1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
THE EVERGREEN LEXICON FUND
[Exact Name of Registrant as Specified in Charter]
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Rosemary D. Van Antwerp, Esq.
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025
Connecticut Avenue, N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940 (File No. 33-41918); accordingly, no fee is payable
herewith. Pursuant to Rule 429, this Registration Statement relates to the
aforementioned registration on Form N-1A. A Rule 24f-2 Notice for the
Registrant's fiscal year ended June 30, 1997 was filed with the Commission on or
about August 31, 1997.
It is proposed that this filing will become effective on December 29,
1997 pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
THE EVERGREEN LEXICON FUND
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
1. Beginning of Registration Cross Reference Sheet; Cover
Statement and Outside Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary; Comparison
of Investment Objectives and
Policies; Risks
4. Information About the Summary; Reasons for the
Transaction Reorganization; Comparative
Information on Shareholders'
Rights; Exhibit A (Agreement
and Plan of Reorganization)
5. Information about the Cover Page; Summary; Risks;
Registrant Comparison of Investment
Objectives and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary; Risks;
Company Being Acquired Comparison of Investment
Objective and Policies;
Comparative Information on
Shareholders' Rights;
Additional Information
<PAGE>
7. Voting Information Cover Page; Summary; Voting
Information Concerning the
Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of The Evergreen
Lexicon Fund - Evergreen
Intermediate-Term Government
Securities Fund dated
September 3, 1997
13. Additional Information Statement of Additional
about the Company Being Information of The Virtus
Acquired Funds - The Government
Securities Fund dated November
30, 1997
14. Financial Statements Financial Statements dated
June 30, 1997 of Evergreen
Intermediate-Term Government
Securities Fund; Financial
Statements of The Virtus Funds
- The Government Securities
Fund dated September 30, 1997;
Pro Forma Financial Statements
of Evergreen Intermediate Term
Government Securities Fund
<PAGE>
Item of Part C of Form N-14
15. Indemnification Incorporated by Reference to
Part A Caption - "Comparative
Information on Shareholders'
Rights - Liability and
Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
THE VIRTUS FUNDS
THE GOVERNMENT SECURITIES FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
January 5, 1998
Dear Shareholder,
I am writing to shareholders of The Government Securities Fund, a series of The
Virtus Funds (the "Fund"), to inform you of a Special Shareholders' meeting to
be held on February 20, 1998. Before that meeting, I would like your vote on the
important issues affecting your Fund as described in the attached
Prospectus/Proxy Statement.
The Prospectus/Proxy Statement includes two proposals. The first proposal
requests that shareholders consider and act upon an Agreement and Plan of
Reorganization whereby all of the assets of the Fund would be acquired by
Evergreen Intermediate Term Government Securities Fund in exchange for either
Class A or Class Y shares of Evergreen Intermediate Term Government Securities
Fund and the assumption by Evergreen Intermediate Term Government Securities
Fund of certain liabilities of the Fund. You will receive shares of Evergreen
Intermediate-Term Government Securities Fund having an aggregate net asset value
equal to the aggregate net asset value of your Fund shares. Details about
Evergreen Intermediate-Term Government Securities Fund's investment objective,
portfolio management team, performance, etc. are contained in the attached
Prospectus/Proxy Statement. The transaction is a non-taxable event for
shareholders.
The second proposal requests shareholder consideration of an Interim Investment
Advisory Agreement between the Fund and
Virtus Capital Management, Inc.
Information relating to the Interim Investment Advisory Agreement is contained
in the attached Prospectus/Proxy Statement.
The Board of Trustees has unanimously approved the proposals and recommends that
you vote FOR these proposals.
I realize that this Prospectus/Proxy Statement will take time to review, but
your vote is very important. Please take the time to familiarize yourself with
the proposals presented and sign and return your proxy card in the enclosed
postage paid envelope today.
<PAGE>
If we do not receive your completed proxy card after several weeks, you may be
contacted by our proxy solicitor, Shareholder Communications Corporation, who
will remind you to vote your shares.
Thank you for taking this matter seriously and participating in this important
process.
Sincerely,
[Name]
[Title]
The Virtus Funds
<PAGE>
[SUBJECT TO COMPLETION, NOVEMBER 28, 1997 PRELIMINARY COPY]
THE VIRTUS FUNDS
THE GOVERNMENT SECURITIES FUND
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of The Government Securities Fund, a series of The Virtus Funds
(the "Fund"), will be held at the offices of the Evergreen Funds, 200 Berkeley
Street, 26th Floor, Boston, Massachusetts 02116 on February 20, 1998 at
2:00 p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of November 26, 1997, providing for the acquisition of all
of the assets of the Fund by the Evergreen Intermediate Term Government
Securities Fund, a series of Evergreen Fixed Income Trust, ("Evergreen
Government") in exchange for shares of Evergreen Government and the assumption
by Evergreen Government of certain identified liabilities of the Fund. The Plan
also provides for distribution of such shares of Evergreen Government to
shareholders of the Fund in liquidation and subsequent termination of the Fund.
A vote in favor of the Plan is a vote in favor of the liquidation and
dissolution of the Fund.
2. To consider and act upon the Interim Investment Advisory Agreement
between the Fund and Virtus Capital
Management, Inc.
3. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
The Trustees of The Virtus Funds on behalf of the Fund have fixed the
close of business on December 26, 1997 as the record date for the determination
of shareholders of the Fund entitled to notice of and to vote at the Meeting or
any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT
<PAGE>
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
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of
assistance to you and may help to avoid the time and expense involved in
validating your vote if you fail to sign your proxy card(s) properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it
appears in the Registration on the proxy card(s).
2. JOINT ACCOUNTS: Either party may sign, but the name
of the party signing should conform exactly to a name shown in
the Registration on the proxy card(s).
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy
card(s) should be indicated unless it is reflected in the form of Registration.
For example:
REGISTRATION VALID SIGNATURE
CORPORATE
ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
f/b/o John B. Smith, Jr. UGMA
(2) John B. Smith, Jr. John B. Smith, Jr.,
Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998
Acquisition of Assets of
THE U.S. GOVERNMENT SECURITIES FUND
a series of
The Virtus Funds
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By and in Exchange for Shares of
EVERGREEN INTERMEDIATE TERM GOVERNMENT SECURITIES FUND
a series of
Evergreen Fixed Income Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being furnished to shareholders of
The U.S. Government Securities Fund ("Virtus Government") in connection with a
proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to
shareholders of Virtus Government for consideration at a Special Meeting of
Shareholders to be held on February 20, 1998 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts, 02116, and any
adjournments thereof (the "Meeting"). The Plan provides for all of the assets of
Virtus Government to be acquired by Evergreen Intermediate Term Government
Securities Fund ("Evergreen Government") in exchange for shares of Evergreen
Government and the assumption by Evergreen Government of certain identified
liabilities of Virtus Government (hereinafter referred to as the
"Reorganization"). Evergreen Government and Virtus Government are sometimes
hereinafter referred to individually as the "Fund" and collectively as the
"Funds." Following the Reorganization, shares of Evergreen Government will be
distributed to shareholders of Virtus Government in liquidation of Virtus
Government and such Fund will be terminated. Holders of Investment shares of
Virtus Government will receive Class A shares of Evergreen Government and
holders of Trust shares of Virtus Government will receive Class Y shares of
Evergreen Government. Each such class of shares of Evergreen Government has the
same Rule 12b-1 distribution-related fees, if any, as the shares of the class of
Virtus Government held by them prior to the Reorganization. No initial sales
charge will be imposed in connection with Class A shares of Evergreen Government
received by holders of Investment shares of Virtus Government. As a result of
the proposed Reorganization, shareholders of Virtus Government
<PAGE>
will receive that number of full and fractional shares of Evergreen Government
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of Virtus Government. The Reorganization is being
structured as a tax-free reorganization for federal income tax purposes.
Evergreen Government is a separate series of Evergreen Fixed Income
Trust, an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The investment objective of
Evergreen Government is to seek to preserve principal value and maintain a high
degree of liquidity while providing current income. The investment objective of
Virtus Government is substantially identical -- to provide current income. Each
Fund invests primarily in U.S. government securities.
Shareholders of Virtus Government are also being asked to approve the
Interim Investment Advisory Agreement with Virtus Capital Management, Inc., a
subsidiary of First Union Corporation ("Virtus") (the "Interim Advisory
Agreement") with the same terms and fees as the previous advisory agreement
between Virtus Government and Virtus. The Interim Advisory Agreement will be in
effect for the period of time between November 28, 1997, the date on which the
merger of Signet Banking Corporation with and into a wholly-owned subsidiary of
First Union Corporation was consummated, and the date of the Reorganization
(scheduled for on or about February 27, 1998).
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Evergreen Government that
shareholders of Virtus Government should know before voting on the
Reorganization. Certain relevant documents listed below, which have been filed
with the Securities and Exchange Commission ("SEC"), are incorporated in whole
or in part by reference. A Statement of Additional Information dated January 5,
1998, relating to this Prospectus/Proxy Statement and the Reorganization which
includes the financial statements of Evergreen Government dated June 30, 1997
and of Virtus Government dated September 30, 1997, has been filed with the SEC
and is incorporated by reference in its entirety into this Prospectus/Proxy
Statement. A copy of such Statement of Additional Information is available upon
request and without charge by writing to Evergreen Government at 200 Berkeley
Street, Boston, Massachusetts 02116 or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen Government dated September 3, 1997,
and its Annual Report for the fiscal year ended June 30, 1987 are incorporated
herein by reference in their entirety, insofar as they relate to Evergreen
Government
<PAGE>
only, and not to any other fund described therein. The Prospectuses, which
pertain (i) to Class A, Class B and Class C shares and (ii) to Class Y shares,
differ only insofar as they describe the separate distribution and shareholder
servicing arrangements applicable to the classes. Shareholders of Virtus
Government will receive, with this Prospectus/Proxy Statement, copies of the
Prospectus pertaining to the class of shares of Evergreen Government that they
will receive as a result of the consummation of the Reorganization. Additional
information about Evergreen Government is contained in its Statement of
Additional Information of the same date which has been filed with the SEC and
which is available upon request and without charge by writing to or calling
Evergreen Government at the address or telephone number listed in the preceding
paragraph.
The two Prospectuses of Virtus Government (which pertain (i) to Trust
shares and (ii) to Investment shares) dated November 30, 1997, insofar as they
relate to Virtus Government only, and not to any other funds described therein,
are incorporated herein in their entirety by reference. Copies of the
Prospectuses and related Statements of Additional Information dated the same
date, are available upon request without charge by writing to Virtus Government
at the address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-829-3863.
Included as Exhibits A and B to this Prospectus/Proxy Statement is a
copy of the Plan and the Interim Advisory Agreement, respectively.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits
or obligations of any bank and are not insured or otherwise protected by the
U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency and involve investment risk,
including possible loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES............................................6
SUMMARY .................................................................10
Proposed Plan of Reorganization..................................10
Tax Consequences.................................................12
Investment Objectives and Policies of the Funds..................12
Comparative Performance Information for each Fund................13
Management of the Funds..........................................14
Investment Advisers..............................................14
Administrators...................................................15
Portfolio Management.............................................15
Distribution of Shares...........................................15
Purchase and Redemption Procedures...............................17
Exchange Privileges..............................................18
Dividend Policy..................................................18
Risks............................................................19
REASONS FOR THE REORGANIZATION............................................21
Agreement and Plan of Reorganization ............................23
Federal Income Tax Consequences..................................25
Pro-forma Capitalization.........................................27
Shareholder Information..........................................29
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES..........................29
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS...........................31
Forms of Organization............................................31
Capitalization ..................................................31
Shareholder Liability............................................32
Shareholder Meetings and Voting Rights...........................33
Liquidation or Dissolution.......................................34
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT......................35
Introduction.....................................................35
Comparison of the Interim Advisory Agreement and the
Previous Advisory Agreement.................................36
Information About Virtus Government's Investment
Adviser.....................................................38
ADDITIONAL INFORMATION....................................................38
VOTING INFORMATION CONCERNING THE MEETING.................................39
FINANCIAL STATEMENTS AND EXPERTS..........................................41
<PAGE>
LEGAL MATTERS.............................................................42
OTHER BUSINESS............................................................42
APPENDIX A
EXHIBIT A
EXHIBIT B
EXHIBIT C
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts for Class Y and Class A shares of Evergreen Government set
forth in the following tables and in the examples are based on the expenses of
Evergreen Government for the period ended June 30, 1997. The amounts for Trust
and Investment shares of Virtus Government set forth in the following tables and
in the examples are based on the expenses for Virtus Government for the fiscal
year ended September 30, 1997. The pro forma amounts for Class Y and Class A
shares of Evergreen Government are based on what the combined expenses would
have been for Evergreen Government for the fiscal year ending June 30, 1997. All
amounts are adjusted for voluntary expense waivers.
The following tables show for Evergreen Government, Virtus Government
and Evergreen Government pro forma, assuming consummation of the Reorganization,
the shareholder transaction expenses and annual fund operating expenses
associated with an investment in the Class Y, Class A, Trust and Investment
shares of each Fund, as applicable.
<PAGE>
<TABLE>
<CAPTION>
Comparison of Class Y and Class A Shares
of Evergreen Government With Trust and
Investment Shares of Virtus Government
Evergreen
Government Virtus Government
Class Y Class A Trust Investment
Shareholder Transaction
Expenses
<S> <C> <C> <C> <C>
Maximum Sales Load None 3.25% None None
Imposed on Purchases
(as a percentage of
offering price)
Maximum Sales Load None None None None
Imposed on Reinvested
Dividends (as a
percentage of offering
price)
Contingent Deferred None None None 2.00%
Sales Charge (as a within five
percentage of original years of
purchase price or purchase
redemption proceeds, date and
whichever is lower) 0.00%
thereafter
Exchange Fee None None None None
Annual Fund Operating
Expenses (as a
percentage of average
daily net assets)
Management Fee 0.60% 0.60% 0.75% 0.75%
12b-1 Fees (1) None 0.05% None 0.25%
Other Expenses 0.21% 0.21% 0.25% 0.25%
Annual Fund Operating 0.81% 0.86% 1.00% 1.25%
Expenses
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Evergreen Government Pro Forma
Shareholder Transaction Expenses
Class Y Class A
<S> <C> <C>
Maximum Sales Load Imposed on None 3.25%
Purchases (as a percentage of
offering price)
Maximum Sales Load Imposed on None None
Reinvested Dividends (as a
percentage of offering price)
Contingent Deferred Sales Charge None None
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)
Exchange Fee None None
Annual Fund Operating Expenses (as
a percentage of average daily net
assets)
Management Fee 0.60% 0.60%
12b-1 Fees(1) None 0.05%
Other Expenses 0.21% 0.21%
--------- ----------
Annual Fund Operating Expenses
0.81% 0.86%
====== =======
</TABLE>
- ---------------
(1) Class A shares of Evergreen Government can pay up to 0.50% of average
daily net assets as a 12b-1 fee. For the foreseeable future, the Class
A 12b-1 fees will be limited to 0.05% of average daily net assets.
Examples. The following tables show for Evergreen Government and Virtus
Government, and for Evergreen Government pro forma, assuming consummation of the
Reorganization, examples of the cumulative effect of shareholder transaction
expenses and annual fund operating expenses indicated above on a $1,000
investment in each class of shares for the periods specified, assuming (i) a 5%
annual return and (ii) redemption at the end of such period and additionally,
for Investment
<PAGE>
shares, no redemption at the end of each period. In the case of Evergreen
Government pro forma, the examples do not reflect the imposition of the 3.25%
maximum sales load on purchases since Virtus Government shareholders who receive
Class A shares of Evergreen Government in the Reorganization or who purchase
additional Class A shares subsequent to the Reorganization will not incur any
sales load.
<TABLE>
<CAPTION>
Evergreen Government
One Year Three Five Ten Years
Years Years
<S> <C> <C> <C> <C>
Class Y $8 $26 $45 $100
Class A $41 $59 $79 $135
</TABLE>
<TABLE>
<CAPTION>
Virtus Government
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Trust $10 $32 $55 $122
Investment $33 $60 $89 $151
(Assuming
redemption at end
of period)
Investment $13 $40 $69 $151
(Assuming no
redemption at end
of period)
</TABLE>
<TABLE>
<CAPTION>
Evergreen Government - Pro Forma
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class Y $8 $26 $45 $100
Class A $9 $27 $48 $106
</TABLE>
The purpose of the foregoing examples is to assist Virtus Government
shareholders in understanding the various costs and expenses that an investor in
Evergreen Government as a result of the Reorganization would bear directly and
indirectly, as compared with the various direct and indirect expenses
<PAGE>
currently borne by a shareholder in Virtus Government. These examples should not
be considered a representation of past or future expenses or annual return.
Actual expenses may be greater or less than those shown.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy Statement,
and, to the extent not inconsistent with such additional information, the
Prospectuses of Evergreen Government dated September 3, 1997, and the
Prospectuses of Virtus Government dated November 30, 1997, (which are
incorporated herein by reference), the Plan and the Interim Advisory Agreement,
the forms of which are attached to this Prospectus/Proxy Statement as Exhibits A
and B, respectively.
Proposed Plan of Reorganization
The Plan provides for the transfer of all of the assets of Virtus
Government in exchange for shares of Evergreen Government and the assumption by
Evergreen Government of certain identified liabilities of Virtus Government. The
identified liabilities consist only of those liabilities reflected on the Fund's
statement of assets and liabilities determined immediately preceding the
Reorganization. The Plan also calls for the distribution of shares of Evergreen
Government to Virtus Government shareholders in liquidation of Virtus Government
as part of the Reorganization. As a result of the Reorganization, the holders of
Investment and Trust shares of Virtus Government will become the owners of that
number of full and fractional Class A and Class Y shares, respectively, of
Evergreen Government having an aggregate net asset value equal to the aggregate
net asset value of the shareholder's shares of Virtus Government, as of the
close of business immediately prior to the date that Virtus Government's assets
are exchanged for shares of Evergreen Government. See "Reasons for the
Reorganization - Agreement and Plan of Reorganization."
The Trustees of The Virtus Funds, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Reorganization would be in the best
interests of shareholders of Virtus Government, and that the interests of the
shareholders of Virtus Government will not be diluted as a result of the
transactions contemplated by the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of Virtus Government's shareholders.
<PAGE>
THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS
RECOMMENDS APPROVAL BY SHAREHOLDERS OF VIRTUS GOVERNMENT
OF THE PLAN EFFECTING THE REORGANIZATION.
The Trustees of Evergreen Fixed Income Trust have also approved the Plan
and, accordingly, Evergreen Government's participation in the Reorganization.
Approval of the Reorganization on the part of Virtus Government will
require the affirmative vote of a majority of Virtus Government's shares voted
and entitled to vote, with all classes voting together as a single class at a
Meeting at which a quorum of the Fund's shares is present. A majority of the
outstanding shares entitled to vote, represented in person or by proxy, is
required to constitute a quorum at the Meeting. See "Voting Information
Concerning the Meeting."
The merger (the "Merger") of Signet Banking Corporation ("Signet") with
and into a wholly-owned subsidiary of First Union Corporation ("First Union")
has been consummated and, as a result, by law the Merger terminated the
investment advisory agreement between Virtus and Virtus Government. Prior to
consummation of the Merger, Virtus Government received an order from the SEC
which permitted the implementation, without formal shareholder approval, of a
new investment advisory agreement between the Fund and Virtus and for a period
of not more than 120 days beginning on the date of the closing of the Merger and
continuing through the date the Interim Advisory Agreement is approved by the
Fund's shareholders (but in no event later than April 30, 1998). The Interim
Advisory Agreement has the same terms and fees as the previous investment
advisory agreement between Virtus Government and Virtus. The Reorganization is
scheduled to take place on or about February 27, 1998.
Approval of the Interim Advisory Agreement requires the affirmative
vote of (i) 67% or more of the shares of Virtus Government present in person or
by proxy at the Meeting, if holders of more than 50% of the shares of Virtus
Government outstanding on the record date are present, in person or by proxy, or
(ii) more than 50% of the outstanding shares of Virtus Government, whichever is
less. See "Voting Information Concerning the Meeting."
If the shareholders of Virtus Government do not vote to approve the
Reorganization, the Trustees will consider other possible courses of action in
the best interests of shareholders.
Tax Consequences
<PAGE>
Prior to or at the completion of the Reorganization, Virtus Government
will have received an opinion of counsel that the Reorganization has been
structured so that no gain or loss will be recognized by the Fund or its
shareholders for federal income tax purposes as a result of the receipt of
shares of Evergreen Government in the Reorganization. The holding period and
aggregate tax basis of shares of Evergreen Government that are received by
Virtus Government's shareholders will be the same as the holding period and
aggregate tax basis of shares of the Fund previously held by such shareholders,
provided that shares of the Fund are held as capital assets. In addition, the
holding period and tax basis of the assets of Virtus Government in the hands of
Evergreen Government as a result of the Reorganization will be the same as in
the hands of the Fund immediately prior to the Reorganization, and no gain or
loss will be recognized by Evergreen Government upon the receipt of the assets
of the Fund in exchange for shares of Evergreen Government and the assumption by
Evergreen Government of certain identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives and policies of Evergreen Government and
Virtus Government are substantially identical.
The investment objective of Evergreen Government is to preserve
principal value and maintain a high degree of liquidity while providing current
income. The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any such obligations.
No more than 35% of the Fund's assets may be invested in receipts, obligations
of supranational entities and repurchase agreements involving such securities.
The investment objective of Virtus Government is to provide current income.
The Fund pursues its investment objectives by investing primarily in securities
which are primary or direct obligations of the U.S. government, its agencies, or
instrumentalities or which are guaranteed by the U.S. government, its agencies,
or instrumentalities. See "Comparison of Investment Objectives and Policies"
below.
Comparative Performance Information for each Fund
<PAGE>
Discussions of the manner of calculation of total return are contained
in the respective Prospectuses and Statements of Additional Information of the
Funds. The following tables set forth the total return of the Class Y and Class
A shares of Evergreen Government and of the Trust and Investment shares of
Virtus Government for the one and five year periods ended September 30, 1997 and
for the period from inception through September 30, 1997. The calculations of
total return assume the reinvestment of all dividends and capital gains
distributions on the reinvestment date and the deduction of all recurring
expenses (including sales charges) that were charged to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return (1)
1 Year From
Ended 5 Years Inception
September Ended To
30, September September Inception
1997 30, 1997 30, 1997 Date
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Evergreen
Government
Class A 3.38% N/A 4.93% 5/2/95
shares
Class Y 6.96% 5.01% 5.99% 1/3/91
shares
Virtus
Government
Trust 7.16% 4.93% 7.27% 10/16/90
shares
Investment 4.75% 4.70% 7.10% 10/16/90
shares
</TABLE>
- --------------
(1) Reflects waiver of advisory fees and reimbursements and/or waivers of
expenses. Without such reimbursements and/or waivers, the average
annual total returns during the periods would have been lower.
Important information about Evergreen Government is also contained in
management's discussion of Evergreen Government's performance, attached hereto
as Exhibit C. This information also appears in Evergreen Government's most
recent Annual Report.
<PAGE>
Management of the Funds
The overall management of Evergreen Government and of Virtus Government
is the responsibility of, and is supervised by, the Board of Trustees of
Evergreen Fixed Income Trust and The Virtus Funds, respectively.
Investment Advisers
The investment adviser to Evergreen Government is the Capital
Management Group of First Union National Bank ("FUNB"). FUNB is a subsidiary of
First Union, the sixth largest bank holding company in the United States based
on total assets as of September 30, 1997. The Capital Management Group of FUNB
and its affiliates manage the Evergreen family of mutual funds with assets of
approximately $32.5 billion as of September 30, 1997. For further information
regarding FUNB and First Union, see "Management of the Funds - Investment
Advisers" in the Prospectuses of Evergreen Government.
FUNB manages investments and supervises the daily business affairs of
Evergreen Government subject to the authority of the Trustees. FUNB is entitled
to receive from the Fund an annual fee equal to .60% of the Fund's average daily
net assets.
Virtus serves as the investment adviser for Virtus Government. As
investment adviser, Virtus continuously conducts investment research and
supervision on behalf of the Fund and is responsible for the purchase and sale
of portfolio securities. For its services as investment adviser, Virtus receives
a fee at an annual rate of 0.75% of the Fund's average daily net assets.
Each investment adviser may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Each investment adviser may reduce or cease these voluntary
waivers and reimbursements at any time.
Administrators
Evergreen Investment Services ("EIS") serves as administrator to
Evergreen Government. As administrator, EIS provides facilities, equipment and
personnel to Evergreen Government and is entitled to receive an administration
fee from the Fund based on the aggregate average daily net assets of all the
mutual funds advised by FUNB and its affiliates, calculated in accordance with
the following schedule: 0.050% on the first $7 billion, 0.035% on the next $3
billion, 0.030%
<PAGE>
on the next $5 billion, 0.020% on the next $10 billion, 0.015% on the next $5
billion and 0.010% on assets in excess of $30 billion.
Federated Administrative Services ("FAS") provides Virtus Government
with certain administrative personnel and services including certain legal and
accounting services. FAS is entitled to receive a fee for such services at the
following annual rates: 0.15% on the first $250 million of average daily net
assets of the combined assets of the funds in the Blanchard/Virtus mutual fund
family; 0.125% on the next $250 million of such assets, 0.10% on the next $250
million of such assets, and 0.075% on assets in excess of $750 million.
Portfolio Management
Robert Cheshire has been portfolio manager of Evergreen Government
since its inception in 1991. Mr. Cheshire is a Vice President of FUNB and was
formerly a Vice President in the Institutional Asset Management Group of First
Fidelity, N.A.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund
Services, acts as underwriter of Evergreen Government's shares. EDI distributes
the Fund's shares directly or through broker-dealers, banks (including FUNB), or
other financial intermediaries. Evergreen Government offers four classes of
shares: Class A, Class B, Class C and Class Y. Each class has separate
distribution arrangements. (See "Distribution-Related and Shareholder
Servicing-Related Expenses" below.) No class bears the distribution expenses
relating to the shares of any other class.
In the proposed Reorganization, shareholders of Virtus Government who
own Trust shares will receive Class Y shares of Evergreen Government, and
shareholders of Virtus Government who own Investment shares will receive Class A
shares of Evergreen Government. The Class Y and Class A shares of Evergreen
Government have substantially similar arrangements with respect to the
imposition of Rule 12b-1 distribution and service fees as the Trust and
Investment shares of Virtus Government. Because the Reorganization will be
effected at net asset value without the imposition of a sales charge, Evergreen
Government shares acquired by shareholders of Virtus Government pursuant to the
proposed Reorganization would not be subject to any initial sales charge or
contingent deferred sales charge ("CDSC") as a result of the Reorganization.
<PAGE>
The following is a summary description of charges and fees for the
Class Y and Class A shares of Evergreen Government which will be received by
Virtus Government shareholders in the Reorganization. More detailed descriptions
of the distribution arrangements applicable to the classes of shares are
contained in the respective Evergreen Government Prospectuses and the Virtus
Government Prospectuses and in each Fund's respective Statements of Additional
Information.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related
fees. Class Y shares are only available to (i) all shareholders of record in one
or more of the Evergreen family of funds for which Evergreen Asset Management
Corp. ("Evergreen Asset") serves as investment adviser as of December 30, 1994,
(ii) certain institutional investors and (iii) investment advisory clients of
FUNB, Evergreen Asset or their affiliates. Virtus Government shareholders who
receive Evergreen Government Class Y shares in the Reorganization who wish to
make subsequent purchases of Evergreen Government shares will be able to
purchase Class Y shares.
Class A Shares. Class A shares are sold at net asset value plus an
initial sales charge and, as indicated below, are subject to
distribution-related fees. For a description of the initial shares charges
applicable to purchases of Class A shares, see "Purchase and Redemption of
Shares - How to Buy Shares" in the applicable Prospectus for Evergreen
Government. Holders of Investment shares of Virtus Government who receive Class
A shares of Evergreen Government in the Reorganization will be able to purchase
additional Class A shares of Evergreen Government and of any other Evergreen
fund at net asset value. No initial sales charge will be imposed.
Additional information regarding the classes of shares of each Fund is
included in its respective Prospectuses and Statements of Additional
Information.
Distribution-Related Expenses. Evergreen Government has adopted a Rule
12b-1 plan with respect to its Class A shares under which the Class may pay for
distribution-related expenses at an annual rate which may not exceed 0.50% of
average daily net assets attributable to the Class. Payments with respect to
Class A shares are currently limited to 0.05% of average daily net assets
attributable to the Class, which amount may be increased to the full plan rate
for the Fund by the Trustees without shareholder approval.
<PAGE>
Virtus Government has adopted a Rule 12b-1 plan with respect to its
Investment shares under which the Class may pay for distribution-related
expenses at an annual rate of 0.25% of average daily net assets attributable to
the Class. Virtus Government has not adopted a Rule 12b-1 plan with respect to
its Trust shares.
Additional information regarding the Rule 12b-1 plans adopted by each
Fund is included in its respective Prospectus and Statement of Additional
Information.
Purchase and Redemption Procedures
Information concerning applicable sales charges and
distribution-related fees is provided above. Investments in the Funds are not
insured. The minimum initial purchase requirement for each Fund is $1,000
($10,000 for Trust shares of Virtus Government). Except for the minimum
investment requirement of $100 for Investment shares of Virtus Government, there
is no minimum for subsequent purchases of shares of either Fund. Each Fund
provides for telephone, mail or wire redemption of shares at net asset value
(less any applicable CDSC in the case of Virtus Government) as next determined
after receipt of a redemption request on each day the New York Stock Exchange
("NYSE") is open for trading. Additional information concerning purchases and
redemptions of shares, including how each Fund's net asset value is determined,
is contained in the respective Prospectuses for each Fund. Each Fund may
involuntarily redeem shareholders' accounts that have less than $1,000 of
invested funds. All funds invested in each Fund are invested in full and
fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Virtus Government currently permits holders of Investment shares to
exchange such shares for Investment shares of other funds managed by Virtus.
Exchanges of Trust shares are not permitted. Holders of shares of a class of
Evergreen Government generally may exchange their shares for shares of the same
class of any other Evergreen fund. Virtus Government shareholders will be
receiving Class Y and Class A shares of Evergreen Government in the
Reorganization and, accordingly, with respect to shares of Evergreen Government
received by Virtus Government shareholders in the Reorganization, the exchange
privilege is limited to the Class Y and Class A shares, as applicable, of other
Evergreen funds. Evergreen Government limits exchanges to five per calendar year
and three per calendar quarter. No sales charge is imposed on an
<PAGE>
exchange. An exchange which represents an initial investment in another
Evergreen fund must amount to at least $1,000. The current exchange privileges,
and the requirements and limitations attendant thereto, are described in each
Fund's respective Prospectuses and Statements of Additional
Information.
Dividend Policy
Each Fund declares dividends daily and distributes its income dividends
monthly. Distributions of any net realized gains of a Fund will be made at least
annually. Shareholders begin to earn dividends on the first business day after
shares are purchased unless shares were not paid for, in which case dividends
are not earned until the next business day after payment is received. Dividends
and distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the
respective Prospectuses of each Fund for further information concerning
dividends and distributions.
After the Reorganization, shareholders of Virtus Government who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from Evergreen Government reinvested in
shares of Evergreen Government. Shareholders of Virtus Government who have
elected to receive dividends and/or distributions in cash will receive dividends
and/or distributions from Evergreen Government in cash after the Reorganization,
although they may, after the Reorganization, elect to have such dividends and/or
distributions reinvested in additional shares of Evergreen Government.
Each of Evergreen Government and Virtus Government has qualified and
intends to continue to qualify to be treated as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). While so
qualified, so long as each Fund distributes all of its net investment company
taxable income and any net realized gains to shareholders, it is expected that a
Fund will not be required to pay any federal income taxes on the amounts so
distributed. A 4% nondeductible excise tax will be imposed on amounts not
distributed if a Fund does not meet certain distribution requirements by the end
of each calendar year. Each Fund anticipates meeting such distribution
requirements.
Risks
Since the investment objectives and policies of each Fund are substantially
comparable, the risks involved in investing
<PAGE>
in each Fund's shares are similar. There is no assurance that investment
performances will be positive and that the Funds will meet their investment
objectives. For a discussion of each Fund's objectives and policies, see
"Comparison of Investment Objectives and Policies."
Bond prices move inversely to interest rates, i.e., as interest rates
decline the values of the bonds increase, and vice versa. The longer the
maturity of a bond, the greater the exposure to market price fluctuations. The
same market factors are reflected in the share price or net asset value of bond
funds which will vary with interest rates. In addition, certain of the
obligations in which each Fund may invest may be variable or floating rate
instruments, which may involve a conditional or unconditional demand feature,
and may include variable amount master demand notes. While these types of
instruments may, to a certain degree, offset the risk to principal associated
with rising interest rates, they would not be expected to appreciate in a
falling interest rate environment.
Zero-Coupon and Stripped Securities. Evergreen Government unlike Virtus
Government, may invest in zero-coupon and stripped securities. Zero-coupon
securities in which the Funds may invest are debt obligations which are
generally issued at a discount and payable in full at maturity, and which do not
provide for current payments of interest prior to maturity. Zero-coupon
securities usually trade at a deep discount from their face or par value and are
subject to greater market value fluctuations from changing interest rates than
debt obligations of comparable maturities which may current distributions of
interest. As a result, the net asset value of shares of the Fund may fluctuate
over a greater range than shares of other mutual funds investing in securities
making current distributions of interest and having similar maturities.
Risk Characteristics of Asset-Backed Securities. Evergreen Government,
unlike Virtus Government, may invest in asset-backed securities. Asset-backed
securities are created by the grouping of certain governmental,
government-related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at
<PAGE>
maturity or upon specified call dates. Different tranches of securities will
bear different interest rates, which may be fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities and mortgage backed securities are
generally subject to higher prepayment risks than most other types of debt
instruments. Prepayment risks on mortgage securities tend to increase during
periods of declining mortgage interest rates, because may borrowers refinance
their mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Fund receives from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage securities
may be a less effective means of "locking in" interest rates than other types of
debt securities having the same stated maturity and may also have less potential
for capital appreciation. For certain types of asset pools such as
collateralized mortgage obligations, prepayments may be allocated to one tranche
of securities ahead of other tranches, in order to reduce the risk of prepayment
for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that
the prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased at a
market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund which would be taxed as ordinary
income when distributed to the shareholders. The credit characteristics of
asset-backed securities also differ in a number of respects from those of
traditional debt securities. The credit quality of most asset-backed securities
depends primarily upon the credit quality of the assets underlying such
securities, how well the entity issuing the securities is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement to such securities.
<PAGE>
REASONS FOR THE REORGANIZATION
On July 18, 1997, First Union entered into an Agreement and Plan of
Merger with Signet, which provided, among other things, for the Merger of Signet
with and into a wholly-owned subsidiary of First Union. The Merger was
consummated on November 28, 1997. As a result of the Merger it is expected that
FUNB and its affiliates will succeed to the investment advisory and
administrative functions currently performed for Virtus Government by various
units of Signet and various unaffiliated parties. It is also expected that
Signet will no longer, upon completion of the Reorganization and similar
reorganizations of other funds in the Signet mutual fund family, provide
investment advisory or administrative services to investment companies.
At a regular meeting held on September 16, 1997, the Board of Trustees
of The Virtus Funds considered and approved the Reorganization as in the best
interests of shareholders of Virtus Government and determined that the interests
of existing shareholders of Virtus Government will not be diluted as a result of
the transactions contemplated by the Reorganization. In addition, the Trustees
approved the Interim Advisory Agreement with respect to Virtus Government.
As noted above, Signet has merged with and into a wholly-owned
subsidiary of First Union. Signet is the parent company of Virtus, investment
adviser to the mutual funds which comprise The Virtus Funds. The Merger caused,
as a matter of law, termination of the investment advisory agreement between
each series of The Virtus Funds and Virtus with respect to the Fund. The Virtus
Funds have received an order from the SEC which permits Virtus to continue to
act as Virtus Government's investment adviser, without shareholder approval, for
a period of not more than 120 days from the date the Merger was consummated
(November 28, 1997) to the date of shareholder approval of a new investment
advisory agreement. Accordingly, the Trustees considered the recommendations of
Signet in approving the proposed Reorganization.
In approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Reorganization. There are substantial similarities
between Evergreen Government and Virtus Government. Specifically, Evergreen
Government and Virtus Government have substantially similar investment
objectives and policies and comparable risk profiles. See "Comparison of
Investment Objectives and Policies" below. At the same time, the Board of
Trustees evaluated the potential economies of scale associated with
<PAGE>
larger mutual funds and concluded that operational efficiencies may be achieved
upon the combination of Virtus Government with Evergreen Government. As of
September 30, 1997, Evergreen Government's net assets were approximately $73
million and Virtus Government's net assets were approximately $157 million.
In addition, assuming that an alternative to the Reorganization would
be to propose that Virtus Government continue its existence and be separately
managed by FUNB or one of its affiliates, Virtus Government would be offered
through common distribution channels with the similar Evergreen Government.
Virtus Government would also have to bear the cost of maintaining its separate
existence. Signet and FUNB believe that the prospect of dividing the resources
of the Evergreen mutual fund organization between two similar funds could result
in each Fund being disadvantaged due to an inability to achieve optimum size,
performance levels and the greatest possible economies of scale. Accordingly,
for the reasons noted above and recognizing that there can be no assurance that
any economies of scale or other benefits will be realized, Signet and FUNB
believe that the proposed Reorganization would be in the best interests of each
Fund and its shareholders.
The Board of Trustees of The Virtus Funds met and considered the
recommendation of Signet and FUNB, and, in addition, considered among other
things, (i) the terms and conditions of the Reorganization; (ii) whether the
Reorganization would result in the dilution of shareholders' interests; (iii)
expense ratios, fees and expenses of Evergreen Government and Virtus Government;
(iv) the comparative performance records of each of the Funds; (v) compatibility
of their investment objectives and policies; (vi) the investment experience,
expertise and resources of FUNB; (vii) the service and distribution resources
available to the Evergreen funds and the broad array of investment alternatives
available to shareholders of the Evergreen funds; (viii) the personnel and
financial resources of First Union and its affiliates; (ix) the fact that FUNB
will bear the expenses incurred by Virtus Government in connection with the
Reorganization; (x) the fact that Evergreen Government will assume certain
identified liabilities of Virtus Government; and (xi) the expected federal
income tax consequences of the Reorganization.
The Trustees also considered the benefits to be derived by shareholders
of Virtus Government from the sale of its assets to Evergreen Government. In
this regard, the Trustees considered the potential benefits of being associated
with a
<PAGE>
larger entity and the economies of scale that could be realized by the
participation in such an entity by shareholders of Virtus Government.
In addition, the Trustees considered that there are alternatives
available to shareholders of Virtus Government, including the ability to redeem
their shares, as well as the option to vote against the Reorganization.
During their consideration of the Reorganization the Trustees met with
Fund counsel and counsel to the Independent Trustees regarding the legal issues
involved. The Trustees of Evergreen Fixed Income Trust also concluded at a
meeting on September 16, 1997 that the proposed Reorganization would be in the
best interests of shareholders of Evergreen Government and that the interests of
the shareholders of Evergreen Government would not be diluted as a result of the
transactions contemplated by the Reorganization.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF VIRTUS GOVERNMENT APPROVE
THE PROPOSED REORGANIZATION.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the
Plan (Exhibit A hereto).
The Plan provides that Evergreen Government will acquire all of the
assets of Virtus Government in exchange for shares of Evergreen Government and
the assumption by Evergreen Government of certain identified liabilities of
Virtus Government on or about February 27, 1998 or such other date as may be
agreed upon by the parties (the "Closing Date"). Prior to the Closing Date,
Virtus Government will endeavor to discharge all of its known liabilities and
obligations. Evergreen Government will not assume any liabilities or obligations
of Virtus Government other than those reflected in an unaudited statement of
assets and liabilities of Virtus Government prepared as of the close of regular
trading on the NYSE, currently 4:00 p.m. Eastern time, on the business day
immediately prior to the Closing Date. The number of full and fractional shares
of each class of Evergreen Government to be received by the shareholders of
Virtus Government will be determined by multiplying the respective outstanding
class of shares of Virtus Government by a factor which shall be computed by
dividing the net asset value per share of the respective class of shares of
Virtus Government by the net asset value per share of the respective class of
shares of Evergreen Government. Such computations will take place as of
<PAGE>
the close of regular trading on the NYSE on the business day immediately prior
to the Closing Date. The net asset value per share of each class will be
determined by dividing assets, less liabilities, in each case attributable to
the respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for Evergreen
Government, will compute the value of each Fund's respective portfolio
securities. The method of valuation employed will be consistent with the
procedures set forth in the Prospectuses and Statement of Additional Information
of Evergreen Government, Rule 22c-1 under the 1940 Act, and with the
interpretations of such Rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, Virtus Government will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Virtus
Government will liquidate and distribute pro rata to shareholders of record as
of the close of business on the Closing Date the full and fractional shares of
Evergreen Government received by Virtus Government. Such liquidation and
distribution will be accomplished by the establishment of accounts in the names
of the Fund's shareholders on the share records of Evergreen Government's
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of Evergreen Government due to the Fund's
shareholders. All issued and outstanding shares of Virtus Government, including
those represented by certificates, will be canceled. The shares of Evergreen
Government to be issued will have no preemptive or conversion rights. After such
distributions and the winding up of its affairs, Virtus Government will be
terminated. In connection with such termination, The Virtus Funds will file with
the SEC an application for termination as a registered investment company.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Virtus Government's shareholders,
accuracy of various representations
<PAGE>
and warranties and receipt of opinions of counsel, including opinions with
respect to those matters referred to in "Federal Income Tax Consequences" below.
Notwithstanding approval of Virtus Government's shareholders, the Plan may be
terminated (a) by the mutual agreement of Virtus Government and Evergreen
Government; or (b) at or prior to the Closing Date by either party (i) because
of a breach by the other party of any representation, warranty, or agreement
contained therein to be performed at or prior to the Closing Date if not cured
within 30 days, or (ii) because a condition to the obligation of the terminating
party has not been met and it reasonably appears that it cannot be met.
The expenses of Virtus Government in connection with the Reorganization
(including the cost of any proxy soliciting agent) will be borne by FUNB whether
or not the Reorganization is consummated. No portion of such expenses will be
borne directly or indirectly by Virtus Government or its shareholders. There are
not any liabilities or any expected reimbursements in connection with the 12b-1
Plan of Virtus Government. As a result, no 12b-1 liabilities will be assumed by
Evergreen Government following the Reorganization.
If the Reorganization is not approved by shareholders of Virtus
Government, the Board of Trustees of The Virtus Funds will consider other
possible courses of action in the best interests of shareholders.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization under section 368(a) of the Code. As a
condition to the closing of the Reorganization, Virtus Government will receive
an opinion of counsel to the effect that, on the basis of the existing
provisions of the Code, U.S. Treasury regulations issued thereunder, current
administrative rules, pronouncements and court decisions, for federal income tax
purposes, upon consummation of the Reorganization:
(1) The transfer of all of the assets of Virtus Government solely in
exchange for shares of Evergreen Government and the assumption by Evergreen
Government of certain identified liabilities, followed by the distribution of
Evergreen Government's shares by Virtus Government in dissolution and
liquidation of Virtus Government, will constitute a "reorganization" within the
meaning of section 368(a)(1)(D) of the Code, and Evergreen Government and Virtus
Government will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code;
<PAGE>
(2) No gain or loss will be recognized by Virtus Government on the
transfer of all of its assets to Evergreen Government solely in exchange for
Evergreen Government's shares and the assumption by Evergreen Government of
certain identified liabilities of Virtus Government or upon the distribution of
Evergreen Government's shares to the Virtus Government's shareholders in
exchange for their shares of Virtus Government;
(3) The tax basis of the assets transferred will be the same to
Evergreen Government as the tax basis of such assets to Virtus Government
immediately prior to the Reorganization, and the holding period of such assets
in the hands of Evergreen Government will include the period during which the
assets were held by Virtus Government.
(4) No gain or loss will be recognized by Evergreen Government upon the
receipt of the assets from Virtus Government solely in exchange for the shares
of Evergreen Government and the assumption by Evergreen Government of certain
identified liabilities of Virtus Government;
(5) No gain or loss will be recognized by Virtus Government's
shareholders upon the issuance of the shares of Evergreen Government to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of Virtus Government; and
(6) The aggregate tax basis of the shares of Evergreen Government,
including any fractional shares, received by each of the shareholders of Virtus
Government pursuant to the Reorganization will be the same as the aggregate tax
basis of the shares of Virtus Government held by such shareholder immediately
prior to the Reorganization, and the holding period of the shares of Evergreen
Government, including fractional shares, received by each such shareholder will
include the period during which the shares of Virtus Government exchanged
therefor were held by such shareholder (provided that the shares of Virtus
Government were held as a capital asset on the date of the Reorganization).
Opinions of counsel are not binding upon the Internal Revenue Service
or the courts. If the Reorganization is consummated but does not qualify as a
tax-free reorganization under the Code, shareholders of Virtus Government would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Evergreen
Government shares he or she received. Shareholders of Virtus Government should
consult their tax advisers regarding the effect, if any, of the
<PAGE>
proposed Reorganization in light of their individual circumstances. It is not
anticipated that the securities of the combined portfolio will be sold in
significant amounts in order to comply with the policies and investment
practices of Evergreen Government. Since the foregoing discussion relates only
to the federal income tax consequences of the Reorganization, shareholders of
Virtus Government should also consult their tax advisers as to the state and
local tax consequences, if any, of the Reorganization.
Pro-forma Capitalization
The following table sets forth the capitalizations of Evergreen
Government and Virtus Government as of September 30, 1997, and the
capitalization of Evergreen Government on a pro forma basis as of that date,
giving effect to the proposed acquisition of assets at net asset value. The pro
forma data reflects an exchange ratio of approximately 0.98 and 0.98 Class Y and
Class A shares, respectively, of Evergreen Government issued for each Trust and
Investment share, respectively, of Virtus Government.
<PAGE>
<TABLE>
<CAPTION>
Capitalization of Virtus Government,
Evergreen Government and Evergreen
Government (Pro Forma)
Evergreen
Government
(After
Virtus Evergreen Reorgani-
Government Government zation)
---------- ---------- ----------
<S> <C> <C> <C>
Net Assets
Trust.......................... $52,177,289 N/A N/A
Investment..................... $105,247,791 N/A N/A
Class A........................ N/A $588,578 $105,836,369
Class B........................ N/A $605,369 $605,369
Class C........................ N/A $121,323 $121,323
Class Y........................ N/A $71,670,053 $123,847,342
------------ ----------- ------------
Total Net Assets . $157,425,080 $72,985,323 $230,410,403
Net Asset Value Per
Share
Trust.......................... $9.95 N/A N/A
Investment..................... $9.95 N/A N/A
Class A........................ N/A $10.12 $10.12
Class B........................ N/A $10.12 $10.12
Class C........................ N/A $10.12 $10.12
Class Y........................ N/A $10.12 $10.12
Shares Outstanding
Trust.......................... 5,246,259 N/A N/A
Investment..................... 10,582,280 N/A N/A
Class A........................ N/A 58,180 10,462,694
Class B........................ N/A 59,846 59,846
Class C........................ N/A 11,994 11,994
Class Y........................ N/A 7,084,254 12,242,384
----------- --------- ----------
All Classes.................... 15,828,539 7,214,274 22,776,918
</TABLE>
The table set forth above should not be relied upon to reflect the
number of shares to be received in the Reorganization; the actual number of
shares to be received will depend upon the net asset value and number of shares
outstanding of each Fund at the time of the Reorganization.
<PAGE>
Shareholder Information
As of December 26, 1997 (the "Record Date"), the following number of
each Class of shares of beneficial interest of Virtus Government were
outstanding:
Class of Shares
- ---------------
Trust..........................................
Investment.....................................
All Classes....................................
As of October 31, 1997, the officers and Trustees of The Virtus Funds
beneficially owned as a group less than 1% of the outstanding shares of Virtus
Government. To Virtus Government's knowledge, the following persons owned
beneficially or of record more than 5% of Virtus Government's total outstanding
shares as of October 31, 1997:
<TABLE>
<CAPTION>
Percentage Percentage
of Shares of Shares
of Class of Class
Before After
No. of Reorgani- Reorgani-
Name and Address Class Shares zation zation
- ---------------- ----- ------ --------- ---------
<S> <C> <C> <C> <C>
Stephens, Inc. Investment
111 Center Street
Little Rock, AR
72201-3507
Bova & Co. Trust
Signet Trust
Company
P.O. Box 26311
Richmond, VA
23260-6311
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by
the descriptions of the respective investment objectives, policies and
restrictions set forth in the respective Prospectuses and Statements of
Additional Information of the Funds. The investment objective, policies and
restrictions of Evergreen Government can be found in the
<PAGE>
Prospectuses of Evergreen Government under the caption "Investment Objectives
and Policies." Evergreen Government's Prospectuses also offer additional funds
advised by FUNB or its affiliates. These additional funds are not involved in
the Reorganization, their investment objectives and policies are not discussed
in this Prospectus/Proxy Statement and their shares are not offered hereby. The
investment objective, policies and restrictions of Virtus Government can be
found in the respective Prospectuses of the Fund under the caption "Investment
Objective and Policies of each Fund." Unlike the investment objective of Virtus
Government, which is fundamental, the investment objective of Evergreen
Government is non-fundamental and can be changed by the Board of Trustees
without shareholder approval.
The investment objective of Evergreen Government is to preserve
principal value and maintain a high degree of liquidity while providing current
income. The Fund invests exclusively in U.S. Treasury obligations, obligations
issued or guaranteed as to principal and interest by agencies and
instrumentalities of the U.S. government, receipts evidencing separately traded
principal and interest components of U.S. government obligations, obligations of
supranational entities and repurchase agreements involving any such obligations.
No more than 35% of the Fund's assets may be invested in receipts or obligations
of supranational entities and repurchase agreements involving such securities.
The Fund will maintain an average weighted maturity of approximately three to
ten years, although under normal conditions the average weighted maturity will
be maintained at three to six years.
The investment objective of Virtus Government is to provide current income.
Virtus Government pursues its investment objective by investing at least 65% of
the value of its total assets in securities which are primary or direct
obligations of the U.S. government or its instrumentalities which are guaranteed
by the U.S. government, its agencies, or instrumentalities. U.S. government
securities in which the fund invests include U.S. Treasury bills, notes and
bonds, and notes, bonds and discount notes of U.S. government agencies or
instrumentalities including the FHLMC, FNMA and GNMA. The investment policies of
Virtus Government do not set forth any restrictions on the maturities of the
U.S. obligations the Fund may purchase. Since inception, Virtus Government has
maintained a dollar-weighted average maturity of one to five years.
Neither Evergreen Government nor Virtus Government engage in options
and futures transactions.
<PAGE>
The characteristics of each investment policy and the associated risks
are described in each Fund's respective Prospectuses and Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Prospectuses and Statements of
Additional Information of each Fund.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
Forms of Organization
Evergreen Fixed Income Trust and The Virtus Funds are open-end
management investment companies registered with the SEC under the 1940 Act,
which continuously offer shares to the public. Evergreen Fixed Income Trust is
organized as a Delaware business trust, and The Virtus Trust is organized as a
Massachusetts business trust. Each Trust is governed by a Declaration of Trust,
By-Laws and a Board of Trustees. Each Trust is also governed by applicable
Delaware, Massachusetts and federal law. Evergreen Government is a series of
Evergreen Fixed Income Trust, and Virtus Government is a series of The Virtus
Funds.
As set forth in the supplement to Evergreen Government's Prospectuses,
effective December 22, 1997, Evergreen Intermediate-Term Government Securities
Fund, a series of The Evergreen Lexicon Fund, a Massachusetts business trust,
was reorganized (the "Delaware Reorganization") into a corresponding series
(Evergreen Government) of Evergreen Fixed Income Trust. In connection with the
Delaware Reorganization, the Fund's investment objectives were reclassified from
"fundamental" to "non-fundamental" and therefore may be changed without
shareholder approval; the Fund adopted certain standardized investment
restrictions; and the Fund eliminated or reclassified from fundamental to
non-fundamental certain of the Fund's other fundamental investment restrictions.
Capitalization
The beneficial interests in Evergreen Government are represented by an
unlimited number of transferable shares of beneficial interest, $.001 par value
per share. The beneficial interests in Virtus Government are represented by an
unlimited number of transferable shares of beneficial interest without par
value. The respective Declaration of Trust under which each Fund has been
established permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued. Each Fund's shares
represent equal
<PAGE>
proportionate interests in the assets belonging to the Funds. Shareholders of
each Fund are entitled to receive dividends and other amounts as determined by
the Trustees. Shareholders of each Fund vote separately, by class, as to
matters, such as approval of or amendments to Rule 12b-1 distribution plans,
that affect only their particular class and by series as to matters, such as
approval of or amendments to investment advisory agreements or proposed
reorganizations, that affect only their particular series.
Shareholder Liability
Under Massachusetts law, shareholders of a business trust could, under
certain circumstances, be held personally liable for the obligations of the
business trust. However, the Declaration of Trust under which Virtus Government
was established disclaims shareholder liability for acts or obligations of the
series and requires that notice of such disclaimer be given in each agreement,
obligation or instrument entered into or executed by the Fund or the Trustees.
The Declaration of Trust of The Virtus Funds provides for indemnification out of
the series property for all losses and expenses of any shareholder held
personally liable for the obligations of the series. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the series or the Trust itself is unable to meet its
obligations.
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result, to
the extent that Evergreen Fixed Income 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 Evergreen Fixed Income Trust to
liability. To guard against this risk, the Declaration of Trust of Evergreen
Fixed Income Trust (a) provides that any written obligation of the Trust may
contain a statement that such obligation may only be enforced against the assets
of the Trust or the particular series in question and the obligation is not
binding upon the shareholders of the Trust; however, the omission of such a
disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of Evergreen Fixed Income Trust.
Accordingly, the risk of a shareholder of Evergreen Fixed Income Trust incurring
financial loss beyond
<PAGE>
that shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii)Evergreen Fixed
Income Trust itself is unable to meet its obligations. In light of Delaware law,
the nature of Evergreen Fixed Income Trust's business, and the nature of its
assets, the risk of personal liability to a shareholder of Evergreen Fixed
Income Trust is remote.
Shareholder Meetings and Voting Rights
Neither Evergreen Fixed Income Trust on behalf of Evergreen Government
nor The Virtus Funds on behalf of Virtus Government is required to hold annual
meetings of shareholders. However, a meeting of shareholders for the purpose of
voting upon the question of removal of a Trustee must be called when requested
in writing by the holders of at least 10% of the outstanding shares of Evergreen
Fixed Income Trust or The Virtus Funds. In addition, each is required to call a
meeting of shareholders for the purpose of electing Trustees if, at any time,
less than a majority of the Trustees then holding office were elected by
shareholders. Each Trust currently does not intend to hold regular shareholder
meetings. Each Trust does not permit cumulative voting. Except when a larger
quorum is required by applicable law, with respect to Evergreen Government,
twenty-five percent (25%) of the outstanding shares entitled to vote, and with
respect to Virtus Government, a majority of the outstanding shares entitled to
vote constitutes a quorum for consideration of such matter. For Evergreen
Government and for Virtus Government, a majority of the votes cast and entitled
to vote is sufficient to act on a matter (unless otherwise specifically required
by the applicable governing documents or other law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Fixed Income Trust, each
share of Evergreen Government will be entitled to one vote for each dollar of
net asset value applicable to each share. Under the voting provisions governing
Virtus Government, each share is entitled to one vote. Over time, the net asset
values of the mutual funds which are each a series of The Virtus Funds have
changed in relation to one another and are expected to continue to do so in the
future. Because of the divergence in net asset values, a given dollar investment
in a fund with a lower net asset value will purchase more shares, and under the
Virtus Government's' voting provisions, have more votes, than the same
investment in a fund with a higher net asset value. Under the Declaration of
Trust of the Evergreen Fixed Income Trust,
<PAGE>
voting power is related to the dollar value of the shareholders' investment
rather than to the number of shares held.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Government and Virtus
Government, the shareholders are entitled to receive, when and as declared by
the Trustees, the excess of the assets belonging to such Fund or attributable to
the class over the liabilities belonging to the Fund or attributable to the
class. In either case, the assets so distributable to shareholders of the Fund
will be distributed among the shareholders in proportion to the number of shares
of a class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
The Declaration of Trust of The Virtus Funds provides that a Trustee
shall be liable only for his own willful defaults, and that no Trustee shall be
protected against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
The By-Laws of The Virtus Funds provide that a present or former
Trustee or officer is entitled to indemnification against liabilities and
expenses with respect to claims related to his or her position with the Trust,
provided that no indemnification shall be provided to a Trustee or officer
against any liability to the Trust or any series thereof or the shareholders of
any series by reasons of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
Under the Declaration of Trust of Evergreen Fixed Income Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's own
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding,
<PAGE>
had reasonable cause to believe that such Trustee's conduct was unlawful
(collectively, "disabling conduct"). A determination that the Trustee did not
engage in disabling conduct and is, therefore, entitled to indemnification may
be based upon the outcome of a court action or administrative proceeding or by
(a) a vote of a majority of those Trustees who are neither "interested persons"
within the meaning of the 1940 Act nor parties to the proceeding or (b) an
independent legal counsel in a written opinion. The Trust may also advance money
for such litigation expenses provided that the Trustee undertakes to repay the
Trust if his or her conduct is later determined to preclude indemnification and
certain other conditions are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law
and is not a complete description of those documents or law. Shareholders should
refer to the provisions of such Declarations of Trust, By-Laws, Delaware and
Massachusetts law directly for more complete information.
INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT
Introduction
In view of the Merger discussed above, and the factors discussed below,
the Board of Trustees of The Virtus Funds recommends that shareholders of Virtus
Government approve the Interim Advisory Agreement. The Merger became effective
on November 28, 1997. Pursuant to an order received from the SEC all fees
payable under the Interim Advisory Agreement will be placed in escrow and paid
to Virtus if shareholders approve the contract within 120 days of its effective
date. The Interim Advisory Agreement will remain in effect until the earlier of
the Closing Date for the Reorganization or two years from its effective date.
The terms of the Interim Advisory Agreement are essentially the same as the
Previous Advisory Agreement (as defined below). The only difference between the
Previous Advisory Agreement and the Interim Advisory Agreement, if approved by
shareholders, is the length of time each Agreement is in effect. A description
of the Interim Advisory Agreement pursuant to which Virtus continues as
investment adviser to Virtus Government, as well as the services to be provided
by Virtus pursuant thereto is set forth below under "Advisory Services." The
description of the Interim Advisory Agreement in this Prospectus/Proxy Statement
is qualified in its entirety by reference to the Interim Advisory Agreement,
attached hereto as Exhibit B.
<PAGE>
Virtus, a Maryland corporation formed in 1995 to succeed to the
business of Signet Asset Management (adviser to the Fund since 1990), is an
indirect wholly-owned subsidiary of First Union. Virtus' address is 707 East
Main Street, Suite 1300, Richmond, Virginia 23219. Virtus has served as
investment adviser pursuant to an Investment Advisory Contract dated March 1,
1995, as amended on October 21, 1996. As used herein, the Investment Advisory
Agreement, as amended, for Virtus Government is referred to as the "Previous
Advisory Agreement." At a meeting of the Board of Trustees of The Virtus Funds
held on September 16, 1997, the Trustees, including a majority of the
Independent Trustees, approved the Interim Advisory Agreement for Virtus
Government.
The Trustees have authorized The Virtus Funds, on behalf of Virtus
Government, to enter into the Interim Advisory Agreement with Virtus. Such
Agreement became effective on November 26, 1997. If the Interim Advisory
Agreement for Virtus Government is not approved by shareholders, the Trustees
will consider appropriate actions to be taken with respect to Virtus
Government's investment advisory arrangements at that time. The Previous
Advisory Agreement was last approved by the Trustees, including a majority of
the Independent Trustees, on February 24, 1997.
Comparison of the Interim Advisory Agreement and the Previous
Advisory Agreement
Advisory Services. The management and advisory services to be provided
by Virtus under the Interim Advisory Agreement are identical to those currently
provided by Virtus under the Previous Advisory Agreement. Under the Previous
Advisory Agreement and Interim Advisory Agreement, Virtus manages Virtus
Government and continually conducts investment research and supervision for the
Fund and is responsible for the purchase and sale of portfolio securities.
FAS currently acts as administrator of Virtus Government. FAS will continue
during the term of the Interim Advisory Agreement as Virtus Government's
administrator for the same compensation as currently received, except that on
February 9, 1998, FAS's obligations to provide transfer agency services for
Virtus Government's shareholders will terminate, and such services will be
provided for the same fees by Evergreen Service Company. See "Summary -
Administrators."
Fees and Expenses. The investment advisory fees and expense limitations for
Virtus Government under the Previous Advisory Agreement and the Interim Advisory
Agreement are identical. See "Summary - Investment Advisers."
<PAGE>
Expense Reimbursement. The Previous Advisory Agreement included a
provision which provides that Virtus may from time to time and for such periods
as it deems appropriate reduce its compensation to the extent that the Fund's
expenses exceed such lower expense limitation as Virtus may, by notice to The
Virtus Funds, voluntarily declare to be effective. Furthermore, Virtus may, if
it deems appropriate, assume expenses of the Fund or class to the extent that
the Fund's or classes' expenses exceed such lower expense limitation as Virtus
may, by notice to The Virtus Funds, voluntarily declare to be effective.
The Interim Advisory Agreement contains an identical provision.
Payment of Expenses and Transaction Charges. Under the Previous
Advisory Agreement, The Virtus Funds was required to pay or cause to be paid on
behalf of the Fund or each class, all of the Fund's or classes' expenses and the
Fund's or classes' allocable share of The Virtus Funds' expenses.
The Interim Advisory Agreement contains an identical provision.
Limitation of Liability. The Previous Advisory Agreement provided that
in the absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties under the Agreement on the part of Virtus,
Virtus was not liable to The Virtus Funds or to the Fund or to any shareholder
for any act or omission in the course of or connected in any way with rendering
services or for any losses that may be sustained in the purchase, holding or
sale of any security.
The Interim Advisory Agreement contains an identical provision.
Termination; Assignment. The Interim Advisory Agreement provides that
it may be terminated without penalty by vote of a majority of the outstanding
voting securities of Virtus Government (as defined in the 1940 Act) or by a vote
of a majority of The Virtus Funds' entire Board of Trustees on 60 days' written
notice to Virtus or by Virtus on 60 days' written notice to The Virtus Funds.
Also, the Interim Advisory Agreement will automatically terminate in the event
of its assignment (as defined in the 1940 Act). The Previous Advisory Agreement
contained identical provisions as to termination and assignment.
Information About Virtus Government's Investment Adviser
<PAGE>
Virtus, a registered investment adviser, manages, in addition to the
Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three
fixed income trust funds. The name and address of each executive officer and
director of Virtus are set forth in Appendix A to this Prospectus/Proxy
Statement.
During the fiscal years ended September 30, 1997, 1996 and 1995, Virtus
received from Virtus Government management fees of $1,325,841, $1,612,364 and
$1,581,364, respectively, of which $37,709, $276,121 and $589,885, respectively,
were voluntarily waived. Signet acts as custodian for Virtus Government and
received $46,191 for the fiscal year ended September 30, 1997. Signet will
continue to act as Virtus Government's custodian during the term of the Interim
Advisory Agreement.
The Board of Trustees considered the Interim Advisory Agreement as part
of its overall approval of the Plan. The Board of Trustees considered, among
other things, the factors set forth above in "Reasons for the Reorganization."
The Board of Trustees also considered the fact that there were no material
differences between the terms of the Interim Advisory Agreement and the terms of
the Previous Advisory Agreement.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND
THAT THE SHAREHOLDERS OF VIRTUS GOVERNMENT
APPROVE THE INTERIM ADVISORY AGREEMENT
ADDITIONAL INFORMATION
Evergreen Government. Information concerning the operation and
management of Evergreen Government is incorporated herein by reference from the
Prospectuses dated September 3, 1997, copies of which are enclosed, and
Statement of Additional Information dated September 3, 1997. A copy of such
Statement of Additional Information is available upon request and without charge
by writing to Evergreen Government at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-343- 2898.
Virtus Government. Information about the Fund is included in its
current Prospectuses dated November 30, 1997 and in the Statements of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statements
of Additional Information are available upon request and without charge by
writing to Virtus Government at
<PAGE>
the address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-829-3863.
Evergreen Government and Virtus Government are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be inspected
and copies obtained at the Public Reference Facilities maintained by the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional
Offices located at Northwest Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New York, New York
10048.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Trustees of The Virtus Funds to be used at the
Special Meeting of Shareholders to be held at 2:00 p.m., February 20, 1998, at
the offices of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts
02116, and at any adjournments thereof. This Prospectus/Proxy Statement, along
with a Notice of the meeting and a proxy card, is first being mailed to
shareholders of Virtus Government on or about January 5, 1998. Only shareholders
of record as of the close of business on the Record Date will be entitled to
notice of, and to vote at, the Meeting or any adjournment thereof. The holders
of a majority of the outstanding shares entitled to vote, at the close of
business on the Record Date, present in person or represented by proxy, will
constitute a quorum for the Meeting. If the enclosed form of proxy is properly
executed and returned in time to be voted at the Meeting, the proxies named
therein will vote the shares represented by the proxy in accordance with the
instructions marked thereon. Unmarked proxies will be voted FOR the proposed
Reorganization, FOR the Interim Advisory Agreement and FOR any other matters
deemed appropriate. Proxies that reflect abstentions and "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote or (ii)
the broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not be counted as
shares voted and will have no effect on the vote regarding the Plan. However,
such "broker non-votes" will have the effect of being counted as votes against
the Interim Advisory Agreement which must be approved by a percentage of the
shares present at the
<PAGE>
Meeting or a majority of the outstanding voting securities. A proxy may be
revoked at any time on or before the Meeting by written notice to the Secretary
of The Virtus Funds, Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779. Unless revoked, all valid proxies will be voted in accordance with
the specifications thereon or, in the absence of such specifications, FOR
approval of the Plan and the Reorganization contemplated thereby, FOR approval
of the Interim Advisory Agreement.
Approval of the Plan will require the affirmative vote of a majority of
the shares voted and entitled to vote, with all classes voting together as a
single class at the Meeting at which a quorum of the Fund's shares is present.
Approval of the Interim Advisory Agreement and will require the affirmative vote
of (i) 67% or more of the outstanding voting securities if holders of more than
50% of the outstanding voting securities are present, in person or by proxy, at
the Meeting, or (ii) more than 50% of the outstanding voting securities,
whichever is less, with all classes voting together as one class. Each full
share outstanding is entitled to one vote and each fractional share outstanding
is entitled to a proportionate share of one vote.
Proxy solicitations will be made primarily by mail, but proxy
solicitations may also be made by telephone, telegraph or personal solicitations
conducted by officers and employees of FUNB or Signet, their affiliates or other
representatives of Virtus Government (who will not be paid for their soliciting
activities). Shareholder Communications Corporation has been engaged by Virtus
Government to assist in soliciting proxies.
If you wish to participate in the Meeting, you may submit the proxy
card included with this Prospectus/Proxy Statement or attend in person. Any
proxy given by you is revocable.
In the event that sufficient votes to approve the Reorganization are
not received by February 20, 1998, the persons named as proxies may propose one
or more adjournments of the Meeting to permit further solicitation of proxies.
In determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon such
<PAGE>
adjournment after consideration of all circumstances which may bear upon a
decision to adjourn the Meeting.
A shareholder who objects to the proposed Reorganization will not be
entitled under either Massachusetts law or the Declaration of Trust of The
Virtus Funds to demand payment for, or an appraisal of, his or her shares.
However, shareholders should be aware that the Reorganization as proposed is not
expected to result in recognition of gain or loss to shareholders for federal
income tax purposes and that, if the Reorganization is consummated, shareholders
will be free to redeem the shares of Evergreen Government which they receive in
the transaction at their then-current net asset value. Shares of Virtus
Government may be redeemed at any time prior to the consummation of the
Reorganization. Shareholders of Virtus Government may wish to consult their tax
advisers as to any differing consequences of redeeming Fund shares prior to the
Reorganization or exchanging such shares in the Reorganization.
Virtus Government does not hold annual shareholder meetings. If the
Reorganization is not approved, shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of The Virtus Funds
at the address set forth on the cover of this Prospectus/Proxy Statement such
that they will be received by the Fund in a reasonable period of time prior to
any such meeting.
The votes of the shareholders of Evergreen Government are not being
solicited by this Prospectus/Proxy Statement and are not required to carry out
the Reorganization.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Virtus Government whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The financial statements of Evergreen Government as of June 30, 1997,
and the financial statements and financial highlights for the periods indicated
therein, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by
<PAGE>
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements and financial highlights of Virtus Government
incorporated in this Prospectus/Proxy Statement by reference from the Annual
Report of The Virtus Funds for the year ended September 30, 1997 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen
Government will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of The Virtus Funds do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND APPROVAL OF THE PLAN AND THE
INTERIM ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE
CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN, THE INTERIM ADVISORY
AGREEMENT.
January 5, 1998
<PAGE>
APPENDIX A
The name and address of the principal executive officers
and directors of Virtus Capital Management, Inc. are as
follows:
OFFICERS:
Name Address
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
DIRECTORS:
Name Address
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
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this 26th day of November, 1997, by and between the Evergreen Fixed Income
Trust, a Delaware business trust, with its principal place of business at 200
Berkeley Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its
Evergreen Intermediate Term Government Securities Fund series (the "Acquiring
Fund"), and The Virtus Funds, a Massachusetts business trust, with its principal
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 ("Virtus Funds"), with respect to its The U.S. Government Securities
Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(D) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Class A and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of certain
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares
of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of
all of the assets of the Selling Fund for Acquiring Fund Shares and the
assumption of certain identified liabilities of the Selling Fund by the
Acquiring Fund on the
<PAGE>
terms and conditions hereinafter set forth are in the best
interests of the Acquiring Fund's shareholders;
WHEREAS, the Trustees of Virtus Funds have determined that the Selling
Fund should exchange all of its assets and certain identified liabilities for
Acquiring Fund Shares and that the interests of the existing shareholders of the
Selling Fund will not be diluted as a result of the transactions contemplated
herein;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR
THE ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth
and on the basis of the representations and warranties contained herein, the
Selling Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume certain identified liabilities of the Selling Fund, as set
forth in paragraph 1.3. Such transactions shall take place at the closing
provided for in paragraph 3.1 (the "Closing Date").
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be
acquired by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, and interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the
<PAGE>
execution of this Agreement there have been no changes in its financial position
as reflected in said financial statements other than those occurring in the
ordinary course of its business in connection with the purchase and sale of
securities and the payment of its normal operating expenses.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to
discharge all of its known liabilities and obligations prior to the Closing
Date. The Acquiring Fund shall assume only those liabilities, expenses, costs,
charges and reserves reflected on a Statement of Assets and Liabilities of the
Selling Fund prepared on behalf of the Selling Fund, as of the Valuation Date
(as defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Selling Fund reflected in such
Statement of Assets and Liabilities and shall not assume any other liabilities,
whether absolute or contingent, known or unknown, accrued or unaccrued, all of
which shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges
<PAGE>
(including asset based sales charges) permitted to be imposed by the Acquiring
Fund under the National Association of Securities Dealers, Inc. Conduct Rule
2830 ("Aggregate NASD Cap"), the Acquiring Fund will add to its Aggregate NASD
Cap of the Selling Fund immediately prior to the Reorganization, in each case
calculated in accordance with such Rule 2830.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date
as is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund
will liquidate and distribute pro rata to the Selling Fund's shareholders of
record, determined as of the close of business on the Valuation Date (the
"Selling Fund Shareholders"), the Acquiring Fund Shares received by the Selling
Fund pursuant to paragraph 1.1; and (b) the Selling Fund will thereupon proceed
to dissolve as set forth in paragraph 1.8 below. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Selling Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the names of
the Selling Fund Shareholders and representing the respective pro rata number of
the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Selling Fund will simultaneously be canceled on the books of the
Selling Fund. The Acquiring Fund shall not issue certificates representing the
Acquiring Fund Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be
shown on the books of the Acquiring Fund's transfer agent. Shares of the
Acquiring Fund will be issued in the manner described in the combined Prospectus
and Proxy Statement on Form N-14 to be distributed to shareholders of the
Selling Fund as described in paragraph 5.7.
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the
Selling Fund is and shall remain the responsibility of the Selling Fund up to
and including the Closing Date and such later date on which the Selling Fund is
terminated.
<PAGE>
1.8 TERMINATION. The Selling Fund shall be terminated promptly
following the Closing Date and the making of all distributions pursuant to
paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund Shares of
each class to be issued (including fractional shares, if any) in exchange for
the Selling Fund's assets shall be determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of the Selling Fund attributable to each of its
classes by the net asset value per share of the respective classes of the
Acquiring Fund determined in accordance with paragraph 2.2. Holders of
Investment shares and Trust shares of the Selling Fund will receive Class A and
Class Y shares, respectively, of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
<PAGE>
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or
about February 27, 1998 or such other date as the parties may agree to in
writing (the "Closing Date"). All acts taking place at the Closing shall be
deemed to take place simultaneously immediately prior to the opening of business
on the Closing Date unless otherwise provided. The Closing shall be held as of
9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA
02116, or at such other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the
Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to the
Acquiring Fund on the Closing Date; and (b) all necessary taxes including all
applicable federal and state stock transfer stamps, if any, shall have been
paid, or provision for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as
transfer agent for the Selling Fund as of the Closing Date shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Selling Fund Shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver or
cause Evergreen Service Company, its transfer agent as of the Closing Date, to
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of
<PAGE>
Virtus Funds or provide evidence satisfactory to the Selling Fund that such
Acquiring Fund Shares have been credited to the Selling Fund's account on the
books of the Acquiring Fund. At the Closing, each party shall deliver to the
other such bills of sale, checks, assignments, share certificates, if any,
receipts and other documents as such other party or its counsel may reasonably
request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling
Fund represents and warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing, and in good
standing under the laws of The Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust that is registered as an investment company
classified as a management company of the open-end type, and its registration
with the Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
is in full force and effect.
(c) The current prospectuses and statement of additional
information of the Selling Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1933
Act"), and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of Virtus Funds' Declaration of Trust or By-Laws
or of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other
commitments (other than this Agreement) that will be terminated with liability
to it prior to the Closing Date
<PAGE>
except for liabilities, if any, to be discharged or reflected on the Statement
of Assets and Liabilities as provided in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted
by the Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Selling Fund or any of its properties
or assets, which, if adversely determined, would materially and adversely affect
its financial condition, the conduct of its business, or the ability of the
Selling Fund to carry out the transactions contemplated by this Agreement. The
Selling Fund knows of no facts that might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(g) The financial statements of the Selling Fund at September
30, 1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since September 30, 1997 there has not been any material
adverse change in the Selling Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Selling Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
<PAGE>
(j) For each fiscal year of its operation, the Selling Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund (except that, under Massachusetts
law, Selling Fund Shareholders could under certain circumstances be held
personally liable for obligations of the Selling Fund). All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing Date, be
held by the persons and in the amounts set forth in the records of the transfer
agent as provided in paragraph 3.4. The Selling Fund does not have outstanding
any options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects
<PAGE>
with federal securities and other laws and regulations
thereunder applicable thereto.
(o) The Proxy Statement of the Selling Fund to be included in
the Registration Statement (as defined in paragraph 5.7)(other than information
therein that relates to the Acquiring Fund) will, on the effective date of the
Registration Statement and on the Closing Date, not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust that is registered as an investment company classified
as a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling
Fund and accepted by the Selling Fund, no litigation, administrative proceeding
or investigation of or before any court or governmental body is presently
pending or to its
<PAGE>
knowledge threatened against the Acquiring Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely affect
its financial condition and the conduct of its business or the ability of the
Acquiring Fund to carry out the transactions contemplated by this Agreement. The
Acquiring Fund knows of no facts that might form the basis for the institution
of such proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
contemplated herein.
(f) The financial statements of the Acquiring Fund at June 30,
1997 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since June 30, 1997, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such dates
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund
has met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each such
year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The
<PAGE>
Acquiring Fund does not have outstanding any options, warrants, or other rights
to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding
any security convertible into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement
have been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other
laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to
the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for
use in no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in
paragraph 5.7) to be included in the Registration Statement (only insofar as it
relates to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and
warranties set forth in Section 4.2.1 shall be deemed to include, to the extent
applicable,
<PAGE>
representations and warranties made by and on behalf of Evergreen
Intermediate-Term Government Securities Fund (the "Predecessor Fund"), a series
of The Evergreen Lexicon Fund, a Massachusetts business trust, as of the date
hereof. The Acquiring Fund shall deliver to the Selling Fund a certificate of
the Predecessor Fund of even date making the representations set forth in
Section 4.2.1 with respect to the Predecessor Fund to the extent applicable to
the Predecessor Fund as of the date hereof.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling
Fund each will operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course of
business will include customary dividends and distributions.
5.2 APPROVAL OF SHAREHOLDERS. Virtus Funds will call a meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other action necessary to obtain approval of the transactions contemplated
herein.
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but
in any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be
<PAGE>
carried over by the Acquiring Fund as a result of Section 381 of the Code, and
which will be reviewed by KPMG Peat Marwick and certified by Virtus Funds'
President and Treasurer.
5.7 PREPARATION OF FORM N-14 REGISTRATION STATEMENT. The Selling Fund
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 CAPITAL LOSS CARRYFORWARDS. AS promptly as practicable, but in any
case within sixty days after the Closing Date, the Acquiring Fund and the
Selling Fund shall cause KPMG Peat Marwick LLP to issue a letter addressed to
the Acquiring Fund and the Selling Fund, in form and substance satisfactory to
the Funds, setting forth the federal income tax implications relating to capital
loss carryforwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring
Fund contained in this Agreement shall be true and correct as of the date hereof
and as of the Closing Date with the same force and effect as if made on and as
of the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
reasonably satisfactory to the Selling Fund and dated as of the Closing
<PAGE>
Date, to such effect and as to such other matters as the Selling Fund shall
reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a
Delaware business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a
Delaware business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and
delivered by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the
net asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued, and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the State of Delaware is required for consummation by
the Acquiring Fund of the transactions contemplated herein, except such as have
been
<PAGE>
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(f) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision of any
material agreement, indenture, instrument, contract, lease or other undertaking
(in each case known to such counsel) to which the Acquiring Fund is a party or
by which it or any of its properties may be bound or to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which the Acquiring Fund is
a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on or
before the effective date of the Registration Statement or the Closing Date
required to be described in the Registration Statement or to be filed as
exhibits to the Registration Statement which are not described or filed as
required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.
Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Acquiring Fund at
which the contents of the Prospectus and Proxy Statement and related matters
were discussed and, although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Prospectus and Proxy Statement (except to the extent indicated
in paragraph (g) of their above opinion), on the basis of the foregoing (relying
as to materiality to a large extent upon the opinions of the Trust's
<PAGE>
officers and other representatives of the Acquiring Fund), no facts have come to
their attention that lead them to believe that the Prospectus and Proxy
Statement as of its date, as of the date of the Selling Fund Shareholders'
meeting, and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein regarding
the Acquiring Fund or necessary, in the light of the circumstances under which
they were made, to make the statements therein regarding the Acquiring Fund not
misleading. Such opinion may state that such counsel does not express any
opinion or belief as to the financial statements or any financial or statistical
data, or as to the information relating to the Selling Fund, contained in the
Prospectus and Proxy Statement or the Registration Statement, and that such
opinion is solely for the benefit of Virtus Funds and the Selling Fund. Such
opinion shall contain such other assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
6.3 The merger between First Union Corporation and Signet Banking
Corporation shall be completed prior to the Closing Date.
6.4 The acquisition of the assets of the Predecessor Fund by the
Acquiring Fund shall have been completed prior to the Closing Date.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the
<PAGE>
Acquiring Fund on the Closing Date a certificate executed in its name by Virtus
Funds' President or Vice President and the Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquiring Fund and dated as of the
Closing Date, to such effect and as to such other matters as the Acquiring Fund
shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of Virtus Funds.
7.3.1 The Acquiring Fund shall have received on the Closing Date an
opinion of Dickstein Shapiro Morin & Oshinsky LLP, counsel to the Selling Fund,
in a form satisfactory to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a
Massachusetts business trust duly organized, validly existing and in good
standing under the laws of The Commonwealth of Massachusetts and has the power
to own all of its properties and assets and to carry on its business as
presently conducted.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and
delivered by the Selling Fund, and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or The Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
<PAGE>
(e) The execution and delivery of this Agreement did not, and
the consummation of the transactions contemplated hereby will not, result in a
violation of Virtus Funds' Declaration of Trust or By-laws, or any provision of
any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund is a
party or by which it or any of its properties may be bound or, to the knowledge
of such counsel, result in the acceleration of any obligation or the imposition
of any penalty, under any agreement, judgment, or decree to which the Selling
Fund is a party or by which it is bound.
(f) The descriptions in the Prospectus and Proxy Statement of
this Agreement, as set forth under the caption "Reasons for the Reorganization -
Agreement and Plan of Reorganization," the Interim Advisory Agreement and the
Previous Advisory Agreement, as set forth under the caption "Information
Regarding the Interim Advisory Agreement," and the description of voting
requirements applicable to approval of the Interim Advisory Agreement, as set
forth under the caption "Voting Information Concerning the Meeting," insofar as
the latter constitutes a summary of applicable voting requirements under the
Investment Company Act of 1940, as amended, are, in each case, accurate and
fairly present the information required to be shown by the applicable
requirements of Form N-14.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or before
the date of mailing of the Prospectus and Proxy Statement and the Closing Date,
required to be described in the Prospectus and Proxy Statement or to be filed as
an exhibit to the Registration Statement which are not described or filed as
required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling Fund or
any of its respective properties or assets and the Selling Fund is neither a
party to nor subject to the provisions of any order, decree or judgment of any
court or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
7.3.2 The Acquiring Fund shall have received on the Closing
Date an opinion of C. Grant Anderson, Esq., Assistant Secretary of Virtus Funds,
in form satisfactory to the Acquiring Fund as follows: Assuming that a
consideration therefor of not less than the net asset value thereof has been
<PAGE>
paid, and assuming that such shares were issued in accordance with the terms of
the Selling Fund's registration statement, or any amendment thereto, in effect
at the time of such issuance, all issued and outstanding shares of the Selling
Fund are legally issued and fully paid and non-assessable (except that, under
Massachusetts law, Selling Fund Shareholders could under certain circumstances
be held personally liable for obligations of the Selling Fund).
Mr. Anderson shall also state that he has reviewed and is familiar with
the contents of the Prospectus and Proxy Statement and, although he is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Prospectus and Proxy
Statement, on the basis of the foregoing, no facts have come to his attention
that lead him to believe that the Prospectus and Proxy Statement as of its date,
as of the date of the Selling Fund Shareholders' meeting, and as of the Closing
Date, contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding the Selling Fund or
necessary, in the light of the circumstances under which they were made, to make
the statements therein regarding the Selling Fund not misleading. Such opinion
may state that he does not express any opinion or belief as to the financial
statements or any financial or statistical data, or as to the information
relating to the Acquiring Fund, contained in the Prospectus and Proxy Statement
or Registration Statement.
The opinions set forth in paragraphs 7.3.1 and 7.3.2 may state that
such opinions are solely for the benefit of the Acquiring Fund. Such opinions
shall contain such other assumptions and limitations as shall be in the opinion
of Dickstein Shapiro Morin & Oshinsky LLP and C. Grant Anderson, as applicable,
appropriate to render the opinions expressed therein, and shall indicate, with
respect to matters of Massachusetts law, that as Dickstein Shapiro Morin &
Oshinsky LLP and C. Grant Anderson are not admitted to the bar of Massachusetts,
such opinions are based either upon the review of published statutes, cases and
rules and regulations of the Commonwealth of Massachusetts or upon an opinion of
Massachusetts counsel.
In this paragraph 7.3, references to Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
<PAGE>
7.4 The merger between First Union Corporation and Signet Banking
corporation shall be completed prior to the Closing Date.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of Virtus Funds' Declaration
of Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents,
orders, and permits of federal, state and local regulatory authorities
(including those of the Commission and of state Blue Sky securities authorities,
including any necessary "no-action" positions of and exemptive orders from such
federal and state authorities) to permit consummation of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent, order, or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Selling Fund,
provided that either party hereto may for itself waive any of such conditions.
<PAGE>
8.4 The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP, addressed to the Acquiring Fund and the Selling Fund
substantially to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a)(1)(D) of the Code and the Acquiring Fund and the Selling Fund
will each be a "party to a reorganization" within the meaning of Section 368(b)
of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund
upon the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of certain stated
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund
upon the transfer of the Selling Fund assets to the Acquiring Fund in exchange
for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
certain stated liabilities of the Selling Fund or upon the distribution (whether
actual or constructive) of the Acquiring Fund Shares to Selling Fund
Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund Shareholders
upon the exchange of their Selling
<PAGE>
Fund shares for the Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares
received by each Selling Fund Shareholder pursuant to the Reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period of
the Acquiring Fund Shares to be received by each Selling Fund Shareholder will
include the period during which the Selling Fund shares exchanged therefor were
held by such shareholder (provided the Selling Fund shares were held as capital
assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include the
period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Selling Fund may waive the conditions set forth in this paragraph
8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Selling Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement has
been obtained from and is consistent with the accounting records of the Selling
Fund;
(c) on the basis of limited procedures agreed upon by the
Acquiring Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with
<PAGE>
underlying accounting records of the Selling Fund or with written estimates by
Selling Fund's management and were found to be mathematically correct.
In addition, the Acquiring Fund shall have received from KPMG Peat
Marwick LLP a letter addressed to the Acquiring Fund dated on the Closing Date,
in form and substance satisfactory to the Acquiring Fund, to the effect, that on
the basis of limited procedures agreed upon by the Acquiring Fund (but not an
examination in accordance with generally accepted auditing standards), the
calculation of net asset value per share of the Selling Fund as of the Valuation
Date was determined in accordance with generally accepted accounting practices
and the portfolio valuation practices of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with
respect to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the
Selling Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the Acquiring
Fund; and
(c) on the basis of limited procedures agreed upon by the
Selling Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the projected
expense ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were found
to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank. Such expenses
include,
<PAGE>
without limitation, (a) expenses incurred in connection with the entering into
and the carrying out of the provisions of this Agreement; (b) expenses
associated with the preparation and filing of the Registration Statement under
the 1933 Act covering the Acquiring Fund Shares to be issued pursuant to the
provisions of this Agreement; (c) registration or qualification fees and
expenses of preparing and filing such forms as are necessary under applicable
state securities laws to qualify the Acquiring Fund Shares to be issued in
connection herewith in each state in which the Selling Fund Shareholders are
resident as of the date of the mailing of the Prospectus and Proxy Statement to
such shareholders; (d) postage; (e) printing; (f) accounting fees; (g) legal
fees; and (h) solicitation costs of the transaction. Notwithstanding the
foregoing, the Acquiring Fund shall pay its own federal and state registration
fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party
has made any representation, warranty or covenant not set forth herein and that
this Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty,
or agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the
obligations of the terminating party has not been met and it reasonably appears
that it will not or cannot be met.
<PAGE>
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, Virtus Funds, the respective
Trustees or officers, to the other party or its Trustees or officers.
ARTICLE XII
AMENDMENTS
This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of the
Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws provisions thereof; provided, however, that the due authorization,
execution and delivery of this Agreement, in the case of the Selling Fund, shall
be governed and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to the conflicts of laws provisions
thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
<PAGE>
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Selling Fund
and the Acquiring Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of Virtus Funds or the
Trust personally, but shall bind only the trust property of the Selling Fund and
the Acquiring Fund, as provided in the Declarations of Trust of Virtus Funds and
the Trust. The execution and delivery of this Agreement have been authorized by
the Trustees of Virtus Funds on behalf of the Selling Fund and the Trust on
behalf of the Acquiring Fund and signed by authorized officers of Virtus Funds
and the Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officers shall be deemed to have been
made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Selling Fund and the
Acquiring Fund as provided in the Declarations of Trust of Virtus Funds and the
Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
EVERGREEN FIXED INCOME TRUST
ON BEHALF OF EVERGREEN
INTERMEDIATE TERM GOVERNMENT
SECURITIES FUND
By:
Name:
Title:
THE VIRTUS FUNDS
ON BEHALF OF THE U.S.
GOVERNMENT SECURITIES FUND
By:
Name:
Title:
<PAGE>
EXHIBIT B
THE VIRTUS FUNDS
INTERIM INVESTMENT ADVISORY AGREEMENT
This Agreement is made between Virtus Capital Management, Inc., a
Maryland corporation having its principal place of business in Richmond,
Virginia (the "Adviser"), and The Virtus Funds, a Massachusetts business trust
having its principal place of business in Pittsburgh, Pennsylvania (the
"Trust").
WHEREAS, the Trust is an open-end management investment company as that
term is defined in the Investment Company Act of 1940 (the "Act") and
is registered as such with the Securities and Exchange Commission; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of
the portfolios ("Funds") of the Trust, which may be offered in one or more
classes of shares ("Classes"), on whose behalf the Trust executes an exhibit to
this Agreement, and Adviser, by its execution of each such exhibit, accepts the
appointments. Subject to the direction of the Trustees of the Trust, Adviser
shall provide investment research and supervision of the investments of each of
the Funds and conduct a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds,
will be guided by each of the Fund's fundamental investment policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statement and exhibits as may be
on file with the Securities and Exchange Commission.
3. The Trust shall pay or cause to be paid on behalf of each Fund or
Class, all of the Fund's or Classes' expenses and the Fund's or Classes'
allocable share of Trust expenses.
<PAGE>
4. The Trust, on behalf of each of the Funds shall pay to Adviser for
all services rendered to such Fund by Adviser hereunder the fees set forth in
the exhibits attached hereto.
5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation to the extent that any Fund's expenses
exceed such lower expense limitation as the Adviser may, by notice to the Trust,
voluntarily declare to be effective. Furthermore, the Adviser may, if it deems
appropriate, assume expenses of one or more Fund or Class to the extent that any
Fund's or Classes' expenses exceed such lower expense limitation as the Adviser
may, by notice to the Trust, voluntarily declare to be effective.
6. This Agreement shall begin for each Fund on the date that the Trust
executes an exhibit to this Contract relating to such Fund. This Agreement shall
remain in effect for each Fund until the earlier of the Closing Date defined in
the Agreement and Plan of Reorganization to be dated as of November 26, 1997
with respect to each Fund or for two years from the date of its execution and
from year to year thereafter, subject to the provisions for termination and all
of the other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose; and
(b) Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter that
it does not desire such continuation with respect to that Fund.
7. Notwithstanding any provision in this Agreement, it may be
terminated at any time with respect to any Fund, without the payment of any
penalty, by the Trustees of the Trust or by a vote of a majority of the
outstanding voting securities of that Fund, as defined in Section 2(a)(42) of
the Act on sixty (60) days' written notice to Adviser.
8. This Agreement may not be assigned by Adviser and shall
automatically terminate in the event of any assignment. Adviser may employ or
contract with such other person, persons, corporation or corporations at its own
cost and expense as it shall determine in order to assist it in carrying out
this Agreement.
<PAGE>
9. In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties under this Agreement on the part
of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or
to any shareholder for any act or omission in the course of or connected in any
way with rendering services or for any losses that may be sustained in the
purchase, holding or sale of any security.
10. This Agreement may be amended at any time by agreement of the
parties provided that the amendment shall be approved both by vote of a majority
of the Trustees of the Trust, including a majority of the Trustees who are not
parties to this Agreement or interested persons of any such party to this
Agreement (other than as Trustees of the Trust), cast in person at a meeting
called for that purpose, and on behalf of a Fund by a majority of the
outstanding voting securities of such Fund as defined in Section 2(a)(42) of the
Act.
11. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations pursuant to this Agreement of a particular Fund and of the Trust
with respect to that particular Fund be limited solely to the assets of that
particular Fund, and Adviser shall not seek satisfaction of any such obligation
from the assets of any other Fund, the shareholders of any Fund, the Trustees,
officers, employees or agents of the Trust, or any of them.
12. This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
13. This Agreement will become binding on the parties hereto upon their
execution of the attached exhibits to this Agreement.
<PAGE>
EXHIBIT A
THE U.S. GOVERNMENT SECURITIES FUND
THE VIRGINIA MUNICIPAL BOND FUND
THE MARYLAND MUNICIPAL BOND FUND
THE TREASURY MONEY MARKET FUND
THE MONEY MARKET FUND
THE TAX-FREE MONEY MARKET FUND
THE STYLE MANAGER FUND
THE STYLE MANAGER: LARGE CAP FUND
Name of Fund Percentage of Net Assets
The Treasury Money Market Fund .50 of 1%
The Money Market Fund .50 of 1%
The Tax-Free Money Market Fund .50 of 1%
The U.S. Government Securities Fund .75 of 1%
The Virginia Municipal Bond Fund .75 of 1%
The Maryland Municipal Bond Fund .75 of 1%
The Style Manager: Large Cap Fund .75 of 1%
The Style Manager Fund 1.25 of 1%
For all services rendered by Adviser hereunder, the Trust shall pay to
Adviser and Adviser agrees to accept as full compensation for all services
rendered hereunder, an annual investment advisory fee equal to the following
percentage (the "applicable percentage") of the average daily net assets of each
Fund.
The fee shall be accrued daily at the rate of 1/365th of the applicable
percentage applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 28th day of November, 1997.
Attest: VIRTUS CAPITAL MANAGEMENT, INC.
By:
Assistant Secretary President
Attest: THE VIRTUS FUNDS
By:
Assistant Secretary Vice President
C. Grant Anderson
<PAGE>
EVERGREEN
(logo and photo of George Washington)
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND
FUND-AT-A-GLANCE
As of June 30, 1997
<TABLE>
<CAPTION>
ONE YEAR PERFORMANCE CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
One year with sales
charge 2.55 % 0.03 % 4.03 % 6.08 %
One year w/o sales
charge 6.00 % 5.03 % 5.03 % 6.08 %
One year dividends per
share 55.4(cents) 46.3(cents) 46.3(cents) 56.2 (cents)
30-day SEC Yield
(as of 6/30/97) 5.25 % 4.44 % 4.17 % 5.49 %
<CAPTION>
AVERAGE ANNUAL
RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 6.19 %
Five years N/A N/A N/A 5.38 %
Since Inception* 4.38 % -0.66 % 4.85 % 5.82 %
<CAPTION>
CUMULATIVE RETURNS** CLASS A CLASS B CLASS C CLASS Y
<S> <C> <C> <C> <C>
Three years N/A N/A N/A 19.76 %
Five years N/A N/A N/A 29.94 %
Since Inception* 9.74 % -0.92 % 5.97 % 37.82 %
</TABLE>
* CLASS A BEGAN 5/2/95; CLASS B BEGAN 2/9/96; CLASS C BEGAN 4/10/96;
CLASS Y BEGAN 11/1/91
** ALL RETURNS INCLUDE THE MAXIMUM APPLICABLE SALES CHARGE.
<TABLE>
<CAPTION>
PORTFOLIO CHARACTERISTICS
<S> <C> <C> <C>
Total Net Assets (all classes) $72.9 million
Average Credit Quality AAA
Average Maturity 3.88 years
Duration 2.93 years
</TABLE>
PORTFOLIO COMPOSITION JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See tables below for plot points.)
U.S. Treasuries 71%
Mortgage-backed securities 18%
U.S. Govt. Agencies 10%
Short-term securities 1%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OBJECTIVE
Evergreen Intermediate-Term Government Securities Fund seeks to maximize total
return and preserve principal while providing current income.
STRATEGY
The Fund invests primarily in securities issued by the U.S. Government and its
agencies. These securities typically have an average maturity of three to six
years, with a maximum maturity of ten years. The Fund seeks its objective over
full interest rate cycles, which typically last three to five years.
PORTFOLIO MANAGER
(photo of L. L. Robert Cheshire, a Vice President and Senior Portfolio
Robert Cheshire) Manager of First Union Capital Management Group, is Portfolio
Manager of Evergreen Intermediate-Term Government Securities
Fund. Mr. Cheshire also is in charge of the Newark Taxable
Fixed Income Unit of First Union. Prior to joining First
Union, Mr. Cheshire was a Vice President at Shearson Lehman
Hutton for 11 years in the Asset Management and Institutional
Government Securities Division. He was also a Vice President
of Government Securities for Charles E. Quincey and an
Assistant Vice President in the Municipal Securities
Department with Bankers Trust Co. in New York. Mr. Cheshire is
a graduate of Rutgers University and holds an M.B.A. from
Fairleigh Dickinson University.
8
EVERGREEN (logo and
INTERMEDIATE-TERM GOVERNMENT SECURITIES FUND photo of
George Washington)
MANAGEMENT REPORT
August 1997
Dear Shareholders:
We are pleased to report on Evergreen Intermediate-Term Government Securities
Fund for the 12-month fiscal year that ended on June 30, 1997.
PERFORMANCE
During the year, the Fund delivered satisfactory returns, consistent with its
objective to seek total return while preserving principal. For the first nine
months of the fiscal year, as interest rates rose, the Fund's slightly long
duration caused some underperformance against industry benchmarks. However, the
Fund outperformed its benchmark during the final three months of the year as
interest rates fell.
ENVIRONMENT
During the 12-month fiscal period, the U.S. economy experienced a pattern best
described as a series of "mini-cycles," with bonds trading within a relatively
narrow range of interest rates. Economic growth surged during the fourth quarter
of 1996 into the first quarter of 1997, subsequently causing concern over
inflationary pressure. Against this backdrop, bond market participants reviewed
each new economic report for any signs of inflation that could prompt the
Federal Reserve Board to increase interest rates. These market concerns resulted
in rising interest rates throughout the first quarter of 1997, culminating in
the March 25 decision by the Federal Reserve Board to raise the Federal Funds
rate by 0.25%. Conversely, investors' fears of inflation receded during the
second quarter of 1997 amid reports of slowing economic growth. As a result,
interest rates fell.
STRATEGY
The Fund's duration, or sensitivity to interest rate changes, was consistent
with that of the benchmark Lehman Brothers Intermediate Government Index during
the fiscal year. In implementing duration strategy, your Fund's investment
manager uses a disciplined process focusing on longer-term trends in the
economic environment. The Fund's duration was modestly shortened following the
Federal Reserve Board's decision to raise the Federal Funds rate in late March.
In response to the declining interest rate environment in the second quarter,
portfolio duration was brought back to neutral. To capture additional yield, the
Fund's emphasis on mortgage-backed securities was also increased, ending the
fiscal year at more than 18% of net assets.
Consistent with the Fund's concentration on government securities, average
credit quality was maintained at AAA.
MATURITY AS OF JUNE 30, 1997
(AS A PERCENTAGE OF PORTFOLIO ASSETS)
(A pie graph appears here. See table below for plot points.)
0-1 Year 4%
1-5 Years 45%
5-10 Years 51%
PORTFOLIO ALLOCATIONS ARE SUBJECT TO CHANGE.
OUTLOOK
We are continuing to monitor closely new economic reports, vigilant for any
indications of a resurgence of inflationary pressure that could cause the
Federal Reserve Board to raise the Federal Funds rate during the second half of
1997. The overall bond market continues to be characterized by near-term
interest rate fluctuations, without any over-riding trend. This environment
dictates a very cautious approach in the coming quarters, with portfolio
duration adjusted consistent with a changing market environment.
We anticipate that your Fund's relatively neutral duration and conservative
style should protect the fund from any significant fluctuations in the market.
In addition, we will continue to seek attractive opportunities by increasing the
Fund's yield through the addition of mortgage-backed securities and other
relatively higher yielding instruments.
Thank you for your investment in Evergreen Intermediate-Term Government
Securities Fund.
Sincerely,
/s/RICHARD K. WAGONER
RICHARD K. WAGONER
EXECUTIVE VICE PRESIDENT
CHIEF INVESTMENT OFFICER
First Union Capital Management Group
/s/ L. ROBERT CHESHIRE
L. ROBERT CHESHIRE
VICE PRESIDENT
SENIOR PORTFOLIO MANAGER
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
THE GOVERNMENT SECURITIES FUND
a Series of
THE VIRTUS FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(800) 829-3863
By and In Exchange For Shares of
EVERGREEN INTERMEDIATE GOVERNMENT SECURITIES FUND
a Series of
EVERGREEN FIXED INCOME TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of The Government Securities
Fund ("Virtus Government"), a series of The Virtus Funds, to Evergreen
Intermediate Term Government Securities Fund ("Evergreen Government"), a series
of the Evergreen Fixed Income Trust, in exchange for Class A shares (to be
issued to holders of Investment shares of Virtus Government) and Class Y shares
(to be issued to holders of Trust shares of Virtus Government) of beneficial
interest, $.001 par value per share, of Evergreen Government, consists of this
cover page and the following described documents, each of which is attached
hereto and incorporated by reference herein:
(1) The Statement of Additional Information of Evergreen
Government dated September 3, 1997; (To be filed by amendment)
(2) The Statement of Additional Information of Virtus Government
dated November 30, 1997; (To be filed by amendment)
(3) Annual Report of Virtus Government for the year ended
September 30, 1997; (To be filed by amendment)
(4) Annual Report of Evergreen Government for the year ended June
30, 1997; (To be filed by amendment) and
<PAGE>
(5) Pro-Forma Combining Financial Statements (unaudited) dated
June 30, 1997.
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Evergreen Government and Virtus Government dated January 5, 1998. A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to Evergreen Government or Virtus Government at the telephone numbers
or addresses set forth above.
The date of this Statement of Additional Information is January 5,
1998.
<PAGE>
<PAGE>
Evergreen Intermediate-Term Government Securities Fund
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
SCHEDULE OF INVESTMENTS (000's)
June 30, 1997
<TABLE>
<CAPTION>
Evergreen
Intermediate-Term
Government
Securities Fund
-------------------------
Maturity Market
Coupon Date Principal Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-Backed Securities - 36.0%
Federal Home Loan Mortgage Corp. 5.60% 2/15/13 $ 5,000 $ 4,975
Federal Home Loan Mortgage Corp. 6.50 9/1/08 - 11/1/09
Federal Home Loan Mortgage Corp. 7.64 7/1/97
Federal Home Loan Mortgage Corp. 8.44 7/1/97
Federal Home Loan Mortgage Corp. Gold 9.00 1/1/17 4,251 4,553
Federal Home Loan Mortgage PC Guaranteed 7.80 5/15/12
Federal National Mortgage Assn. 7.00 3/1/24 3,689 3,639
Federal National Mortgage Assn. 7.00 12/1/99 - 4/1/11
Federal National Mortgage Assn. 7.50 8/1/26
Federal National Mortgage Assn. 8.50 12/1/01
Federal National Mortgage Assn. 8.78 7/1/97
Government National Mortgage Association 8.00 3/15/17
Government National Mortgage Association 9.00 9/15/21
U.S. Department of Veteran Affairs 7.00 5/15/12 1,000 1,002
------------
Total Mortgage-Backed Securities (Cost $84,628) 14,169
U. S. Agency Obligations - 9.4%
Federal Agricultural Mortgage Corp. 7.37 8/1/06
Federal Home Loan Bank 8.60 1/25/00 1,300 1,371
Federal Home Loan Mortgage Corp. 7.36 6/5/07
Federal Home Loan Mortgage Corp. 7.97 4/20/05
Federal National Mortgage Assn. 7.50 2/11/02 2,000 2,078
Federal National Mortgage Assn. 7.88 2/24/05 2,000 2,138
Tennessee Valley Authority 6.38 6/15/05 2,000 1,960
------------
Total U. S. Agency Obligations (Cost $21,845) 7,547
U. S. Treasury Notes - 55.1%
U.S. Treasury Notes 5.55 2/28/99 4,500 4,463
U.S. Treasury Notes 5.88 1/31/99 6,800 6,788
U.S. Treasury Notes 6.00 11/30/97 - 9/30/98 3,900 3,905
U.S. Treasury Notes 6.13 12/31/01 3,500 3,467
U.S. Treasury Notes 6.25 7/31/98 4,000 4,019
U.S. Treasury Notes 6.38 7/15/99 4,000 4,024
U.S. Treasury Notes 6.50 4/30/99 3,000 3,023
U.S. Treasury Notes 6.63 6/30/01 3,000 3,031
U.S. Treasury Notes 6.75 4/30/00 1,000 1,013
U.S. Treasury Notes 7.00 7/15/06 4,300 4,425
U.S. Treasury Notes 7.13 2/29/00
U.S. Treasury Notes 7.50 10/31/99 4,000 4,115
U.S. Treasury Notes 7.50 11/15/01 2,000 2,085
U.S. Treasury Notes 7.50 5/15/02 2,000 2,093
U.S. Treasury Notes 7.50 2/15/05 3,250 3,440
U.S. Treasury Notes 7.88 4/15/98 1,700 1,728
U.S. Treasury Notes 7.88 11/15/04 3,500 3,777
U.S. Treasury Notes 8.25 7/15/98
U.S. Treasury Notes 8.50 11/15/00 1,300 1,387
U.S. Treasury Notes 8.88 2/15/99
------------
Total U. S. Treasury Notes (Cost $131,323) 56,783
Maturity
Repurchase Agreements - 1.7% Date
Donaldson, Lufkin & Jenrette Securities Corp., 5.90 7/1/97 1,040 1,040
(collateralized by $347 U.S. Treasury Bonds,
11.25% , due 2/15/15: $540 U.S. Treasury Bills, due
7/3/97; value including accrued interest $1,061)
Nikko Securities Co. International, Inc. (a) 5.95 7/1/97
------------
Total Repurchase Agreements (Cost $4,140) 1,040
Total Investments (Cost $241,936) 102.2% 79,539
Other Assets and Liabilities (net) (2.2) (6,626)
---------------------- ------------
Net Assets 100.0% $72,913
====================== ============
<CAPTION>
Virtus
U.S. Government Pro Forma
Securities Fund Combined
----------------------- --------------------------
Market Market
Principal Value Adjustments Principal Value
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage-Backed Securities - 36.0%
Federal Home Loan Mortgage Corp. $5,000 $4,975
Federal Home Loan Mortgage Corp. $19,908 $19,686 19,908 19,687
Federal Home Loan Mortgage Corp. 82 86 82 86
Federal Home Loan Mortgage Corp. 30 31 30 31
Federal Home Loan Mortgage Corp. Gold 4,251 4,553
Federal Home Loan Mortgage PC Guaranteed 840 843 840 843
Federal National Mortgage Assn. 3,689 3,639
Federal National Mortgage Assn. 24,677 24,736 24,677 24,737
Federal National Mortgage Assn. 24,152 24,250 24,152 24,250
Federal National Mortgage Assn. 381 393 381 393
Federal National Mortgage Assn. 71 74 71 74
Government National Mortgage Association 169 175 169 175
Government National Mortgage Association 327 350 327 350
U.S. Department of Veteran Affairs 1,000 1,002
------------ -------------
Total Mortgage-Backed Securities (Cost $84,628) 70,624 84,795
U. S. Agency Obligations - 9.4%
Federal Agricultural Mortgage Corp. 993 1,027 993 1,027
Federal Home Loan Bank 1,300 1,371
Federal Home Loan Mortgage Corp. 8,500 8,632 8,500 8,632
Federal Home Loan Mortgage Corp. 5,000 5,061 5,000 5,061
Federal National Mortgage Assn. 2,000 2,078
Federal National Mortgage Assn. 2,000 2,138
Tennessee Valley Authority 2,000 1,960
------------ -------------
Total U. S. Agency Obligations (Cost $21,845) 14,720 22,267
U. S. Treasury Notes - 55.1%
U.S. Treasury Notes 4,500 4,463
U.S. Treasury Notes 6,800 6,787
U.S. Treasury Notes 3,900 3,905
U.S. Treasury Notes 3,500 3,467
U.S. Treasury Notes 4,000 4,019
U.S. Treasury Notes 4,000 4,024
U.S. Treasury Notes 3,000 3,023
U.S. Treasury Notes 3,000 3,031
U.S. Treasury Notes 1,000 1,013
U.S. Treasury Notes 4,300 4,425
U.S. Treasury Notes 22,000 22,493 22,000 22,492
U.S. Treasury Notes 4,000 4,115
U.S. Treasury Notes 2,000 2,085 4,000 4,170
U.S. Treasury Notes 13,000 13,609 15,000 15,702
U.S. Treasury Notes 3,250 3,440
U.S. Treasury Notes 5,000 5,083 6,700 6,812
U.S. Treasury Notes 3,500 3,777
U.S. Treasury Notes 6,000 6,146 6,000 6,146
U.S. Treasury Notes 1,300 1,387
U.S. Treasury Notes 23,000 24,012 23,000 24,012
------------ -------------
Total U. S. Treasury Notes (Cost $131,323) 73,428 130,211
Repurchase Agreements - 1.7%
Donaldson, Lufkin & Jenrette Securities Corp., 1,040 1,040
(collateralized by $347 U.S. Treasury Bonds,
11.25% , due 2/15/15: $540 U.S. Treasury Bills, due
7/3/97; value including accrued interest $1,061)
Nikko Securities Co. International, Inc. (a) 3,100 3,100 3,100 3,100
------------ -------------
Total Repurchase Agreements (Cost $4,140) 3,100 4,140
Total Investments (Cost $241,936) 161,872 241,411
Other Assets and Liabilities (net) 1,474 (5,152)
------------ -------------
Net Assets $163,346 $236,259
============ =============
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
See Notes to Pro Forma Combined Financial Statements.
<PAGE>
Evergreen Intermediate Term Government Securities Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Assets and Liabilities
June 30, 1997
<TABLE>
<CAPTION>
Evergreen
Intermediate-Term Virtus U.S
Government Government Pro Forma
Securities Fund Securities Fund Adjustments Combined
------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
Assets
Investments at value (cost $241,936) $ 79,539 $ 161,872 $ 241,411
Interest receivable 1,240 2,316 3,556
Receivable for Fund shares sold 2 67 69
Due from investment adviser 0 59 59
Prepaid expenses and other assets 15 0 15
------------------------------------------------------- -----------
Total Assets 80,796 164,314 245,110
Liabilities
Dividends payable 0 795 795
Payable for Fund shares redeemed 7,807 8 7,815
Distribution fee payable 1 26 27
Due to related parties 45 138 183
Accrued expenses and other liabilities 30 1 31
---------------------------------------------------------------------
Total Liabilities 7,883 968 8,851
---------------------------------------------------------------------
Net Assets $ 72,913 $ 163,346 $ 236,259
=====================================================================
Net assets are comprised of:
Paid-in capital $ 74,620 $ 181,459 $ 256,079
Undistributed net investment income (accumulated
distributions in excess of investment income) (5) 0 (5)
Accumulated net realized loss on investments (2,173) (17,117) (19,290)
Net unrealized appreciation (depreciation) on investments 471 (996) (525)
---------------------------------------------------------------------
Net Assets $ 72,913 $ 163,346 $ 236,259
=====================================================================
Class A Shares
Net Assets $ 572 $ 106,929 $ 107,501
Shares of Beneficial Interest Outstanding 57 10,831 (162) 10,726
Net Asset Value $ 10.02 $ 9.87 $10.02
Maximum Offering Price (4.75%) $ 10.36 $10.36
Class B Shares
Net Assets $ 742 $ 742
Shares of Beneficial Interest Outstanding 74 74
Net Asset Value $ 10.02 $ 10.02
Class C Shares
Net Assets $12 $12
Shares of Beneficial Interest Outstanding 1 1
Net Asset Value $ 10.02 $ 10.02
Class Y Shares
Net Assets $ 71,588 $ 56,417 $ 128,005
Shares of Beneficial Interest Outstanding 7,143 5,714 (86) 12,771
Net Asset Value $ 10.02 $ 9.87 $ 10.02
</TABLE>
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Intermediate Term Government Securities Fund
Pro Forma Combining Financial Statements (unaudited)
Statement of Operations
Year ended June 30, 1997
<TABLE>
<CAPTION>
Evergreen
Intermediate-Term Virtus U.S
Government Government Pro Forma
Securities Fund Securities Fund Adjustments Combined
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest income $5,768 $13,726 $19,494
Expenses:
Advisory fee 547 1,399 (280) a 1,666
Administrative services fees 38 181 (103) b 116
Distribution fee 9 286 (229) a 66
Transfer agent fee 35 192 (67) c 160
Custodian fee 52 62 44 b 158
Reports and notices to shareholders 13 (1) 27 b 39
Registration and filing fees 90 9 (9) c 90
Professional fees 17 89 (85) c 21
Trustees' fees and expenses 4 4 4 b 12
Insurance expenses 0 5 (5) c 0
Organization expense 1 0 1
Other 14 1 27 b 42
Less: Fee waivers and/or reimbursements (74) (126) 159 (41)
------------------------------------------------------------------------
Total Expenses 746 2,101 (517) 2,330
Less: Indirectly paid expense (1) 0 0 (1)
------------------------------------------------------------------------
Net expenses 745 2,101 (517) 2,329
------------------------------------------------------------------------
Net investment income 5,023 11,625 517 17,165
Net realized and unrealized gain (loss) on investments:
Net realized loss on investments (16) (3,800) (3,816)
Net change in unrealized appreciation
(depreciation) on investments 220 1,324 1,544
------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 204 (2,476) (2,272)
------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,227 9,149 517 $14,893
========================================================================
</TABLE>
a Reflects decrease based on fee schedule of the surviving fund.
b Reflects increase (decrease) based on the assets of the combined fund.
c Reflects expected cost savings from combining the two funds.
See Notes to Pro Forma Combining Financial Statements.
<PAGE>
Evergreen Intermediate-Term Government Securities Fund
Notes to Pro Forma Combining Financial Statements (Unaudited)
June 30, 1997
1. Basis of Combination - The Pro Forma Combining Statement of Assets and
Liabilities, including the Pro Forma Schedule of Investments, and the related
Pro Forma Combining Statement of Operations ("Pro Forma Statements") reflect the
accounts of Evergreen Intermediate-Term Government Securities Fund ("Evergreen")
and Virtus U.S. Government Securities Fund ("Virtus") at June 30, 1997 and for
the year then ended.
The Pro Forma Statements give effect to the proposed Agreement and Plan of
Reorganization (the "Reorganization") to be submitted to shareholders of Virtus.
The Reorganization provides for the acquisition of all assets and liabilities of
Virtus by Evergreen, in exchange for shares of Evergreen. Thereafter, there will
be a distribution of such shares of Evergreen to shareholders of Virtus in
liquidation and subsequent termination thereof. As a result of the
Reorganization, the shareholders of Virtus will become the owners of that number
of full and fractional shares of Evergreen having an aggregate net asset value
equal to the aggregate net asset value of their shares of Virtus as of the close
of business immediately prior to the date that Virtus assets are exchanged for
shares of Evergreen.
The Pro Forma Statements reflect the expenses of each Fund in carrying out its
obligations under the Reorganization as though the merger occurred at the
beginning of the period presented.
The information contained herein is based on the experience of each Fund for the
year ended June 30, 1997 and is designed to permit shareholders of the
consolidating mutual funds to evaluate the financial effect of the proposed
Reorganization. The expenses of Virtus in connection with the Reorganization
(including the cost of any proxy soliciting agents) will be borne by First Union
National Bank of North Carolina.
The Pro Forma Statements should be read in conjunction with the historical
financial statements of each Fund incorporated by reference in the Statement of
Additional Information.
2. Shares of Beneficial Interest - The Pro Forma net asset values per share
assume the issuance of shares of Evergreen Class A and Class Y which would have
been issued at June 30, 1997 in connection with the proposed Reorganization.
Shareholders of Virtus Investment Shares and Trust Shares would receive shares
of Evergreen Class A and Class Y, respectively, based on a conversion ratio
determined on June 30, 1997. The conversion ratio is calculated by dividing the
net asset value of Virtus Investment Shares and Trust Shares by the net asset
value per share of the shares of Evergreen Class A and Class Y, respectively.
3. Pro Forma Operations - The Pro Forma Combining Statement of Operations
assumes similar rates of gross investment income for the investments of each
Fund. Accordingly, the combined gross investment income is equal to the sum of
the Funds' gross investment income. Pro Forma operating expenses include the
actual expenses of the Funds adjusted to reflect the expected expenses of the
combined entity. The investment advisory and distribution fees have been
charged to the combined Fund based on the fee schedule in effect for Evergreen
at the combined level of average net assets for the year ended June 30, 1997
THE EVERGREEN LEXICON FUND
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Comparative Information on
Shareholders' Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Fixed Income
Trust's Registration Statement on Form N-1A filed on October 8, 1997 -
Registration No. 333-37433 ("Form N-1A Registration Statement")
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Evergreen Fixed Income Trust Articles II., III.6(c), IV.(3),
IV.(8), V., VI., VII., and VIII and ByLaws Articles II., III. and VIII.
6(a). Form of Investment Advisory Agreement between First Union National Bank
and Evergreen Fixed Income Trust. Incorporated by reference to the Form N-1A
Registration Statement.
6(b). Form of Interim Investment Advisory Agreement. Exhibit B to Prospectus
contained in Part A of this Registration Statement.
7(a). Distribution Agreement between Evergreen Distributor, Inc. and Evergreen
Fixed Income Trust. Incorporated by reference to the Form N-1A Registration
Statement.
7(b). Form of Dealer Agreement for Class A, Class B and Class C shares used by
Evergreen Distributor, Inc. Incorporated by reference to the Form N-1A
Registration Statement.
<PAGE>
8. Deferred Compensation Plan. Incorporated by reference to the Form N-1A
Registration Statement.
9. Custody Agreement between State Street Bank and Trust Company and Evergreen
Fixed Income Trust. Incorporated by reference to Form N-1A Registration
Statement.
10. Rule 12b-1 Distribution Plan. Incorporated by reference to the Form N-1A
Registration Statement.
11. Opinion and consent of Sullivan & Worcester LLP. To be filed by amendment.
12. Tax opinion and consent of Sullivan & Worcester LLP. To be filed by
amendment.
13. Not applicable.
14(a). Consent of KPMG Peat Marwick LLP. Filed herewith.
14(b). Consent of Deloitte & Touche LLP. To be filed by amendment.
15. Not applicable.
16. Powers of Attorney. Filed herewith.
17(a). Form of Proxy Card. Filed herewith.
17(b). Registrant's Rule 24f-2 Declaration. Incorporated by reference to
Registrant's Form N-1A Registration Statement - Registration No. 33-41918.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus that is
a part of this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933,
the reoffering prospectus will contain the information called for by the
applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement
<PAGE>
and will not be used until the amendment is effective, and that, in determining
any liability under the Securities Act of 1933, each post-effective amendment
shall be deemed to be a new Registration Statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective
amendment, an opinion of counsel or copy of an Internal Revenue Service ruling
supporting the tax consequences of the proposed Reorganization within a
reasonable time after receipt of such opinion or ruling.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement
has been signed on behalf of the Registrant, in the City of New York and State
of New York, on the 26th day of November, 1997.
THE EVERGREEN LEXICON FUND
By: /s/ John J. Pileggi
----------------------
Name: John J. Pileggi
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the capacities on the 26th day of
November, 1997.
Signatures Title
- ---------- -----
/s/John J. Pileggi President and
- ------------------ Treasurer
John J. Pileggi
/s/Laurence B. Ashkin* Trustee
- ---------------------
Laurence B. Ashkin
/s/Charles A. Austin III* Trustee
- -------------------------
Charles A. Austin III
/s/K. Dun Gifford* Trustee
- -----------------
K. Dun Gifford
/s/James S. Howell* Trustee
- ------------------
James S. Howell
/s/Leroy Keith, Jr.* Trustee
- -------------------
Leroy Keith, Jr.
/s/Gerald M. McDonnell* Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
/s/Thomas L. McVerry* Trustee
- --------------------
Thomas L. McVerry
/s/William Walt Pettit* Trustee
- ---------------------
William Walt Pettit
/s/David M. Richardson* Trustee
- ----------------------
David M. Richardson
/s/Russell A. Salton III* Trustee
- -------------------------
Russell A. Salton III
/s/Michael S. Scofield* Trustee
- ----------------------
Michael S. Scofield
/s/Richard J. Shima* Trustee
- -------------------
Richard J. Shima
* By: /s/Martin J. Wolin
------------------
Martin J. Wolin
Attorney-in-Fact
Martin J. Wolin, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons and included as Exhibit 16 to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
14 Consent of KPMG Peat Marwick LLP
16 Powers of Attorney
17(a) Form of Proxy
- --------------------
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
The Evergreen Lexicon Fund
We consent to:
the use of our report dated August 8, 1997 for Evergreen
Intermediate-Term Government Securities Fund incorporated by reference
herein and to the reference to our firm under the caption "FINANCIAL
STATEMENTS AND EXPERTS" in
the prospectus/proxy statement.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Boston, Massachusetts
November 28, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Laurence B. Ashkin Director/Trustee
- ---------------------
Laurence B. Ashkin
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Charles A. Austin, III Director/Trustee
- -------------------------
Charles A. Austin, III
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/K. Dun Gifford Director/Trustee
- -----------------
K. Dun Gifford
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/James S. Howell Director/Trustee
- ------------------
James S. Howell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Leroy Keith, Jr. Director/Trustee
- -------------------
Leroy Keith, Jr.
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Gerald M. McDonnell Director/Trustee
- ----------------------
Gerald M. McDonnell
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Thomas L. McVerry Director/Trustee
- --------------------
Thomas L. McVerry
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/William Walt Pettit Director/Trustee
- ----------------------
William Walt Pettit
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/David M. Richardson Director/Trustee
- ----------------------
David M. Richardson
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Russell A. Salton, III MD Director/Trustee
- ----------------------------
Russell A. Salton, III MD
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Michael S. Scofield Director/Trustee
- ----------------------
Michael S. Scofield
<PAGE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Dorothy E. Bourassa, Terrence J.
Cullen, Rosemary D. Van Antwerp, James P. Wallin, Martin J. Wolin and John J.
Pileggi, each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Director or Trustee and for which Keystone Investment
Management Company, Evergreen Asset Management Corp. or First Union National
Bank of North Carolina serves as Adviser or Manager and registering from time to
time the shares of such companies, and generally to do all such things in my
name and on my behalf to enable such investment companies to comply with the
provisions of the Securities Act of 1933, as amended, the Investment Company Act
of 1940, as amended, and all requirements and regulations of the Securities and
Exchange Commission thereunder, hereby ratifying and confirming my signature as
it may be signed by my said attorneys to any and all registration statements and
amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of June
18, 1997.
Signature Title
- --------- -----
/s/Richard J. Shima Director/Trustee
- -------------------
Richard J. Shima
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE GOVERNMENT SECURITIES FUND,
a series of The Virtus Funds
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 20, 1998
The undersigned, revoking all Proxies heretofore given, hereby appoints
, and or any of them as Proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all shares of The Government
Securities Fund, a series of The Virtus Funds ("Virtus Government") that the
undersigned is entitled to vote at the special meeting of shareholders of Virtus
Government to be held at 2:00 p.m. on Friday, February 20, 1998 at the offices
of the Evergreen Funds, 200 Berkeley Street, Boston, Massachusetts 02116 and at
any adjournments thereof, as fully as the undersigned would be entitled to vote
if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON
THIS PROXY. If joint owners, EITHER may sign this
Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a
minor, please give your full title. When signing on
behalf of a corporation or as a partner for a
partnership, please give the full corporate or
partnership name and your title, if any.
Date , 199
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
-1-
<PAGE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF THE VIRTUS
FUNDS. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTION TO
BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY WILL BE VOTED
AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE BOARD OF
TRUSTEES OF THE VIRTUS FUNDS RECOMMENDS A VOTE FOR THE PROPOSALS. PLEASE MARK
YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Intermediate Government Securities Fund, a series of Evergreen Fixed Income
Trust, will (i) acquire all of the assets of Virtus Government in exchange for
shares of Evergreen Intermediate Government Securities Fund; and (ii) assume
certain identified liabilities of Virtus Government, as substantially described
in the accompanying Prospectus/Proxy Statement.
- ---- FOR ---- AGAINST ---- ABSTAIN
2. To approve the proposed Interim Investment Advisory Agreement with
Virtus Capital Management, Inc.
- ---- FOR ---- AGAINST ---- ABSTAIN
3. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
<PAGE>
