the New Advisory Agreement is approved by shareholders of the Fund and
if the Successor Trust, on behalf of the Successor Fund, enters into a New
Administrative Services Agreement with EIS, the Successor Trust, on behalf of
the Successor Fund, will enter into a Sub- Administrative Services Agreement
with BISYS. EDI, an affiliate of BISYS, currently serves as distributor for the
Evergreen family of mutual funds and provides certain administrative services
for the Fund, such as the provision of officers of the Successor Trust who,
because of the limitations of Federal banking laws, cannot be affiliated with
FUNB or its affiliates.
Fees and Expenses. The investment advisory fees and expense
limitations for the Fund under the Existing Advisory Agreement and the proposed
New Advisory Agreement are set forth below, along with a discussion of how such
fees and expenses compare.
-12-
<PAGE>
Under both the New Advisory Agreement and the Existing Advisory
Agreement, the investment advisory fee payable by the Fund or the Successor
Fund, will remain the same and will continue to be expressed as a percentage of
net assets at an annual rate, based on the Successor Fund's average daily net
assets; such fee currently is, and under the New Investment Advisory Agreement
will be accrued and paid daily.
The schedule of the compensation for investment advisory services
currently payable to Virtus under the Existing Advisory Agreement for the Fund
and the schedule of fees proposed to be paid to FUNB under the proposed New
Advisory Agreement are the same and are described below:
Current and Proposed Investment Advisory Fee Schedule
Net Assets Annual Fee
[TO BE SUPPLIED]
Under the Existing Administrative Services Agreement, FSA is paid by
the Fund for the administrative services it performs for the Fund
according to the following fee schedule: [TO BE SUPPLIED]
As noted above, if the New Advisory Agreement is approved by
shareholders of the Fund, it is expected that the Trustees of the Successor
Trust will authorize the Successor Trust, on behalf of the Successor Fund, to
enter into an Administrative Services Agreement with EIS. Pursuant to such
Administrative Services Agreement, EIS will provide services similar to those
currently provided to the Funds by FSA. For such services, EIS would be entitled
to receive a fee based on the average daily net assets of the Fund at a rate
based on the total assets of the mutual funds administered by EIS for which FUNB
or Evergreen Asset Management also serves as investment adviser, calculated in
accordance with the following schedule: [TO BE SUPPLIED] The total assets of the
mutual funds administered by ESC for which either FUNB or Evergreen Asset
Management acts as investment adviser were approximately $___ billion as of
November 30, 1997. Evergreen Distributor, Inc. ("EDI"), located at 125 West 55th
Street, New York, New York 10019, the entity that currently serves as
distributor of the mutual funds in the Evergreen family of mutual funds and
which will be the distributor of the Successor Fund, is expected to serve as
sub-administrator for the Fund and will be entitled to receive a fee from the
Fund calculated on the average daily net assets of the Successor Fund at a rate
based on the total assets of the mutual funds administered by Evergreen Asset
for which FUNB or Evergreen Asset also serves as investment adviser calculated
in accordance with the following schedule: .010% of the first $7 billion; .0075%
on the next $3 billion; .0050% on the next $15 billion and .0040% on assets in
excess of $25 billion.
The table below sets forth the current fee arrangements applicable
to, and annualized expense ratios of each class of shares of the Fund, and
illustrates the pro forma effect that the New Advisory Agreement, the New
Administrative Services Agreement with EIS, the new sub-administrative services
agreement with EDI, the new distribution arrangements with EDI and the new
transfer agency and custodian arrangements with State Street Bank and Trust
Company ("State Street Bank") are currently expected to have on fees payable by,
and the expense ratio of, each class of the Fund.
-13-
<PAGE>
Trust Class Investment Class
Rate of Fee Rate of Fee
Fiscal Year Fiscal Year
Ended Ended
September 30, 1997 September 30, 1997
The Current Arrangements
Investment Advisory Fee.................................. [To be Supplied]
Administrative Services Fee..............................
Rule 12b-1 Distribution Fees
(including service fees)..................................
Other Expenses...............................................
Total Operating Expenses.................................
Class A Class Y
Rate of Fee Rate of Fee
Six Months Six Months
September 30, 1997 September 30, 1997
Pro Forma
Investment Advisory Fee.................................. [To be Supplied]
Administrative Services Fee..............................
Rule 12b-1 Distribution Fees
(including service fees)..................................
Other Expenses...............................................
Total Operating Expenses.................................
Example
Under the existing and proposed investment advisory arrangements,
you would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Existing Trust Class $___ $___ $___ $___
Proposed Trust Class $___ $___ $___ $___
Existing Investment Class $___ $___ $___ $___
Proposed Investment Class $___ $___ $___ $___
</TABLE>
The Example assumes a 5% annual rate of return pursuant to
requirements of the SEC. This hypothetical rate of return is not intended to be
representative of past or future performance of any Class of the Fund. The
Example should not be considered to be a representation of past or future
expenses. Actual expenses may be greater or lesser than those shown.
The Existing Advisory Agreement is similar in many respects to the
New Advisory Agreement. Except as noted herein, the New Advisory Agreement
contains the material terms of the Existing Advisory Agreement. Most
importantly, the rate at which fees are required to be paid by the Fund for
investment advisory services, as a
-14-
<PAGE>
percentage of average daily net assets, will remain the same.
The following summarizes certain aspects of the Existing Advisory
Agreement and the New Advisory Agreement.
Brokerage Transactions. The New Investment Advisory Agreement sets
forth specific terms as to brokerage transactions and the investment adviser's
use of broker-dealers. For example, the Successor Fund's investment adviser will
be obligated to use its best efforts to seek to execute portfolio transactions
at prices which, under the circumstances, result in total costs or proceeds
being most favorable to the Successor Fund. In assessing the best overall terms
available for any transaction, the investment adviser will consider all factors
it deems relevant, including the breadth of the market in the security, the
price of the security, the financial condition and execution capability of the
broker or dealer, research services provided and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
The New Advisory Agreement also specifically states that the investment adviser
is entitled to rely on the provisions of Section 28(e) of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), which permits an investment
adviser to have its client, including an investment company, pay more than the
lowest available commission for executing a securities trade in return for
research services and products. The Existing Advisory Agreement of the Fund does
not specify the standards to be used in the selection of brokers or refer to the
provisions of Section 28(e) of the 1934 Act.
Expenses. The New Advisory Agreement provides that the investment
adviser is required to pay or reimburse the Successor Fund for (i) the
compensation (if any) of the Trustees who are affiliated with the investment
adviser or with its affiliates, or with any adviser retained by the investment
adviser, and of all officers of the Successor Fund as such, and (ii) all
expenses of the investment adviser incurred in connection with its services
thereunder. Under the Existing Advisory Agreement, the Fund is responsible for
payment of its own expenses.
Liability and Indemnification. The New Advisory Agreement and the
Existing Advisory Agreement provide that the investment adviser shall have no
liability in connection with rendering services thereunder, other than
liabilities resulting from the adviser's willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties.
Indemnification. The New Advisory Agreement provides that the Fund
will indemnify the investment adviser against liabilities, losses and expenses
incurred in connection with the performance of such agreement, except those
stated above and liabilities involving a breach of the investment adviser's
fiduciary duties in respect of the receipt of compensation for its services. The
Existing Advisory Agreement does not contain a similar provision.
Amendments. The New Advisory Agreement, provides in general that
only amendments of substance require shareholder approval. The Existing Advisory
Agreement is silent in regard to the substance of amendments.
Term. If approved by the shareholders of the Fund, the New Advisory
Agreement will become effective on or about February 27, 1998. The New Advisory
Agreement will have an initial term of two years. Thereafter, the New Advisory
Agreement will be continued from year to year, provided that its continuation is
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<PAGE>
specifically approved at least annually, in the manner required by the 1940 Act.
The 1940 Act requires that the New Advisory Agreement and any renewal thereof be
approved by a vote of a majority of Trustees of the Successor Trust who are not
parties thereto or interested persons (as such term is defined in the 1940 Act)
of any such party, cast in person at a meeting duly called for the purpose of
voting on such approval and by a vote of the Trustees of the Successor Trust or
a majority of the outstanding voting securities of the Fund. A vote of a
majority of the outstanding voting securities of the Fund is defined in the 1940
Act to mean a vote of the lesser of (i) more than 50% of the outstanding voting
securities of the Fund or (ii) 67% or more of the voting securities which are
present or represented by proxy. The Existing Advisory Agreement contains
comparable provisions.
Termination; Assignment. The New Advisory Agreement provides that
it may be terminated without penalty upon 60 days' written notice by a majority
of the Trustees of the Successor Trust, or by the affirmative vote of the
holders of a "majority of the outstanding voting securities" (as defined in the
1940 Act) of the Successor Fund or by FUNB. Also, the New Advisory Agreement
will automatically terminate in the event of its "assignment" (as defined in the
1940 Act). The Existing Advisory Agreement contains substantially similar
provisions as to termination and assignment.
Information About the Funds' Current and Proposed New Investment Adviser
Virtus. Currently, investment decisions for the Fund are made by
Virtus, subject to direction by the Trustees. Virtus continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the assets of the Fund. Virtus, a Maryland corporation formed in 1995 to
succeed to the business of Signet Asset Management (adviser to the Funds since
1990), was, prior to the Merger, a wholly-owned subsidiary of Signet. Prior to
the Merger, Signet was a multi-state, multi-bank holding company which had
provided investment management services since 1956. Prior to the Merger, Virtus,
which is a registered investment adviser, managed, in addition to the Fund and
the other series portfolios of the Current Trust, three fixed income common
trust funds with $163.6 million in assets. Since consummation of the Merger,
Virtus has been a subsidiary of First Union. Attached to this proxy statement as
Exhibit C is a table that provides information with respect to the current
directors and principal executive officers of Virtus.
Charles E. Jeanne is the portfolio manager of the Fund. He joined
FUNB in 1993. Prior to joining FUNB, Mr. Jeanne served as a trader/portfolio
manager for First American Bank where he was responsible for individual accounts
and common trust funds. He also serves as portfolio manager for the Evergreen
Virginia Municipal Bond Fund. He is also an employee of Virtus which, since
consummation of the Merger, has been a subsidiary of First Union. He has served
as portfolio manager of the Fund since November __, 1997.
The table below indicates the amount of compensation received by
Virtus for providing investment advisory services to the Fund. Federated
Services Company currently serves as the Fund's transfer agent and dividend
disbursing agent and Signet Trust Company serves as the Fund's custodian. FUNB,
as successor to Signet Trust Company, is expected to serve as the Fund's
custodian during the period February __, 1998 through February 27, 1998. It is
expected that if the New Advisory Agreement is
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<PAGE>
approved, the Successor Trust, on behalf of the Successor Fund, will enter into
arrangements providing for State Street Bank and Trust Company ("State Street")
to become transfer agent, dividend disbursing agent and custodian for the Fund.
<TABLE>
<CAPTION>
Transfer
Investment Administrative Agency Fees Custodian
Advisory Fees Fees Paid to Distribution Paid to Fees Paid to
paid to Virtus Federated Fees Federated Signet Trust
<S> <C> <C> <C> <C> <C>
$273,851 $75,000 $73,620 $60,084 $12,079
</TABLE>
During the fiscal year ended September 30, 1997, the Fund paid no
brokerage commissions to FSC or to any affiliated broker thereof.
FUNB. First Union, the corporate parent of FUNB, is a bank holding
company headquartered in Charlotte, North Carolina, which had over $__ billion
in consolidated assets as of November 30, 1997. First Union and its subsidiaries
provide a broad range of financial services to individuals and businesses. The
CMG of FUNB and investment advisory affiliates of FUNB manage or otherwise
oversee the investment of over $__ billion in assets belonging to a wide range
of clients, including the Evergreen family of mutual funds. First Union
Brokerage Services, Inc. ("FUBS"), a wholly-owned subsidiary of FUNB, is a
registered broker-dealer that is principally engaged in providing retail
brokerage services consistent with its federal banking authorizations. First
Union Capital Markets Corp., a wholly-owned subsidiary of First Union, is a
registered broker-dealer principally engaged in providing, consistent with its
federal banking authorization, private placement securities dealing, and
underwriting services.
While FUNB currently does not serve as investment adviser to any
investment company or series of an investment company with an investment
objective similar to the Fund, as of November 30, 1997, FUNB served as
investment adviser to ten series of investment companies with investment
objectives similar to the Fund in that they seek income exempt from Federal and
state income tax in particular states, with net assets, as of November 30, 1997,
as follows:
<TABLE>
<CAPTION>
Investment
Advisory
Net Assets (1) Fees
<S> <C> <C>
Evergreen Florida Municipal Bond Fund...........................................$176,608,439 0.50%
Evergreen Georgia Municipal Bond Fund...........................................$ 10,716,789 0.50%
Evergreen North Carolina Municipal Bond Fund....................................$ 57,604,750 0.50%
Evergreen South Carolina Municipal Bond Fund....................................$ 5,357,680 0.50%
Evergreen Virginia Municipal Bond Fund..........................................$ 7,692,219 0.50%
Evergreen Massachusetts Tax Free Fund...........................................$_____________ 0.___%
Evergreen New York Tax Free Fund................................................$_____________ 0.___%
Evergreen Pennsylvania Tax Free Fund............................................$_____________ 0.___%
Evergreen California Tax Free Fund..............................................$_____________ 0.___%
Evergreen Missouri Tax Free Fund ................................$_____________ 0.___%
</TABLE>
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<PAGE>
During First Union's fiscal year ended December 31, 1996, there were no
transactions in First Union's securities by any current officer or current
Trustee of the Current Trust or of the Successor Trust and or officer or
director of First Union or FUNB or Evergreen Asset in an amount equal to or
exceeding 1% of the outstanding securities of First Union.
Attached to this proxy statement as Exhibit D is a table showing the
name, address and principal occupation of the directors and principal executive
officers of FUNB.
Consideration of the New Investment Advisory Agreement by the Trustees.
In considering the New Investment Advisory Agreement in the context of the
Merger, the Trustees of the Current Trust requested and reviewed various
materials, including materials furnished by FUNB. These materials included
information regarding FUNB (and its affiliated companies) and its personnel,
operations, financial condition and investment philosophy. FUNB also provided
information regarding the performance records and expenses of the mutual funds
advised by FUNB. Based on the representations of FUNB, the Trustees also
considered that the terms of the New Investment Advisory Agreement were similar
to the Current Investment Advisory Agreement.
In connection with the approval of the New Investment Advisory
Agreement, the Trustees considered that the Fund's total operating expenses
prior to effective fee waivers are expected to decrease from the level they
would have reached had various waivers and reimbursements not been in effect and
that the Funds' investment objectives and policies are expected to remain the
same and that FUNB is expected to provide the same level, quality and types of
investment advisory services as are currently provided to the Funds by Virtus.
The Trustees noted the current expectation of FUNB to continue the fee waiver
currently in effect; recognizing, however, that any existing fee waivers could
be discontinued at any time and without further notice to shareholders.
The Trustees also took into account the financial strength of FUNB, the
management, personnel and operations of FUNB, and the commitment of FUNB to the
financial services industry. The Trustees based their determinations in this
regard on discussions with representatives of FUNB at a meeting of the Trustees
held on September 16, 1997, and a review of materials forwarded by FUNB in
connection with the meeting. These materials included First Union's annual
report, prospectuses and marketing brochures for mutual funds for which FUNB or
Evergreen Asset currently serves as investment adviser, various documents
outlining the history and current operations of FUNB and such mutual funds, as
well as opportunities for the Funds within this structure, and other information
which counsel for the Independent Trustees requested be provided to the
Trustees.
The Trustees, in determining to recommend the approval of the New
Advisory Agreement, considered the advantages to the Fund of becoming part of
the Evergreen family of mutual funds. The factors considered by the Trustees
included information furnished by FUNB, the investment performance of the
Evergreen Funds currently advised by FUNB and other funds previously advised by
its investment staff, the quality and experience of FUNB's investment personnel,
FUNB's arrangements for distribution of shares of the funds for which it or
Evergreen Asset serves as investment adviser, its legal compliance capabilities,
and the nature of FUNB's mutual fund shareholder services.
-18-
<PAGE>
Recommendation of the Trustees
Based on the considerations set forth above under "Consideration of the
New Investment Advisory Arrangements by the Trustees", the Trustees of the
Current Trust, including the Independent Trustees, have determined that the New
Advisory Agreement is in the best interests of Fund and its shareholders. In
addition, Virtus expects that there will be no diminution in the scope and
quality of services provided to the Fund by FUNB as a result of these
transactions.
If the New Advisory Agreement is not approved by shareholders of the
Fund, the Trustees will determine the appropriate actions to be taken with
respect to the Fund's investment advisory arrangements at that time.
Required Vote
The affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund is required to approve the New Advisory Agreement.
Under the 1940 Act, the affirmative vote of "a majority of the outstanding
voting securities" of the Fund is defined as the lesser of (a) 67% or more of
the voting securities of the Fund present or represented by proxy at the
Meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (b) more than 50% of the
outstanding voting securities of the Fund.
The Trustees Recommend That Shareholders Vote to Approve Proposal 2.
PROPOSAL 3 - APPROVAL OR DISAPPROVAL OF AN INTERIM
INVESTMENT ADVISORY AGREEMENT WITH VIRTUS
CAPITAL MANAGEMENT, INC.
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of the Current Trust recommend that shareholders of the
Fund approve an Interim Advisory Agreement between the Successor Fund and
Virtus. 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. If shareholders do not approve the
Interim Advisory Agreement, the escrow agent will return the monies held by it.
The Interim Advisory Agreement will remain in effect until the earlier of the
Closing Date for the Reorganization (currently anticipated to be on or about
February 27, 1998) or two years from its effective date. The terms of the
Interim Advisory Agreement are essentially the same as the Existing Advisory
Agreement. The only difference between the Existing 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 the Fund, 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
Proxy Statement is qualified in its entirety by reference to the Interim
Advisory Agreement, attached to this proxy statement as Exhibit E.
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management (adviser to the Fund since 1990) , is a
wholly-owned subsidiary of First Union. Virtus' address is 707 East Main Street,
Suite 1300,
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Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to
the Existing Advisory Agreement dated March 1, 1995, as amended on October 21,
1996. At the meeting of the Board of Trustees of the Current Trust held on
September 16, 1997, the Trustees, including a majority of the Independent
Trustees, approved the Interim Advisory Agreement for the Fund.
The Trustees have authorized the Current Trust, on behalf of the Fund,
to enter into the Interim Advisory Agreement with Virtus. Such Agreement became
effective on November 28, 1997. If the Interim Advisory Agreement for the Fund
is not approved by shareholders, the Trustees will consider appropriate actions
to be taken with respect to the Fund's investment advisory arrangements at that
time. The Existing 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 Existing Advisory Agreement
Advisory Services. The investment advisory services to be provided by
Virtus under the Interim Advisory Agreement are identical to those provided by
Virtus under the Existing Advisory Agreement. See the discussion above.
Federated Administrative Services ("FAS") currently acts as
administrator of the Fund. FAS will continue during the term of the Interim
Advisory Agreement as the Fund's administrator for the same compensation as
currently received. Federated Services Company currently acts as transfer agent
and will continue to do so except that on February 9, 1998, its obligations to
provide transfer agency services for the Fund's shareholders will terminate and
such services will be provided for the same fees by EIS.
Fees and Expenses. The investment advisory fees and expense limitations
for the Fund under the Existing Advisory Agreement and the Interim Advisory
Agreement are identical.
Expense Reimbursement. The Existing Advisory Agreement includes 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
Current Trust, voluntarily declare to be effective. Furthermore, Virtus may, if
it deems appropriate, assume expenses of the Fund or a class of the Fund to the
extent that the Fund's or the classes' expenses exceed such lower expense
limitation as Virtus may, by notice to the Current Trust voluntarily declare to
be effective. The Interim Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Existing
Advisory Agreement, the Current Trust 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 Current Trust's expenses. The Interim
Advisory Agreement contains an identical provision.
Limitation of Liability. The Existing Advisory Agreement provided that in
the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Existing Advisory Agreement on the
part of Virtus, 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
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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 the Fund (as defined in the 1940 Act) or by a vote of a
majority of the Current Trust's entire Board of Trustees on 60 days' written
notice to Virtus or by Virtus on 60 days' written notice to the Current Trust.
The Interim Advisory Agreement will automatically terminate in the event of its
assignment (as defined in the 1940 Act). The Existing Advisory Agreement
contains identical provisions as to terminations and assignment.
Additional Information about Virtus
Virtus manages, in addition to the Fund, other funds of the Current
Trust, the Blanchard Group of Funds and three fixed income trust funds. During
the fiscal years ended September 30, 1997, 1996, and 1995, Virtus received from
the Fund management fees of $273,851, $315,941, and $355,431, respectively, of
which $0, $106,102 and $187,476 respectively, were voluntarily waived. Signet
has acted as custodian for the Fund and received for the fiscal year ended
September 30, 1997 $12,079.
Recommendation of Trustees
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 there were no material
differences between the terms of the Interim Advisory Agreement and the terms of
the Existing Advisory Agreement.
The affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund is required to approve the Interim Advisory
Agreement. Under the 1940 Act, the affirmative vote of "a majority of the
outstanding voting securities" of the Fund is defined as the lesser of (a) 67%
or more of the voting securities of the Fund present or represented by proxy at
the Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy, or (b) more than 50%
of the outstanding voting securities of the Fund.
The Trustees recommend that shareholders vote to approve Proposal 3.
PROPOSAL 4 - RECLASSIFICATION AS NONFUNDAMENTAL OF THE FUNDAMENTAL
INVESTMENT OBJECTIVE OF THE FUND
Reclassification of Fundamental Investment Objective as Nonfundamental
Under the 1940 Act, the Fund's investment objective is not required to
be classified as "fundamental." A fundamental investment objective may be
changed only by vote of the Fund's shareholders. In order to provide the Fund
with enhanced investment management flexibility to respond to market, industry
or regulatory changes, the Trustees of the Fund have approved the
reclassification from fundamental to nonfundamental of the Fund's investment
objective. A nonfundamental investment objective may be changed at any time by
the Trustees of the Successor Fund without
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approval by the Successor Fund's shareholders.
For a complete description of the investment objective of the Fund,
please consult your Fund prospectus. The reclassification from fundamental to
nonfundamental will not alter the Fund's investment objective. If at any time in
the future, the Trustees of the Successor Fund approve a change in the Successor
Fund's nonfundamental investment objective, shareholders of the Successor Fund
will be given notice of such change prior to its implementation; however, if
such a change were to occur, shareholders would not be asked to approve such
change.
If the reclassification of the Fund's investment objective from
fundamental to nonfundamental is not approved by shareholders of the Fund, the
Fund's investment objective will remain fundamental and shareholder approval
(and its attendant costs and delays) will continue to be required prior to any
change in investment objective.
Recommendation of Trustees
The Trustees of the Fund have considered the enhanced management
flexibility to respond to market, industry or regulatory changes that would
accrue to the Fund's investment adviser if the Fund's fundamental investment
objective were reclassified as nonfundamental.
By a unanimous written consent dated December, __, 1997, the Trustees
of the Fund voted to approve the reclassification of the investment objective of
the Fund from fundamental to nonfundamental.
Required Vote
The affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund is required to approve the reclassification of the
Fund's investment objective from fundamental to nonfundamental. Under the 1940
Act, the affirmative vote of "a majority of the outstanding voting securities"
of the Fund is defined as the lesser of (a) 67% or more of the voting securities
of the Fund present or represented by proxy at the Meeting, if the holders of
more than 50% of the outstanding voting securities of the Fund are present or
represented by proxy; or (b) more than 50% of the outstanding voting securities
of the Fund.
The Trustees recommend that shareholders vote to approve Proposal 4.
PROPOSAL 5 - CHANGES TO FUNDAMENTAL
INVESTMENT RESTRICTIONS
Adoption of Standardized Investment Restrictions (Proposals 5A-5I)
The primary purpose of Proposals 5A through 5I is to revise and
standardize the Fund's fundamental investment restrictions (the "Restrictions").
The Trustees of the Fund were informed of FUNB's efforts to analyze the
fundamental and nonfundamental investment restrictions of the various funds
offered by the Evergreen family of mutual funds and, where practicable and
appropriate to a Fund's investment objective and policies, propose to
shareholders adoption of standardized Restrictions. Recognizing the effects of
the Merger, the Trustees of the Current Trust have also concurred with
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FUNB's efforts.
It is not anticipated that any of the changes will substantially affect
the way the Successor Fund will be managed. These proposals are being presented
to shareholders for approval because it is believed that increased
standardization will help to promote operational efficiencies and facilitate
monitoring of compliance with the Restrictions. Because the proposed
standardized fundamental Restrictions in general are phrased more broadly than
the Fund's current fundamental Restrictions, FUNB will be able to respond more
expeditiously to changed market, industry or regulatory developments. Set forth
below, as sub-sections of this Proposal, are general descriptions of each of the
proposed changes. You will be given the option to approve all, some, or none of
the proposed changes on the proxy card enclosed with this proxy statement.
A listing of the proposed standardized fundamental Restrictions to be
adopted by the Fund is set forth in Exhibit F to this proxy statement.
A listing of the current fundamental Restrictions of the Fund is set
forth in Exhibit G. Those fundamental Restrictions that shareholders are being
requested to vote to standardize are shown in Exhibit G by an "S", which stands
for "To be Standardized." If a particular change is not approved by shareholders
of the Fund, the current fundamental Restriction will remain in place at the
Successor Fund. To compare the Fund's current fundamental Restriction to the
proposed changed fundamental Restriction, please refer to Exhibit G.
Many of the Fund's current Restrictions are accompanied by descriptive
language. Such descriptive language should not be read as part of the
fundamental Restriction. To the extent such descriptive language in a current
Restriction does not conflict with the language in a proposed Restriction, the
language will be retained but will not be considered fundamental and, as such,
may be changed by the Trustees without a further shareholder vote.
If approved by shareholders, the revised fundamental Restrictions
described in Proposals 5A through 5I will remain fundamental and, as such,
cannot be changed without a further shareholder vote. If a proposed standardized
fundamental Restriction is not approved by shareholders of the Fund, the current
Restriction will remain fundamental at the Successor Fund and shareholder
approval (and its attendant costs and delays) will continue to be required prior
to any change in the Restriction.
Reclassification of Fundamental Restrictions as Nonfundamental (Proposal 5J)
The reclassification from fundamental to nonfundamental of certain of
the Fund's other current fundamental Restrictions will enhance the ability of
the Fund to achieve its investment objective because FUNB will have greater
investment management flexibility to respond to changed market, industry or
regulatory conditions without the delay and expense of the solicitation of
shareholder approval.
Recommendation of Trustees
The Trustees of the Fund have reviewed the potential benefits
associated with the proposed standardization of the Fund's fundamental
Restrictions (Proposals 5A through 5I below) as well as the potential benefits
associated with the reclassification of the Fund's other fundamental
Restrictions to nonfundamental (Proposal 5J).
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By a unanimous written consent dated December __, 1997, the Trustees of
the Fund voted to approve the proposed standardization of the Fund's fundamental
Restrictions (Proposals 5A through 5I below) and the reclassification from
fundamental to nonfundamental of the Fund's other fundamental Restrictions
(Proposal 5J below).
Required Vote
The affirmative vote of the holders of a majority of the outstanding
voting securities of the Fund is required to standardize the language of the
Fund's fundamental Restrictions, (Proposals 5A through 5I) and to approve the
reclassification of certain other fundamental Restrictions to nonfundamental
(Proposal 5J). Under the 1940 Act, the affirmative vote of "a majority of the
outstanding existing securities" of the Fund is defined as the lesser of (a) 67%
or more of the voting securities of the Fund present or represented by proxy at
the Meeting, if the holders of more than 50% of the outstanding voting
securities of the Fund are present or represented by proxy or (b) more than 50%
of the outstanding voting securities of the Fund.
The Trustees Recommend That Shareholders Vote to Approve Proposal 5.
Proposal 5A: To Amend The Fundamental Restriction Concerning Diversification of
Investments
The Fund is classified under the 1940 Act as "non-diversified". A
non-diversified investment company is defined in the 1940 Act as any investment
company other than a diversified company. A diversified company cannot purchase
the securities of an issuer if the purchase would cause more than 5% of the
diversified investment company's total assets taken at market value to be
invested in the securities of such issuer, except U.S. government securities, or
if the purchase would cause more than 10% of the outstanding voting securities
of any one issuer to be held in the diversified investment company's portfolio.
These restrictions apply to 75% of the diversified investment company's total
assets. In general, in order to meet certain Internal Revenue Code requirements,
a non-diversified management investment company may have no more than 25% of its
total assets invested in the securities (other than U.S. government securities
or the shares of other regulated investment companies) of any one issuer and
must invest 50% of its total assets under the 5% of assets and 10% of
outstanding voting securities tests applicable to diversified investment
companies as described above. No change other than standardized language is
being proposed. Adoption of the change is not expected to materially affect the
operation of the Fund.
The Fund is not changing its current classification. As proposed, the
Fund's fundamental Restriction regarding non-diversification will be replaced
with the following fundamental Restriction:
"The Fund may not make any investment inconsistent
with the Fund's classification as a non-diversified
investment company under the Investment Company Act
of 1940."
Proposal 5B: To Amend the Fundamental Restriction Concerning Concentration of
the Fund's Assets in a Particular Industry.
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The Fund currently has a fundamental Restriction concerning the
concentration of investments in a particular industry. The staff of the SEC
takes the position that a mutual fund "concentrates" its investments in a
particular industry if more than 25% of the mutual fund's assets exclusive of
cash and U.S. government securities are invested in the securities of issuers in
such industry. The Fund's Restriction generally embodies the SEC staff
interpretation by stating that the Fund will not concentrate its investments in
a particular industry by investing more than 25% of its assets, exclusive of
cash and U.S. government securities in securities of issuers in any one
industry.
Shareholders are being requested to approve amendment of the foregoing
fundamental Restriction. As proposed, the Fund's current fundamental Restriction
regarding concentration of the Fund's assets in a particular industry will be
replaced by the following fundamental Restriction:
"The Fund may not concentrate its
investments in the securities of issuers
primarily engaged in any particular
industry (other than securities issued
or guaranteed by the U.S. government
or its agencies or instrumentalities."
The primary purpose of the proposed amendment is to adopt insofar as
possible a standardized Restriction regarding concentration. Adoption of this
change is not expected to materially affect the operation of the Funds.
Proposal 5C: To Amend The Fundamental Restriction concerning the Issuance of
Senior Securities
The Fund's current fundamental Restriction regarding the issuance of
senior securities generally states that the Fund shall not issue any senior
security and states the criteria under which a security is deemed not to be a
senior security.
It is proposed that shareholders approve replacing the Funds' current
fundamental Restriction concerning the issuance of senior securities with the
following fundamental Restriction governing the issuance of senior securities:
"Except as permitted under the
Investment Company Act of 1940,
the Fund may not issue senior securities."
The primary purpose of this proposed change is to standardize the
Fund's fundamental Restriction regarding senior securities.
The proposed fundamental Restriction clarifies that the Fund may issue
senior securities to the full extent permitted under the 1940 Act. Although the
definition of a "senior security" involves complex statutory and regulatory
concepts, a senior security is generally an obligation of the Fund which has a
claim to the Fund's assets or earnings that takes precedence over the claims of
the Fund's shareholders. The 1940 Act generally prohibits open-end investment
companies (i.e. mutual funds) from issuing any
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senior securities; however, under current SEC staff interpretations, mutual
funds are permitted to engage in certain types of transactions that might be
considered "senior securities" as long as certain conditions are satisfied. For
example, a transaction that obligates the Fund to pay money at a future date
(e.g., the purchase of securities to be settled on a date that is farther away
than the normal settlement period) may be considered a "senior security." A
mutual fund is permitted to enter into this type of transaction if it maintains
a segregated account containing liquid securities in an amount equal to its
obligation to pay cash for the securities at a future date. The Fund would
engage in transactions that could be considered to involve "senior securities"
only in accordance with applicable regulatory requirements under the 1940 Act.
Adoption of the proposed fundamental Restriction concerning senior
securities is not expected to materially affect the operation of the Fund.
However, adoption of a standardized fundamental Restriction will facilitate the
Fund's investment compliance efforts and will allow the Funds to respond to
legal, regulatory and market developments which may make the use of permissible
senior securities advantageous to the Fund and its shareholders.
Proposal 5D: To Amend The Fundamental Restriction Concerning Borrowing
Generally, the Fund's current fundamental Restriction concerning
borrowing states that the Fund shall not borrow money except in an amount not in
excess of 5% of the total assets of the Fund, and then only for emergency and
extraordinary purposes, which shall not prohibit escrow and collateral
arrangements in connection with investment in financial futures contracts and
related options. When reviewing the Fund's policies on borrowings as set forth
in Exhibit G, you should also review the Fund's policies on the issuance of
senior securities since the topics are interrelated.
In general, under the 1940 Act, a mutual fund may not borrow money,
except that (i) a fund may borrow from banks (as defined in the Investment
Company Act of 1940, as amended) or enter into reverse repurchase agreements, in
amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii)
a fund may borrow up to an additional 5% of its total assets for temporary
purposes, (iii) a fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of portfolio securities, and (iv) a fund
may not pledge its assets other than to secure such borrowings or, to the extent
permitted by the fund's investment policies, as such policies may be set forth
in its Prospectus and Statement of Additional Information, as they may be
amended from time to time, in connection with hedging transactions, short sales,
when-issued and forward commitment transactions and similar investment
strategies.
It is proposed that shareholders approve replacing the Fund's current
fundamental Restriction regarding borrowing with the following fundamental
Restriction:
"The Fund may not borrow money,
except to the extent permitted by
applicable law."
If the proposal is approved, the Fund will disclose that it will not
engage in leveraging. The primary purpose of the proposed change to the
fundamental Restriction concerning borrowing is to standardize the Restriction.
Adoption of the proposed Restriction is not currently expected to materially
affect
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the operation of the Fund. However, the Fund's current Restriction restricts
borrowing to a lower percentage of total assets than the 33 1/3% permitted under
the 1940 Act. The proposed Restriction therefore would allow the Fund to
purchase a security while borrowings representing more than 5% of total assets
are outstanding. While the Fund has no current intention to leverage, the
flexibility to do so may be beneficial to the Fund at a future date.
Proposal 5E: To Amend The Fundamental Restriction Concerning Underwriting
The Fund is currently subject to a fundamental Restriction concerning
underwriting. The Restriction generally provides that the Fund shall not
underwrite any securities. It is proposed that shareholders approve replacing
the current fundamental Restriction with the following fundamental Restriction
concerning underwriting:
"The Fund may not underwrite securities of other
issuers, except insofar as the Fund may technically
be deemed an underwriter in connection with the
disposition of its portfolio securities."
The primary purpose of the proposed change is to clarify that the Fund
is not prohibited from selling securities if, as a result of the sale, the Fund
would be considered an underwriter under the federal securities laws. It is also
intended to standardize the Fund's fundamental Restriction regarding
underwriting. While the proposed change will have no current impact on the Fund,
adoption of the proposed standardized fundamental Restriction will advance the
goals of standardization.
Proposal 5F: To Amend The Fundamental Restriction Concerning Investment in
Real Estate
The Fund currently has a fundamental Restriction concerning the
purchase of real estate. In general, the Restriction states that the Fund shall
not purchase or sell real estate. In the opinion of management, this Restriction
does not currently preclude investment in securities of issuers that deal in
real estate.
Shareholders are being asked to approve amendment of this Restriction.
As proposed, the Fund's current fundamental Restriction will be replaced by the
following fundamental Restriction which will govern future purchases and sales
of real estate:
"The Fund may not purchase or sell real estate,
except that, to the extent permitted by applicable
law, the Fund may invest in (a) securities directly
or indirectly secured by real estate, or (b)
securities issued by issuers that invest in real
estate."
The primary purpose of the proposed amendment is to clarify the types
of securities in which the Fund is authorized to invest and to standardize the
Fund's fundamental Restriction concerning real estate.
The proposed fundamental Restriction would make it explicit that the Fund
may
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acquire a security or other instrument whose payments of interest and principal
may be secured by a mortgage or other right to foreclose on real estate, in the
event of default. Any investments in these securities are, of course, subject to
the Fund's investment objective and policies and to other limitations regarding
diversification and concentration.
To the extent that the Fund buys securities and instruments of
companies in the real estate business, the Fund's performance will be affected
by the condition of the real estate market. This industry is sensitive to
factors such as changes in real estate values and property taxes, overbuilding,
variations in rental income, and interest rates. Performance could also be
affected by the structure, cash flow, and management skill of real estate
companies.
While the proposed change will have no current impact on the Fund,
adoption of the proposed standardized fundamental Restriction will advance the
goal of standardization.
Proposal 5G: To Amend The Fundamental Investment Restriction Concerning
Commodities
The Fund currently is subject to a fundamental Restriction that
provides that the Fund will not purchase or sell commodities, commodity
contracts or commodity futures contracts.
It is proposed that shareholders approve replacing the current
fundamental Restrictions with the following fundamental Restriction concerning
commodities:
"The Fund may not purchase or sell commodities or
contracts on commodities except to the extent that
the Fund may engage in financial futures contracts
and related options and currency contracts and
related options and may otherwise do so in accordance
with applicable law and without registering as a
commodity pool operator under the Commodity Exchange
Act."
The proposed amendment is intended to allow the Fund to have the
flexibility to invest in futures contracts and related options, including
financial futures such as interest rate and stock index futures. The Fund
currently has the ability to invest in financial futures. Under the proposed
amendment, these types of securities may be used for hedging or for investment
purposes and involve certain risks.
While the proposed change will have no material impact on the operation
of the Funds, adoption of the proposed fundamental Restriction will advance the
goals of standardization.
Proposal 5H: To Amend The Fundamental Investment Restriction Concerning
Lending
The Fund's current fundamental Restriction concerning lending states
generally that the Fund will not lend its portfolio securities except that it
may acquire publicly or nonpublicly issued municipal securities or temporary
investments or enter into repurchase agreements as permitted by the Fund's
investment objective, policies, limitations and
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Charter. In general, it is the Fund's current policy that such loans must be
secured continuously by cash collateral maintained on a current basis in an
amount at least equal to the market value of the securities loaned, or by
irrevocable letters of credit. During the existence of the loan, the Fund must
continue to receive the equivalent of the interest and dividends paid by the
issuer on the securities loaned and interest on the investment of the
collateral; the Fund must have the right to call the loan and obtain the
securities loaned at any time on five days' notice, including the right to call
the loan to enable the Fund to vote the securities. To comply with previous (but
as a result of federal legislation passed last year, now superseded)
requirements of certain state securities administrators, such loans were not to
exceed one-third of the Fund's net assets taken at market value.
It is proposed that shareholders approve the replacement of the
foregoing fundamental Restriction with the following amended fundamental
Restriction concerning lending:
"The Fund may not make loans to other persons, except
that the Fund may lend its portfolio securities, in
accordance with applicable law. The acquisition of
investment securities or other investment instruments
shall not be deemed to the making of a loan."
The proposal is not expected to materially affect the operation of the
Fund. However, the proposed Restriction would clarify the Fund's ability to
invest in direct debt instruments such as loans and loan participations, which
are interests in amounts owed to another party by a company, government or other
borrower. These types of securities may have additional risks beyond
conventional debt securities because they may provide less legal protection for
the Fund, or there may be a requirement that the Fund supply additional cash to
a borrower on demand.
The adoption of a standardized fundamental Restriction, will advance
the goals of standardization.
Proposal 5I: To Amend the Fundamental Restriction Concerning Investment in
Federally Tax Exempt Securities
The 1940 Act provides, in effect, that a mutual fund cannot use a name
or title which, may be deceptive or misleading. If a fund's name suggests a
certain type of investment policy, its name should be consistent with its
statement of policy. The SEC staff has taken the position that if a mutual
fund's name implies that its distributions will be exempt from federal income
taxation it should have a fundamental policy requiring that during periods of
normal market conditions either (1) the fund's assets will be invested so that
at least 80% of the income will be tax-exempt or (2) the fund will have at least
80% of its net assets invested in tax-exempt securities. The Fund currently has
a fundamental policy complying with the foregoing requirement.
It is proposed that shareholders of the Fund approve replacing the
Fund's current fundamental Restriction regarding the foregoing 80% test with the
following fundamental Restriction:
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"The Fund will, during periods of normal market
conditions, invest its assets in accordance with
applicable guidelines issued by the Securities and
Exchange Commission or its staff concerning
investment in tax-exempt securities."
This proposed fundamental Restriction, if adopted by shareholders, will
permit the Fund to respond to changed regulatory requirements without the delay
and expense of the solicitation of shareholder approval. Adoption of the
proposed change is not expected to materially affect the operation of the Fund
and the Fund will continue to follow applicable SEC staff guidelines as embodied
in the Fund's current fundamental Restriction.
Proposal 5J:Reclassification as Nonfundamental of All Current Fundamental
Restrictions Other than the Fundamental Restrictions Described in
the Foregoing Proposals 5A through 5I.
Like all mutual funds, when the Fund was established the Trustees of
the Current Trust adopted certain investment Restrictions that would govern the
efforts of the Fund's investment advisers in seeking the Fund's investment
objectives. Some of these Restrictions were designated as "fundamental" and, as
such, may not be changed unless the change has first been approved by the
Trustees and then by the shareholders of the Fund. Many of the Fund's investment
restrictions were required to be classified as fundamental under the securities
laws of various states. Since October 1996, such state securities laws and
regulations regarding fundamental investment restrictions have been preempted by
federal law and no longer apply.
The Fund's fundamental Restrictions were established to reflect certain
regulatory, business or industry conditions as they existed at the time the Fund
was established. Many such conditions no longer exist. The 1940 Act requires
only that the Restrictions discussed in Proposals 5A through 5H above be
classified as fundamental and certain SEC staff guidelines require Proposal 5I
to be classified as fundamental. As a result, this Proposal 5J proposes to
reclassify as nonfundamental all current fundamental Restrictions of the Fund
other than the fundamental Restrictions discussed in the foregoing Proposals 5A
through 5I.
Nonfundamental Restrictions may be changed or eliminated by the Fund's
Trustees at any time without approval of the Fund's shareholders. The current
fundamental Restrictions proposed to be reclassified as nonfundamental are shown
in Exhibit G by an "R", which stands for "To be Reclassified."
None of the proposed changes will alter the Fund's investment
objective. Indeed, the Trustees believe that approval of the reclassification of
fundamental Restrictions to nonfundamental Restrictions will enhance the ability
of the Funds to achieve its investment objectives because the Fund's investment
adviser will have greater investment management flexibility to respond to
changed market, industry or regulatory conditions without the delay and expense
of the solicitation of shareholder approval.
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VOTING INFORMATION CONCERNING THE MEETING
At the close of business on November 30, 1997, there were issued
and outstanding _____ shares of the Trust Class of shares and _________ shares
of the Investment Class of shares of the Fund.
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 each proposal listed thereon and FOR any
other matters deemed appropriate. Proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote or (ii) the broker or nominee does not have discretionary
voting power on a particular matter) will be counted as shares that are present
and entitled to vote for purposes of determining the presence of a quorum, but
will have no effect on the outcome of the vote to approve any proposal requiring
a vote based on the percentage of shares actually voted. A proxy may be revoked
at any time on or before the Meeting by written notice to the Secretary of the
Fund, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3799. 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 each proposal listed thereon and
FOR any other matters deemed appropriate.
Each full share outstanding is entitled to one vote and each
fractional share outstanding is entitled to a proportionate share of one vote.
The number of shares of each Fund outstanding as of the close of business on
October 16, 1997 is set forth in Exhibit H.
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, its affiliates or other
representatives of the Fund (who will not be paid for their solicitation
activities). Shareholder Communications Corporation ("SCC") and its agents have
also been engaged by the Fund to assist in soliciting proxies. Any proxy given
by you is revocable.
In the event that sufficient votes to approve a proposal are not
received, 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.
Neither the Fund nor the Successor Fund is required or intends to
hold annual or other periodic meeting of shareholders except as may be required
by the 1940 Act. If the Reorganization is not approved by shareholders of the
Fund, the next meeting of the
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shareholders of the Fund will be held at such time as the Board may determine or
as may be legally required. If the Reorganization is 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 Successor Fund at Evergreen Funds, 200 Berkeley Street, Boston,
Massachusetts 02116 such that they will be received by the Fund in a reasonable
period of time prior to any such meeting.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES. Please advise each Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this proxy statement needed to supply copies to the beneficial owners of the
respective shares.
ADDITIONAL INFORMATION
Payment of Expenses
FUNB will pay for the preparation, printing and mailing to its
shareholders of the proxy, accompanying notice of meeting and this proxy
statement and any supplementary solicitation of its shareholders.
It is expected that the cost of retaining SCC to assist in the
proxy solicitation process will not exceed $_________.
Beneficial Ownership
As of November 30, 1997, no person was known by the Fund to own
beneficially 5% or more of the Fund's outstanding shares [except as follows: TO
BE SUPPLIED]. On November 30, 1997, the existing Trustees and officers of the
Fund, together as a group, "beneficially owned" less than one percent of the
Fund's outstanding Shares. The term "beneficial ownership" is as defined under
Section 13(d) of the Securities Exchange Act of 1934. The information as to
beneficial ownership is based on statements furnished to the Fund by the
existing Trustees, officers of such Fund, and/or on the records of the Fund.
Annual and Semi-Annual Reports to Shareholders
The Fund will furnish, without charge, a copy of its most recent
annual report (and most recent semi-annual report succeeding the annual report,
if any) to a shareholder of the Fund upon request. Any such request should be
directed to the Fund at the address on the first page of this Proxy Statement or
at 800 - ______.
OTHER BUSINESS
The Board does 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 proxy card(s) will vote thereon in
accordance with their judgment.
THE BOARD, INCLUDING ITS INDEPENDENT TRUSTEES, RECOMMENDS
APPROVAL OF EACH PROPOSAL AND ANY UNMARKED PROXIES WITHOUT
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INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE
PROPOSALS.
January __, 1998
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<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF CONVERSION
AGREEMENT AND PLAN OF CONVERSION dated as of November 26, 1997 (the
"Agreement") between The Virtus Funds, a Massachusetts business trust ("Virtus
Funds"), with respect to its The Maryland Municipal Bond Fund series with its
principal place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 (the "Fund") and Evergreen Municipal Trust (the
"Trust"), a Delaware business trust, with respect to its Maryland Municipal Bond
Fund having an office at 200 Berkeley Street, Boston, Massachusetts 02116.
WHEREAS, the Board of Trustees of the Virtus Funds and the Board of
Trustees of the Trust have determined that it is in the best interests of the
Fund and the Trust, respectively, that the assets of the Fund be acquired by a
new series of the Trust pursuant to this Agreement and in accordance with the
applicable laws of the Commonwealth of Massachusetts and the State of Delaware;
and
WHEREAS, the parties desire to enter into a plan of exchange which
would constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"):
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. Plan of Exchange.
(a) Subject to the terms and conditions set forth herein, on the
Exchange Date (as defined herein) the Fund shall assign, transfer and convey its
assets, including all securities and cash held by the Fund (subject to the
liabilities of the Fund) to a corresponding series of the Trust (the "Successor
Fund"), and the Successor Fund shall acquire all of the assets of the Fund
(subject to the liabilities of the Fund) in exchange for full and fractional
Class A and Class Y shares of beneficial interest of the Successor Fund, $.001
par value per share (the "Fund Shares"), to be issued by the Trust, having an
aggregate net asset value equal to the value of the net assets of the Fund. The
value of the assets of the Fund and the net asset value per share of the Fund
Shares shall be determined as of the Valuation Date (as defined herein) in
accordance with the procedures for determining the value of the Fund's assets
set forth in the Successor Fund's organizational documents and the then-current
prospectus and statement of addition information for the Fund that forms a part
of the Successor Fund's Registration Statement on Form N-1A (the "Registration
Statement"). In lieu of delivering certificates for the Fund Shares, the Trust
shall credit the Fund Shares to the Fund's account on the share record books of
the Trust and shall deliver a confirmation thereof to the Fund. The Fund shall
then deliver written instructions to the Trust's transfer agent to establish
accounts for the shareholders on the share record books relating to the Fund.
The Fund currently offers Trust shares and Investment shares. Holders of Trust
shares will receive Class Y shares of the Successor Fund and holders of
Investment shares will receive Class A shares of the Successor Fund. Fund Shares
of each such class shall have the same aggregate net asset value as the
aggregate net asset value of the corresponding class of the Fund.
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(b) Delivery of the assets of the Fund to be transferred shall be
made not later than the next business day following the Valuation Date (the
"Exchange Date"). Assets transferred shall be delivered to State Street Bank and
Trust Company, the Trust's custodian (the "Custodian"), for the account of the
Trust and the Successor Fund with all securities not in bearer or book entry
form duly endorsed, or accompanied by duly executed separate assignments or
stock powers, in proper form for transfer, with signatures guaranteed, and with
all necessary stock transfer stamps, sufficient to transfer good and marketable
title thereto (including all accrued interest and dividends and rights
pertaining thereto) to the Custodian for the account of the Trust and the
Successor Fund free and clear of all liens, encumbrances, rights, restrictions
and claims. All cash delivered shall be in the form of immediately available
funds payable to the order of the Custodian for the account of the Trust and the
Successor Fund.
(c) Virtus Funds will pay or cause to be paid to the Trust any
interest received on or after the Exchange Date with respect to assets
transferred from the Fund to the Successor Fund hereunder and to the Trust and
any distributions, rights or other assets received by Virtus Funds after the
Exchange Date as distributions on or with respect to the securities transferred
from the Fund to the Successor Fund hereunder. All such assets shall be deemed
included in assets transferred to the Successor Fund on the Exchange Date and
shall not be separately valued.
(d) The Valuation Date shall be February 26, 1998, or such earlier
or later date as may be mutually agreed upon by the parties.
(e) As soon as practicable after the Exchange Date, Virtus Funds
shall distribute all of the Fund Shares received by it among the shareholders of
the Fund in proportion to the number of shares each such shareholder holds in
the Fund. After the Exchange Date, the Fund shall not conduct any business
except in connection with its dissolution and termination.
(f) All costs incurred by the Fund in connection with the
transactions contemplated by this Agreement shall be borne by First Union
National Bank.
2. Virtus Funds' Representations and Warranties. Virtus Funds
represents and warrants to and agrees with the Trust as follows:
(a) Virtus Funds is a business trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Massachusetts and has power to own all of its properties and assets and, subject
to the approval of its shareholders as contemplated hereby, to carry out this
Agreement.
(b) Virtus Funds is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
and such registration has not been revoked or rescinded and is in full force and
effect.
(c) Except as shown on the audited financial statements of Virtus
Funds for its most recently completed fiscal period and as incurred in the
ordinary course of the Virtus Funds' and the Fund's business since then, neither
Virtus Funds nor the Fund has any known liabilities of a material amount,
contingent or otherwise, and there are no material legal, administrative or
other proceedings pending or threatened against Virtus Funds or the Fund.
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(d) On the Exchange Date, Virtus Funds will have full right, power
and authority to sell, assign, transfer and deliver the Fund's assets to be
transferred by it hereunder.
3. The Trust's Representations and Warranties. The Trust represents
and warrants to and agrees with Virtus Funds as follows:
(a) The Trust is a business trust duly organized, validly existing
and in good standing under the laws of the State of Delaware and has power to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) The Trust is registered as an open-end management investment
company and will adopt the Registration Statement of the Virtus Funds with
respect to the Fund, for purposes of the Securities Act of 1933, as amended,
(the "1933 Act") and the 1940 Act, if applicable.
(c) Neither the Trust nor the Successor Fund has any known
liabilities of a material amount, contingent or otherwise, and there are no
material legal, administrative or other proceedings pending or threatened
against the Trust or the Successor Fund. Other than organizational activities,
the Successor Fund has not engaged in any business activities.
(d) At the Exchange Date, the Fund Shares to be issued to Virtus
Funds (the only Fund Shares to be issued as of the Exchange Date, except for the
initial capital, if any, of the Trust) will have been duly authorized and, when
issued and delivered pursuant to this Agreement, will be legally and validly
issued and will be fully paid and non-assessable by the Trust. No Trust or
Successor Fund shareholder will have any preemptive right of subscription or
purchase in respect thereof.
4. The Trust's Conditions Precedent. The obligations of the Trust
hereunder shall be subject to the following conditions:
(a) Virtus Funds shall have furnished to the Trust a statement of
the Fund's assets, including a list of securities owned by the Fund with their
respective tax costs and values determined as provided in Section 1 hereof, all
as of the Valuation Date.
(b) As of the Exchange Date, all representations and warranties of
Virtus Funds made in this Agreement shall be true and correct as if made at and
as of such date, and Virtus Funds shall have complied with all the agreements
and satisfied all the conditions on its part to be performed or satisfied at or
prior to such date.
(c) A vote of the shareholders of the Fund approving this Agreement
and the transactions and exchange contemplated hereby shall have been adopted by
the vote required by applicable law.
5. Virtus Funds' Conditions Precedent. The obligations of Virtus Funds
hereunder with respect to the Fund shall be subject to the
condition that as of the Exchange Date all representations and
warranties of the Trust made in the Agreement shall be true and
correct as if made at and as of such date, and that the Trust shall
have complied with all of the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to
such date.
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6. The Trust's and the Virtus Funds' Conditions Precedent. The
obligations of both the Trust and the Virtus Funds hereunder as to
the Fund and the Successor Fund shall be subject to the following
conditions:
(a) The receipt of such authority, including "no-action" letters
and orders from the Securities and Exchange Commission (the "Commission") or
state securities commissions, as may be necessary to permit the parties to carry
out the transaction contemplated by this Agreement shall have been received.
(b) The Trust's adoption of the Registration Statement on Form N-1A
under the 1933 Act and the 1940 Act, if applicable, shall have become effective,
and any post-effective amendments to such Registration Statement as are
determined by the Trustees of the Trust to be necessary and appropriate shall
have been filed with the Commission and shall have become effective.
(c) The Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the reorganization
transaction contemplated hereby under Section 25(c) of the 1940 Act and no other
action, suit or other proceeding shall be threatened or pending before any court
or governmental agency which seeks to restrain or prohibit, or obtain damages or
other relief in connection with, this Agreement or the transaction contemplated
herein.
(d) Each party shall have received an opinion of Sullivan &
Worcester LLP that the Trust is duly formed and existing under the laws of the
State of Delaware and that the shares of the Successor Fund to be issued
pursuant to the terms of this Agreement have been duly authorized, and, when
issued and delivered as provided in this Agreement, will have been validly
issued, fully paid and nonassessable.
(e) Each party shall have received an opinion of Sullivan &
Worcester LLP to the effect that the reorganization contemplated by this
Agreement qualifies as a "reorganization" under Section 368(a)(1) of the Code,
and each party shall have received an opinion of Sullivan & Worcester LLP to the
effect that the Successor Fund, established pursuant to the Agreement and
Declaration of Trust of the Trust, will be treated as a separate association
taxable as a corporation for federal income tax purposes as a regulated
investment company under the Code.
Provided, however, that at any time prior to the Exchange Date, any
of the foregoing conditions in this Section 6 may be waived by the parties if,
in the judgment of the parties, such waiver will not have a material adverse
effect on the benefits intended under this Agreement to the shareholders of the
Fund.
7. Termination of Agreement. This Agreement and the transactions contemplated
hereby may be terminated and abandoned by resolution of the Board of
Trustees of Virtus Funds or the Board of Trustees of the Trust at any time
prior to the Exchange Date (and notwithstanding any vote of the
shareholders of the Fund) if circumstances should develop that, in the
opinion of either the Board of Trustees of Virtus Funds or the Board of
Trustees of the Trust, make proceeding with this Agreement inadvisable.
If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 7, this Agreement
shall become
A-4
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void and have no effect, without any liability on the part of any party hereto
or the Trustees, officers or shareholders of the Trust or the Trustees, officers
or shareholders of Virtus Funds, in respect of this Agreement.
8. Waiver and Amendments. At any time prior to the Exchange Date, any of the
conditions set forth in Section 4 may be waived by the Board of the Trust,
and any of the conditions set forth in Section 5 may be waived by the Board
of Virtus Funds, if, in the judgment of the waiving party, such waiver will
not have a material adverse effect on the benefits intended under this
Agreement to the shareholders of the Fund or the shareholders of the
Successor Fund, as the case may be. In addition, prior to the Exchange
Date, any provision of this Agreement may be amended or modified by the
Boards of Virtus Funds and the Trust if such amendment or modification
would not have a material adverse effect upon the benefits intended under
this Agreement and would be consistent with the best interests of
shareholders of the Fund and the Successor Fund.
9. No Survival of Representations. None of the representations and warranties
included or provided for herein shall survive consummation of the
transactions contemplated hereby.
10. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws; provided, however, that
the due authorization, execution and delivery of this Agreement, in
the case of Virtus Funds, shall be governed and construed in
accordance with the laws of the Commonwealth of Massachusetts
without giving effect to principles of conflict of laws.
11. Capacity of Trustees, Etc. With respect to Virtus Funds, the names refer
respectively to the trust created and, as the case may be, the Trustees, as
trustees but not individually or personally, acting from time to time under
organizational documents filed in the Virtus Funds' state of organization,
which is hereby referred to and is also on file at the principal office of
Virtus Funds. The obligations of Virtus Funds entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are
made not individually, but in such capacities, and are not binding upon any
of the Trustees, shareholders or representatives of Virtus Funds
personally, but bind only the trust property, and all persons dealing with
any fund of Virtus Funds must look solely to the trust property belonging
to the Fund for the enforcement of any claims against Virtus Funds.
12. Counterparts. This Agreement may be executed in counterparts, each
of which, when executed and delivered, shall be deemed to be an
original.
IN WITNESS WHEREOF, Virtus Funds and the Trust have caused this
Agreement and Plan of Conversion to be executed as of the date above first
written.
THE VIRTUS FUNDS
ON BEHALF OF THE
MARYLAND MUNICIPAL BOND FUND
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ATTEST:_________________________ By:_________________________
Title:
EVERGREEN MUNICIPAL TRUST
ATTEST:_________________________ By:_________________________
Title:
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<PAGE>
EXHIBIT B
Form of Investment Advisory Agreement
between the Successor Trust on behalf of
the Maryland Municipal Bond Fund and FUNB
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
AGREEMENT made the day of 1997, by and between EVERGREEN MUNICIPAL
TRUST, a Delaware business trust (the "Trust") and THE CAPITAL MANAGEMENT GROUP
OF FIRST UNION NATIONAL BANK, a national banking association (the "Adviser").
WHEREAS, the Trust and the Adviser wish to enter into an Agreement
setting forth the terms on which the Adviser will perform certain services for
the Trust, its series of shares as listed on Schedule 1 to this agreement and
each series of shares subsequently issued by the Trust (each singly a "Fund" or
collectively the "Funds").
THEREFORE, in consideration of the promises and the mutual
agreements hereinafter contained, the Trust and the Adviser agree as follows:
1. (a) The Trust hereby employs the Adviser to manage and
administer the operation of the Trust and each of its Funds, to supervise the
provision of the services to the Trust and each of its Funds by others, and to
manage the investment and reinvestment of the assets of each Fund of the Trust
in conformity with such Fund's investment objectives and restrictions as may be
set forth from time to time in the Fund's then current prospectus and statement
of additional information, if any, and other governing documents, all subject to
the supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this Agreement. The Adviser hereby accepts such employment
and agrees during such period, at its own expense, to render the services and to
assume the obligations set forth herein, for the compensation provided herein.
The Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
(b) In the event that the Trust establishes one or more Funds, in
addition to the Funds listed on Schedule 1, for which it wishes the Adviser to
perform services hereunder, it shall notify the Adviser in writing. If the
Adviser is willing to render such services, it shall notify the Trust in writing
and such Fund shall become a Fund hereunder and the compensation payable to the
Adviser by the new Fund will be as agreed in writing at the time.
2. The Adviser shall place all orders for the purchase and sale of
portfolio securities for the account of each Fund with broker-dealers selected
by the Adviser. In executing portfolio transactions and selecting
broker-dealers, the Adviser will use its best efforts to seek best execution on
behalf of each Fund. In assessing the best execution available for any
transaction, the Adviser shall consider all factors it deems relevant, including
the breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker-dealer, and the
reasonableness of the
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commission, if any (all for the specific transaction and on a continuing basis).
In evaluating the best execution available, and in selecting the broker-dealer
to execute a particular transaction, the Adviser may also consider the brokerage
and research services (as those terms are used in Section 28(e) of the
Securities Exchange Act of 1934 (the "1934 Act")) provided to a Fund and/or
other accounts over which the Adviser or an affiliate of the Adviser exercises
investment discretion. The Adviser is authorized to pay a broker-dealer who
provides such brokerage and research services a commission for executing a
portfolio transaction for a Fund which is in excess of the amount of commission
another broker-dealer would have charged for effecting that transaction if, but
only if, the Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer viewed in terms of that particular transaction or
in terms of all of the accounts over which investment discretion is so
exercised.
3. The Adviser, at its own expense, shall furnish to the Trust
office space in the offices of the Adviser or in such other place as may be
agreed upon by the parties from time to time, all necessary office facilities,
equipment and personnel in connection with its services hereunder, and shall
arrange, if desired by the Trust, for members of the Adviser's organization to
serve without salaries from the Trust as officers or, as may be agreed from time
to time, as agents of the Trust. The Adviser assumes and shall pay or reimburse
the Trust for:
(a) the compensation (if any) of the Trustees of the Trust who are
affiliated with the Adviser or with its affiliates, or with any adviser retained
by the Adviser, and of all officers of the Trust as such, and
(b) all expenses of the Adviser incurred in connection with its
services hereunder.
The Trust assumes and shall pay all other expenses of the Trust and its
Funds, including, without limitation: (a) all charges and expenses of any
custodian or depository appointed by the Trust for the safekeeping of the cash,
securities and other property of any of its Funds; (b) all charges and expenses
for bookkeeping and auditors; (c) all charges and expenses of any transfer
agents and registrars appointed by the Trust; (d) all fees of all Trustees of
the Trust who are not affiliated with the Adviser or any of its affiliates, or
with any adviser retained by the Adviser; (e) all brokers' fees, expenses, and
commissions and issue and transfer taxes chargeable to a Fund in connection with
transactions involving securities and other property to which the Fund is a
party; (f) all costs and expenses of distribution of shares of its Funds
incurred pursuant to Plans of Distribution adopted under Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"); (g) all taxes and trust fees
payable by the Trust or its Funds to Federal, state, or other governmental
agencies; (h) all costs of certificates representing shares of the Trust or its
Funds; (i) all fees and expenses involved in registering and maintaining
registrations of the Trust, its Funds and of their shares with the Securities
and Exchange Commission (the "Commission") and registering or qualifying the
Funds' shares under state or other securities laws, including, without
limitation, the preparation and printing of registration statements,
prospectuses, and statements of additional information for filing with the
Commission and other authorities; (j) expenses of preparing, printing, and
mailing prospectuses and statements of
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additional information to shareholders of each Fund of the Trust; (k) all
expenses of shareholders' and Trustees' meetings and of preparing, printing, and
mailing notices, reports, and proxy materials to shareholders of the Funds; (l)
all charges and expenses of legal counsel for the Trust and its Funds and for
Trustees of the Trust in connection with legal matters relating to the Trust and
its Funds, including, without limitation, legal services rendered in connection
with the Trust and its Funds' existence, trust, and financial structure and
relations with its shareholders, registrations and qualifications of securities
under Federal, state, and other laws, issues of securities, expenses which the
Trust and its Funds has herein assumed, whether customary or not, and
extraordinary matters, including, without limitation, any litigation involving
the Trust and its Funds, its Trustees, officers, employees, or agents; (m) all
charges and expenses of filing annual and other reports with the Commission and
other authorities; and (n) all extraordinary expenses and charges of the Trust
and its Funds.
In the event that the Adviser provides any of these services or
pays any of these expenses, the Trust and any affected Fund will promptly
reimburse the Adviser therefor.
The services of the Adviser to the Trust and its Funds hereunder
are not to be deemed exclusive, and the Adviser shall be free to render similar
services to others.
4. As compensation for the Adviser's services to the Trust with
respect to each Fund during the period of this Agreement, the Trust will pay to
the Adviser a fee at the annual rate set forth on Schedule 2 for such Fund.
The Adviser's fee is computed as of the close of business on each
business day.
A pro rata portion of the Trust's fee with respect to a Fund shall
be payable in arrears at the end of each day or calendar month as the Adviser
may from time to time specify to the Trust. If and when this Agreement
terminates, any compensation payable hereunder for the period ending with the
date of such termination shall be payable upon such termination. Amounts payable
hereunder shall be promptly paid when due.
5. The Adviser may enter into an agreement to retain, at its own
expense, a firm or firms ("SubAdviser") to provide the Trust with respect to all
or any of its Funds all of the services to be provided by the Adviser hereunder,
if such agreement is approved as required by law. Such agreement may delegate to
such SubAdviser all of Adviser's rights, obligations, and duties hereunder.
6. The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Trust or any of its Funds in
connection with the performance of this Agreement, except a loss resulting from
the Adviser's willful misfeasance, bad faith, gross negligence, or from reckless
disregard by it of its obligations and duties under this Agreement. Any person,
even though also an officer, Director, partner, employee, or agent of the
Adviser, who may be or become an officer, Trustee, employee, or agent of the
Trust, shall be deemed, when rendering services to the Trust or any of its Funds
or acting on any business of the Trust or any of its Funds (other than services
or business in connection with the Adviser's duties hereunder), to be rendering
such services to or acting solely for the Trust or any of its Funds and not as
an officer, Director, partner, employee, or agent or one under the control or
direction of the Adviser
B-3
<PAGE>
even though paid by it.
7. The Trust shall cause the books and accounts of each of its
Funds to be audited at least once each year by a reputable independent public
accountant or organization of public accountant or organization of public
accountants who shall render a report to the Trust.
8. Subject to and in accordance with the Declaration of Trust of
the Trust, the governing documents of the Adviser and the governing documents of
any SubAdviser, it is understood that Trustees, Directors, officers, agents and
shareholders of the Trust or any Adviser are or may be interested in the Adviser
(or any successor thereof) as Directors and officers of the Adviser or its
affiliates, as stockholders of First Union Corporation or otherwise; that
Directors, officers and agents of the Adviser and its affiliates or stockholders
of First Union Corporation are or may be interested in the Trust or any Adviser
as Trustees, Directors, officers, shareholders or otherwise; that the Adviser
(or any such successor) is or may be interested in the Trust or any SubAdviser
as shareholder, or otherwise; and that the effect of any such adverse interests
shall be governed by the Declaration of Trust of the Trust, governing documents
of the Adviser and governing documents of any SubAdviser.
9. This Agreement shall continue in effect for two years from the
date set forth above and after such date (a) such continuance is specifically
approved at least annually by the Board of Trustees of the Trust or by a vote of
a majority of the outstanding voting securities of the Trust, and (b) such
renewal has been approved by the vote of the majority of Trustees of the Trust
who are not interested persons, as that term is defined in the 1940 Act, of the
Adviser or of the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
10. On sixty days' written notice to the Adviser, this Agreement
may be terminated at any time without the payment of any penalty by the Board of
Trustees of the Trust or by vote of the holders of a majority of the outstanding
voting securities of the unaffected Funds; and on sixty days' written notice to
the Trust, this Agreement may be terminated at any time without the payment of
any penalty by the Adviser. This Agreement shall automatically terminate upon
its assignment (as that term is defined in the 1940 Act). Any notice under this
Agreement shall be given in writing, addressed and delivered, or mailed postage
prepaid, to the other party at the main office of such party.
11. This Agreement may be amended at any time by an instrument in
writing executed by both parties hereto or their respective successors, provided
that with regard to amendments of substance such execution by the Trust shall
have been first approved by the vote of the holders of a majority of the
outstanding voting securities of the affected Funds and by the vote of a
majority of Trustees of the Trust who are not interested persons (as that term
is defined in the 1940 Act) of the Adviser, any predecessor of the Adviser, or
of the Trust, cast in person at a meeting called for the purpose of voting on
such approval. A "majority of the outstanding voting securities of the Trust or
the affected Funds" shall have, for all purposes of this Agreement, the meaning
provided therefor in the 1940 Act.
12. Any compensation payable to the Adviser hereunder for any
period other than a full year shall be proportionately adjusted.
B-4
<PAGE>
13. The provisions of this Agreement shall be governed, construed,
and enforced in accordance with the laws of The State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day and year first above written.
EVERGREEN MUNICIPAL TRUST
By:
Name:
Title:
THE CAPITAL MANAGEMENT GROUP
OF FIRST UNION NATIONAL BANK
By:
Name:
Title:
B-5
<PAGE>
Schedule 1
1. Evergreen Connecticut Municipal Bond Fund
2. Evergreen Florida Municipal Bond Fund
3. Evergreen Georgia Municipal Bond Fund
4. Evergreen New Jersey Tax Free Income Fund
5. Evergreen North Carolina Municipal Bond Fund
6. Evergreen South Carolina Municipal Bond Fund
7. Evergreen Virginia Municipal Bond Fund
8. Evergreen Florida High Income Municipal Bond Fund
9. Evergreen High Grade Tax Free Fund
10. Evergreen Short-Intermediate Municipal Fund
11. Evergreen Tax Exempt Money Market Fund
12. Evergreen Pennsylvania Tax Free Money Market Fund
13. Evergreen Maryland Municipal Bond Fund
Schedule 2
Fees for the Evergreen Maryland Municipal Bond Fund:
.75 of 1.00%
The advisory fee shall be accrued daily at the rate of 1/365th of
the applicable percentage applied to the daily net assets of the Evergreen
Maryland Municipal Bond Fund. The advisory fee so accrued shall be paid to FUNB
daily.
B-6
<PAGE>
EXHIBIT C
The names and addresses of the principal executive officers and directors
of Virtus Capital Management, Inc. are as follows:
OFFICERS:
<TABLE>
<CAPTION>
Name Address
<S> <C>
John Stephen Hall Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
Tanya Orr Bird Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
Josie Clemons Rosson Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS:
Name Address
<S> <C>
John S. Hall Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
Tanya Orr Bird Virtus Capital Management, Inc.
707 East Main Street
Suite 1300
Richmond, Virginia 23219
</TABLE>
C-1
<PAGE>
EXHIBIT D
The names and addresses of the directors and principal executive officers
of FUNB are as follows:
<TABLE>
<CAPTION>
<S> <C>
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
Anthony P. Terracciano President, First Union Corporation;
President First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation
Vice Chairman, First Union National Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief
Financial Officer, First Union Corporation;
Chief Financial Officer and Executive Vice
President
</TABLE>
All of the above persons are located at: First Union National Bank, One
First Union Center, Charlotte, North Carolina 28288.
D-1
<PAGE>
EXHIBIT E
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:
13. 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.
14. 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.
15. 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.
16. 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.
17. 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
or
E-1
<PAGE>
Classes' expenses exceed such lower expense limitation as the
Adviser may, by notice to the Trust, voluntarily declare to be
effective.
18. This Agreement shall begin for each Fund on the date
that the Trust executes an exhibit to this Contract
relating to such Fund. This Agreement shall remain in
effect for each Fund until the earlier of the Closing
Date defined in the Agreement and Plan of
Reorganization to be dated as of November 26, 1997 with
respect to each Fund or for two years from the date of
its execution and from year to year thereafter, subject
to the provisions for termination and all of the other
terms and conditions hereof if: (a) such continuation
shall be specifically approved at least annually by the
vote of a majority of the Trustees of the Trust,
including a majority of the Trustees who are not
parties to this Agreement or interested persons of any
such party (other than as Trustees of the Trust) cast
in person at a meeting called for that purpose; and (b)
Adviser shall not have notified the Trust in writing at
least sixty (60) days prior to the anniversary date of
this Agreement in any year thereafter that it does not
desire such continuation with respect to that Fund.
19. 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.
20. 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.
21. 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.
22. 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.
23. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust
and agrees that the obligations pursuant to this Agreement of a
particular Fund and of the Trust with respect to that particular
Fund be limited solely to the assets of that particular Fund, and
Adviser shall not seek satisfaction of any such obligation from
the assets of any other Fund, the shareholders of any Fund, the
Trustees, officers, employees or agents of the Trust, or any of
them.
E-2
<PAGE>
24. This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
25. This Agreement will become binding on the parties hereto upon their
execution of the attached exhibits to this Agreement.
E-3
<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
E-4
<PAGE>
EXHIBIT F
PROPOSED STANDARDIZED FUNDAMENTAL RESTRICTIONS
1. Diversification of Investments
The Fund may not make any investment inconsistent with the Fund's classification
as a non-diversified investment company under the Investment Company Act of
1940.
2. Concentration of the Fund's Assets in a Particular Industry
The Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities).
3. Issuance of Senior Securities
Except as permitted under the Investment Company Act
of 1940, as amended, the Fund may not issue senior
securities.
4. Borrowing
The Fund may not borrow money, except to the extent
permitted by applicable law.
5. Underwriting
The Fund may not underwrite securities of other
issuers, except insofar as the Fund may technically
be deemed an underwriter in connection with the
disposition of its portfolio securities.
6. Investment in Real Estate
The Fund may not purchase or sell real estate, except
that, to the extent permitted by applicable law, the
Fund may invest in (a) securities directly or
indirectly secured by real estate, or (b) securities
issued by issuers that
F-1
<PAGE>
invest in real estate.
7. Commodities
The Fund may not purchase or sell commodities or
contracts on commodities except to the extent that
the Fund may engage in financial futures contracts
and related options and currency contracts and
related options and may otherwise do so in accordance
with applicable law without registering as a
commodity pool operator under the Commodity Exchange
Act.
8. Lending
The Fund may not make loans to other persons, except
that the Fund may lend its portfolio securities in
accordance with applicable law. The acquisition of
investment securities or other investment instruments
shall not be deemed to be the making of a loan.
9. Investment in Federally Tax Exempt Securities
The Fund will, during periods of normal
market conditions, invest its assets in accordance with applicable guidelines,
issued by the Securities and Exchange Commission or its staff concerning
investment in tax-exempt securities for Funds with the words tax exempt, tax
free or municipal in their names.
F-2
<PAGE>
EXHIBIT G
<TABLE>
<CAPTION>
Topic THE MARYLAND MUNICIPAL BOND FUND
<S> <C> <C>
1. Diversification The Fund is a non-diversified investment
company, as defined by the Investment
(S) Company Act of 1940, as amended. As such,
there is no limit on the percentage of assets
which can be invested in any single issuer. To
meet federal tax requirements for qualifications
as a "regulated investment company" the Fund
will limit its investments so at the close of
each quarter of each fiscal year: (a) with
regard to at least 50% of its total assets no
more than 5% of its total assets is invested in
the securities of a single issuer, and (b) no
more than 25% of its total assets is invested in
the securities of a single issuer.
2. Concentration The Fund will not purchase securities if, as a
result of such purchase, 25% or more of the
(S) value of its total assets would be invested in
any one industry or in industrial development
bonds or other securities, the interest on which
is paid from revenues of similar types of
projects. However, the Fund may invest as
temporary investments more than 25% of the
value of its assets in cash or cash items,
securities issued or guaranteed by the U.S.
government, its agencies, or instrumentalities,
or instruments secured by these money market
instruments, such as repurchase agreements.
3. Issuing Senior Securities The
Fund will not issue senior
securities except that it may
borrow money directly or
through
(S) reverse repurchase agreements
in amounts up to one-third of
the value of its net assets,
including the amount borrowed.
G-1
<PAGE>
4. Borrowing The Fund may borrow money directly or
through reverse repurchase agreements in
(S) amounts up to one-third of the value of its net
assets, including the amount borrowed. The
Fund will not borrow money or engage in
reverse repurchase agreements for investment
leverage, but rather as a temporary,
extraordinary, or emergency measure or to
facilitate management of the portfolio by
enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is
deemed to be inconvenient or
disadvantageous. The Fund will not purchase
any securities while any borrowings in excess
of 5% of its total assets are outstanding.
During the period any reverse repurchase
agreements are outstanding, the Fund will
restrict the purchase of portfolio securities to
money market instruments maturing on or
before the expiration date of the reverse
repurchase agreements, but only to the extent
necessary to assure completion of the reverse
repurchase agreements.
5. Underwriting Securities The Fund will not underwrite any issue of
of Other Issuers securities, except as the Fund may be deemed
to be an underwriter under the Securities Act
(S) of 1933 in connection with the
sale of securities in
accordance with its investment
objective, policies, and
limitations.
6. Real Estate The Fund will not
purchase or sell real estate,
although it may invest in
securities of issuers
(S) whose business involves the
purchase or sale of real
estate or in securities which
are secured by real estate or
interests in real estate.
7. Commodities The Fund will not purchase or sell
commodities, commodity contracts or
(S) commodity futures contracts.
8. Loans to Others The Fund will not lend any of its assets, except
that it may acquire publicly or nonpublicly
(S) issued municipal securities or
temporary investments or enter
into repurchase agreements as
permitted by the Fund's
investment objective,
policies, limitations and
Declaration of Trust.
G-2
<PAGE>
9. Investment in Federally The Fund will invest its assets so that, under
Tax Exempt Securities normal circumstances, at least 80% of its
annual interest income is exempt from federal
(S) regular income taxes or at
least 80% of its net assets
are invested in obligations,
the interest income from which
is exempt from federal regular
income taxes.
Federal regular income tax
does not include the federal
individual alternative minimum
tax or the federal alternative
minimum tax for corporations.
10. Margin Purchases The Fund will
not purchase any securities on
margin but it may obtain such
short-term
(R) credits as may be necessary
for clearance of transactions.
11. Short Sales The Fund may not sell any securities short.
(R)
12. Pledges The Fund will not mortgage, pledge, or
hypothecate any assets except to secure
(R) permitted borrowings. In these cases the Fund
may pledge assets having a market value not
exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets
of the Fund at the time of the pledge. Margin
deposits for the purchase and sale of financial
futures contracts and related options are not
deemed to be a pledge.
13. Illiquid Securities The Fund
will not invest more than 10%
of its net assets in
securities subject to
restrictions
(R) on resale under the Securities
Act of 1933 (except certain
restricted securities which
meet the criteria for
liquidity as established by
the Board of Trustees).
14. Investment in State Tax The Fund will invest its assets so that,
under Exempt Securities normal circumstances, at least 80% of its
annual interest income is exempt from
(R) Maryland state income taxes or
at least 80% of its net assets
are invested in obligations,
the interest income from which
is exempt from Maryland state
income taxes.
</TABLE>
G-3
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE
THE EXPENSE OF ADDITIONAL MAILINGS
Please detach at perforation
before mailing.
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 20, 1998
The undersigned hereby appoints _____________, __________ and ____________
and each of them, attorneys and proxies for the undersigned, with full powers of
substitution and revocation, to represent the undersigned and to vote on behalf
of the undersigned all shares of the Maryland Municipal Bond Fund (the "Fund")
of The Virtus Trust (the "Trust"), which the undersigned is entitled to vote at
a special meeting of Shareholders of the Fund to be held at 200 Berkeley Street,
26th Floor, Boston, Massachusetts 02116 on February 20, 1998, at 2:00 p.m. and
any adjournments thereof (the "Meeting"). The undersigned hereby acknowledges
receipt of the Notice of Meeting and Proxy Statement, and hereby instructs said
attorneys and proxies to vote said shares as indicated hereon. Unless indicated
to the contrary, this proxy shall be deemed to grant authority to vote "FOR" all
proposals relating to the Fund. In their discretion, the proxies are authorized
to vote upon such other matters as may properly come before the Meeting. A
majority of the proxies present and acting at the Meeting in person or by
substitute (or, if only one shall be so present, then that one) shall have and
may exercise all of the powers and authority of said proxies hereunder. The
undersigned hereby revokes any proxy previously given.
NOTE: Please sign exactly as your name appears on this Proxy. If
joint owners, EITHER may sign this Proxy. When signing as
attorney, executor, administrator, trustee, guardian, or
corporate officer, please give your full title.
Date: , 1998
---------------------------
Signature(s)
Title(s), if applicable
-4-
<PAGE>
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
PLEASE SIGN, DATE AND RETURN YOUR PROXY
TODAY!
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. PLEASE
INDICATE YOUR VOTE BY AN "X" IN THE APPROPRIATE BOX BELOW. THIS PROXY
WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO BE TAKEN
ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C> <C> <C>
1. To approve the proposed Agreement and Plan [ ] [ ] [ ]
of Reorganization with the Successor Fund of
the Successor Trust
2. To approve the proposed new investment advisory [ ] [ ] [ ]
agreement between the Successor Trust on behalf
of the Successor Fund and the Capital Management
Group of First Union National Bank ("FUNB")
3. To approve an interim investment advisory [ ] [ ] [ ]
agreement between the Fund and Virtus Capital
Management, Inc. until the reorganization of the
Fund into the Successor Fund
4. To approve the proposed reclassification of the [ ] [ ] [ ]
Fund's investment objective from fundamental
to nonfundamental
5. To approve the proposed changes to the Fund's [ ] [ ] [ ]
fundamental investment restrictions
[ ] To vote against the proposed changes to
one or more of the specific fundamental
investment restrictions, but to approve
the others, fill in the box at the left AND
indicate the number(s) of the
fundamental investment restrictions
you do not want to change on this
line: ___________________________
6. To transact any other business that may come [ ] [ ] [ ]
before the Meeting or any adjournment thereof.
</TABLE>
-5-
<PAGE>
