-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I95wt5B9DRAlyN/QU1YbX7Tn8Bk8jZtZK4yw7M2RhedWq5gSb8B0prBj7BkC46wn h10WeyUnv2mFav9HzWCFZA== 0000908737-97-000535.txt : 19971201 0000908737-97-000535.hdr.sgml : 19971201 ACCESSION NUMBER: 0000908737-97-000535 CONFORMED SUBMISSION TYPE: N-14AE PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19971128 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EVERGREEN INVESTMENT TRUST CENTRAL INDEX KEY: 0000757440 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 046599663 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14AE SEC ACT: SEC FILE NUMBER: 333-41251 FILM NUMBER: 97730108 BUSINESS ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9146412305 MAIL ADDRESS: STREET 1: 2500 WESTCHESTER AVE CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS/ DATE OF NAME CHANGE: 19940628 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION HIGH GRADE TAX FREE PORT DATE OF NAME CHANGE: 19940519 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION FUNDS DATE OF NAME CHANGE: 19921230 N-14AE 1 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. EVERGREEN INVESTMENT TRUST [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. 2-94560); 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 August 31, 1997 was filed with the Commission on or about October 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. EVERGREEN INVESTMENT TRUST 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 Front Page Cover Page of Prospectus 2. Beginning and Outside Back Table of Contents 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 7. Voting Information Cover Page; Summary; Voting Information Concerning the Meeting 8. Interest of Certain Persons Financial Statements and 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 Investment Trust - Evergreen Virginia Municipal Bond Fund dated December , 1997, as amended 13. Additional Information Statement of Additional about the Company Being Information of The Virtus Acquired Funds - The Virginia Municipal Bond Fund dated November 30, 1997 14. Financial Statements Financial Statements dated August 31, 1997 of Evergreen Virginia Municipal Bond Fund; Financial Statements of The Virtus Funds - The Virginia Municipal Bond Fund dated September 30, 1997; Pro Forma Financial Statement of Evergreen Virginia Municipal Bond Fund 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 THE VIRTUS FUNDS THE VIRGINIA MUNICIPAL BOND FUND FEDERATED INVESTORS TOWER PITTSBURGH, PENNSYLVANIA 15222-3779 January 5, 1998 Dear Shareholder, I am writing to shareholders of The Virginia Municipal Bond 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 Virginia Municipal Bond Fund in exchange for either Class A or Class Y shares of Evergreen Virginia Municipal Bond Fund and the assumption by Evergreen Virginia Municipal Bond Fund of certain liabilities of the Fund. You will receive shares of Evergreen Virginia Municipal Bond Fund having an aggregate net asset value equal to the aggregate net asset value of your Fund shares. Details about the Evergreen Virginia Municipal Bond 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. 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 [SUBJECT TO COMPLETION, NOVEMBER 28, 1997 PRELIMINARY COPY] THE VIRTUS FUNDS THE VIRGINIA MUNICIPAL BOND 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 Virginia Municipal Bond 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 Virginia Municipal Bond Fund, a series of Evergreen Municipal Trust, ("Evergreen VA") in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities of the Fund. The Plan also provides for distribution of such shares of Evergreen VA 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 Virginia Municipal Bond Fund have fixed the close of business on December 26, 1997 as the record date for the determination of shareholders of the Fund entitled to notice of and to vote at the Meeting or any adjournment thereof. IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND IN PERSON ARE URGED WITHOUT DELAY TO SIGN AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION. By Order of the Board of Trustees John W. McGonigle Secretary January 5, 1998 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 PROSPECTUS/PROXY STATEMENT DATED JANUARY 5, 1998 Acquisition of Assets of THE VIRGINIA MUNICIPAL BOND FUND a series of The Virtus Funds Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 By and in Exchange for Shares of EVERGREEN VIRGINIA MUNICIPAL BOND FUND a series of Evergreen Municipal Trust 200 Berkeley Street Boston, Massachusetts 02116 This Prospectus/Proxy Statement is being furnished to shareholders of The Virginia Municipal Bond Fund ("Virtus VA") in connection with a proposed Agreement and Plan of Reorganization (the "Plan") to be submitted to shareholders of Virtus VA 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 VA to be acquired by Evergreen Virginia Municipal Bond Fund ("Evergreen VA") in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities of Virtus VA (hereinafter referred to as the "Reorganization"). Evergreen VA and Virtus VA are sometimes hereinafter referred to individually as the "Fund" and collectively as the "Funds." Following the Reorganization, shares of Evergreen VA will be distributed to shareholders of Virtus VA in liquidation of Virtus VA and such Fund will be terminated. Holders of Investment shares of Virtus VA will receive Class A shares of Evergreen VA and holders of Trust shares of Virtus VA will receive Class Y shares of Evergreen VA. Each such class of shares of Evergreen VA has the same Rule 12b-1 distribution-related fees, if any, as the shares of the class of Virtus VA held by them prior to the Reorganization. No initial sales charge will be imposed in connection with Class A shares of Evergreen VA received by holders of Investment shares of Virtus VA. As a result of the proposed Reorganization, shareholders of Virtus VA will receive that number of full and fractional shares of Evergreen VA having an aggregate net asset value equal to the aggregate net asset value of such shareholder's shares of Virtus VA. The Reorganization is being structured as a tax-free reorganization for federal income tax purposes. Evergreen VA is a separate series of Evergreen Municipal 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 VA is to seek current income exempt from federal regular income tax and Virginia state income tax, consistent with the preservation of capital. The investment objective of Virtus VA is substantially identical -- to provide current income which is exempt from federal regular income tax and the personal income tax imposed by the Commonwealth of Virginia. Each Fund invests primarily in municipal bonds of the Commonwealth of Virginia. Shareholders of Virtus VA 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 VA 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 VA that shareholders of Virtus VA 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 VA dated August 31, 1997 and Virtus VA 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 VA at 200 Berkeley Street, Boston, Massachusetts 02116 or by calling toll-free 1- 800-343-2898. The two Prospectuses of Evergreen VA dated December , 1997, and its Annual Report for the fiscal year ended August 31, 1997 are incorporated herein by reference in their entirety, insofar as they relate to Evergreen VA only, and not to any other funds described therein. The Prospectuses, which pertain (i) to Class A and Class B 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 VA will receive, with this Prospectus/Proxy Statement, copies of the Prospectus pertaining to the class of shares of Evergreen VA that they will receive as a result of the consummation of the Reorganization. Additional information about Evergreen VA 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 VA at the address or telephone number listed in the preceding paragraph. The two Prospectuses of Virtus VA (which pertain to (i) Trust shares and (ii) Investment shares) dated November 30, 1997, insofar as they relate to Virtus VA 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 VA 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. 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.........................................16 Distribution of Shares.......................................16 Purchase and Redemption Procedures...........................18 Exchange Privileges..........................................18 Dividend Policy..............................................19 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...............................................32 Shareholder Liability........................................32 Shareholder Meetings and Voting Rights.......................33 Liquidation or Dissolution...................................34 Liability and Indemnification of Trustees....................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 VA's Investment Adviser.............38 ADDITIONAL INFORMATION................................................38 VOTING INFORMATION CONCERNING THE MEETING.............................39 FINANCIAL STATEMENTS AND EXPERTS......................................42 LEGAL MATTERS.........................................................42 OTHER BUSINESS........................................................42 APPENDIX A............................................................43 EXHIBIT A EXHIBIT B EXHIBIT C COMPARISON OF FEES AND EXPENSES The amounts for Class Y and Class A shares of Evergreen VA set forth in the following tables and in the examples are based on the expenses of Evergreen VA for the fiscal year ended August 31, 1997. The amounts for Trust and Investment shares of Virtus VA set forth in the following tables and in the examples are based on the expenses for Virtus VA for the fiscal year ended September 30, 1997. The pro forma amounts for Class Y and Class A shares of Evergreen VA are based on what the combined expenses would have been for Evergreen VA for the fiscal year ending August 31, 1997. All amounts are adjusted for voluntary expense waivers. The following tables show for Evergreen VA, Virtus VA and Evergreen VA pro forma, assuming consummation of the Reorganization, the shareholder transaction expenses and annual fund operating expenses associated with an investment in the Class Y, Class A, Trust and Investment shares of each Fund, as applicable.
Comparison of Class Y and Class A Shares of Evergreen VA With Trust and Investment Shares of Virtus VA Evergreen VA Virtus VA Class Y Class A Trust Investment Shareholder Transaction Expenses Maximum Sales Load None 4.75% 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) Shareholder Transaction Expenses Contingent Deferred Sales None None None 2.00% Charge (as a percentage within of original purchase five years price or redemption after proceeds, whichever is purchase lower) date, and 0.00% thereafter Exchange Fee None None None None Annual Fund Operating Expenses (as a percentage of average daily net assets) Management Fee 0.50% 0.50% 0.75% 0.75% 12b-1 Fees (1) None 0.25% None 0.25% Other Expenses 0.29% 0.28% 0.36% 0.36% Annual Fund Operating Expenses (2) 0.79% 1.03% 1.11% 1.36%
Evergreen VA Pro Forma Class Y Class A Shareholder Transaction Expenses Maximum Sales Load Imposed on None 4.75% Purchases (as a percentage of offering price) Maximum Sales Load Imposed on None None Reinvested Dividends Contingent Deferred Sales Charge None None Exchange Fee None None Annual Fund Operating Expenses (as a percentage of average daily net assets) Management Fee 0.50% 0.50% 12b-1 Fees (1) None 0.25% Other Expenses 0.29% 0.28% Annual Fund Operating Expenses 0.79% 1.03%
- --------------- (1) Class A shares of Evergreen VA can pay up to 0.75% of average daily net assets as a 12b-1 fee. For the foreseeable future, the Class A 12b-1 fees will be limited to 0.25% of average daily net assets. (2) Annual Fund Operating Expenses for Evergreen Virginia for the fiscal year ended August 31, 1997 would have been 1.84% for Class A shares and 1.60% for Class Y shares absent fee waivers and expense reimbursements. Examples. The following tables show expense amounts for shares of Evergreen VA and of Virtus VA, and for shares of Evergreen VA pro forma, assuming consummation of the Reorganization, which illustrate the cumulative effect of shareholder transaction expenses and annual fund operating expenses indicated above on a $1,000 investment in each class of shares for the periods specified, assuming (i) a 5% annual return and (ii) redemption at the end of such period, and additionally, for Investment shares, no redemption at the end of each period. In the case of Evergreen VA pro forma, the examples do not reflect the imposition of the 4.75% maximum sales load on purchases since Virtus VA shareholders who receive Class A shares of Evergreen VA in the Reorganization or who purchase additional Class A shares subsequent to the Reorganization will not incur any sales load.
Evergreen VA One Year Three Years Five Years Ten Years Class Y $8 $25 $44 $98 Class A $58 $79 $102 $167
Virtus VA One Year Three Years Five Years Ten Years Trust $11 $34 $60 $132 Investment $36 $69 $81 $177 (Assuming redemption at end of period) Investment $15 $47 $81 $177 (Assuming no redemption at end of period)
Evergreen VA - Pro Forma One Year Three Years Five Years Ten Years Class Y $8 $25 $44 $98 Class A $11 $33 $57 $126
The purpose of the foregoing examples is to assist Virtus VA shareholders in understanding the various costs and expenses that an investor in Evergreen VA as a result of the Reorganization would bear directly and indirectly, as compared with the various direct and indirect expenses currently borne by a shareholder in Virtus VA. 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 VA dated December , 1997, and the Prospectuses of Virtus VA dated November 30, 1997, (which are incorporated herein by reference), and 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 VA in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities of Virtus VA. 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 VA to Virtus VA shareholders in liquidation of Virtus VA as part of the Reorganization. As a result of the Reorganization, the holders of Investment shares and Trust shares, respectively, of Virtus VA will become the owners of that number of full and fractional Class A and Class Y shares of Evergreen VA which have an aggregate net asset value equal to the aggregate net asset value of the holder's shares of Virtus VA, as of the close of business immediately prior to the date of the Reorganization. See "Reasons for the Reorganization - Agreement and Plan of Reorganization." The Trustees of The Virtus Funds, including the Trustees who are not "interested persons," as such term is defined in the 1940 Act (the "Independent Trustees"), have concluded that the Reorganization would be in the best interests of shareholders of Virtus VA, and that the interests of the shareholders of Virtus VA 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 VA's shareholders. THE BOARD OF TRUSTEES OF THE VIRTUS FUNDS RECOMMENDS APPROVAL BY SHAREHOLDERS OF VIRTUS VA OF THE PLAN EFFECTING THE REORGANIZATION. The Trustees of Evergreen Municipal Trust have also approved the Plan and, accordingly, Evergreen VA's participation in the Reorganization. Approval of the Reorganization on the part of Virtus VA will require the affirmative vote of a majority of Virtus VA'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 VA. Prior to consummation of the Merger, Virtus VA received an order from the SEC which permitted the implementation, without formal shareholder approval, of a new investment advisory agreement between the Fund and Virtus for a period of not more than 120 days beginning on the date of the closing of the Merger and continuing through the date the Interim Advisory Agreement is approved by the Fund's shareholders (but in no event later than April 30, 1998). The Interim Advisory Agreement has the same terms and fees as the previous investment advisory agreement between Virtus VA 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 VA present in person or by proxy at the Meeting, if holders of more than 50% of the shares of Virtus VA outstanding on the record date are present, in person or by proxy, or (ii) more than 50% of the outstanding shares of Virtus VA, whichever is less. See "Voting Information Concerning the Meeting." If the shareholders of Virtus VA do not vote to approve the Reorganization, the Trustees will consider other possible courses of action in the best interests of shareholders. Tax Consequences Prior to or at the completion of the Reorganization, Virtus VA 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 VA in the Reorganization. The holding period and aggregate tax basis of shares of Evergreen VA that are received by Virtus VA'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 VA in the hands of Evergreen VA 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 VA upon the receipt of the assets of the Fund in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities. Investment Objectives and Policies of the Funds The investment objective and policies of Evergreen VA and Virtus VA are substantially identical. The investment objective of Evergreen VA is to seek current income exempt from federal regular income tax and from income taxes of the Commonwealth of Virginia. The investment objective of Virtus VA is to provide current income which is exempt from federal regular income tax and the personal income tax imposed by the Commonwealth of Virginia. Each Fund will normally invest its assets so that at least 80% of its annual interest income is derived from, or at least 80% of its net assets are invested in, obligations which provide interest income which is exempt from federal regular income taxes. In addition, at least 65% of the value of each Fund's total assets will be invested in municipal bonds of Virginia. Each Fund seeks to achieve its investment objective by investing principally in municipal bonds, including industrial development bonds, of Virginia. In addition, the Funds may invest in obligations issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or their political subdivisions or agencies and instrumentalities, the interest from which is exempt from federal (regular, if applicable) income tax. See "Comparison of Investment Objectives and Policies" below. Comparative Performance Information for each Fund Discussions of the manner of calculation of total return are contained in the respective Prospectuses and Statements of Additional Information of the Funds. The total return of Evergreen VA and Virtus VA for the one and five year periods ended September 30, 1997 and for the periods from inception through September 30, 1997 are set forth in the table below. The calculations of total return assume the reinvestment of all dividends and capital gains distributions on the reinvestment date and the deduction of all recurring expenses (including sales charges) that were charged to shareholders' accounts.
Average Annual Total Return (1) From 1 Year 5 Years Inception Ended Ended To September September September Inception 30,1997 30, 1997 30, 1997 Date ------- ------- --------- --------- Evergreen VA Class A 3.42% N/A 4.09% 7/22/93 shares Class Y 8.85% N/A 6.29% 2/28/94 shares Virtus VA Trust 8.00% 5.76% 6.62% 10/16/90 shares Investment 7.74% 5.73% 6.45% 10/16/90 shares
- -------------- (1) Reflects waiver of advisory fees and reimbursements and/or waivers of expenses. Without such reimbursements and/or waivers, the average annual total return during the period would have been lower. Important information about Evergreen VA is also contained in management's discussion of Evergreen VA's performance, attached hereto as Exhibit C. This information also appears in Evergreen VA's most recent Annual Report. Management of the Funds The overall management of Evergreen VA and of Virtus VA is the responsibility of, and is supervised by, the Board of Trustees of Evergreen Municipal Trust and The Virtus Funds, respectively. Investment Advisers The investment adviser to Evergreen VA 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 VA. FUNB manages investments and supervises the daily business affairs of Evergreen VA subject to the authority of the Trustees. FUNB is entitled to receive from the Fund an annual fee equal to .50 of 1% of the Fund's average daily net assets. Virtus serves as the investment adviser for Virtus VA. As investment adviser, Virtus continuously conducts investment research and supervision 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 VA. As administrator, EIS provides facilities, equipment and personnel to Evergreen VA and is entitled to receive an administration fee from the Fund based on the average daily net assets of all the mutual funds advised by FUNB and its affiliates, calculated in accordance with the following schedule: 0.050% on the first $7 billion, 0.035% on the next $3 billion, 0.030% on the next $5 billion, 0.020% on the next $10 billion, 0.015% on the next $5 billion and 0.010% on assets in excess of $30 billion. Federated Administrative Services ("FAS") provides Virtus VA 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 Charles E. Jeanne has been portfolio manager of Evergreen VA since 1993. Mr. Jeanne joined FUNB in 1993. Prior to joining FUNB, Mr. Jeanne served as a trader/portfolio manager for First American Bank where he was responsible for individual accounts and common trust funds. Distribution of Shares Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services, acts as underwriter of Evergreen VA's shares. EDI distributes the Fund's shares directly or through broker-dealers, banks (including FUNB), or other financial intermediaries. Evergreen VA offers three classes of shares: Class A, Class B 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 VA who own Trust shares will receive Class Y shares of Evergreen VA, and shareholders of Virtus VA who own Investment shares will receive Class A shares of Evergreen VA. The Class Y and Class A shares of Evergreen VA 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 VA. Because the Reorganization will be effected at net asset value without the imposition of a sales charge, Evergreen VA shares acquired by shareholders of Virtus VA 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. The following is a summary description of charges and fees for the Class Y and Class A shares of Evergreen VA which will be received by Virtus VA shareholders in the Reorganization. More detailed descriptions of the distribution arrangements applicable to the classes of shares are contained in the respective Evergreen VA Prospectuses and the Virtus VA Prospectuses and in each Fund's respective Statements of Additional Information. Class Y Shares. Class Y shares are sold at net asset value without any initial sales charge and are not subject to distribution-related fees. Class Y shares are only available to (i) 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 VA shareholders who receive Evergreen VA Class Y shares in the Reorganization who wish to make subsequent purchases of Evergreen VA's shares will be able to purchase Class Y shares. Class A Shares. Class A shares are sold at net asset value plus an initial sales charge and, as indicated below, are subject to distribution-related fees. For a description of the initial 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 VA. Holders of Investment shares of Virtus VA who receive Class A shares of Evergreen VA in the Reorganization will be able to purchase additional Class A shares of Evergreen VA and 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 VA has adopted a Rule 12b-1 plan with respect to its Class A shares under which the Class may pay for distribution-related expenses at an annual rate which may not exceed 0.75% of average daily net assets attributable to the Class. Payments with respect to Class A shares are currently limited to 0.25% of average daily net assets attributable to the Class, which amount may be increased to the full plan rate for the Fund by the Trustees without shareholder approval. Virtus VA 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. 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 VA). Except for the minimum investment requirement of $100 for Investment shares of Virtus VA, 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 VA) 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 VA 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 VA generally may exchange their shares for shares of the same class of any other Evergreen fund. Virtus VA shareholders will be receiving Class Y and Class A shares of Evergreen VA in the Reorganization and, accordingly, with respect to shares of Evergreen VA received by Virtus VA shareholders in the Reorganization, the exchange privilege is limited to the Class Y and Class A shares, as applicable, of other Evergreen funds. Evergreen VA limits exchanges to five per calendar year and three per calendar quarter. No sales charge is imposed on an exchange. An exchange which represents an initial investment in another Evergreen fund must amount to at least $1,000. The current exchange privileges, and the requirements and limitations attendant thereto, are described in each Fund's respective Prospectuses and Statements of Additional Information. Dividend Policy Each Fund declares dividends daily and distributes its net 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 VA who have elected to have their dividends and/or distributions reinvested will have dividends and/or distributions received from Evergreen VA reinvested in shares of Evergreen VA. Shareholders of Virtus VA who have elected to receive dividends and/or distributions in cash will receive dividends and/or distributions from Evergreen VA 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 VA. Each of Evergreen VA and Virtus VA 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 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 objective and policies of each Fund are substantially comparable, the risks involved in investing in each Fund's shares are similar. There is no assurance that investment performances will be positive and that the Funds will meet their investment objectives. For a discussion of each Fund's objectives and policies, see "Comparison of Investment Objectives and Policies." Both Funds are non-diversified investment companies. As such, there is no limit on the percentage of assets which can be invested in the securities of a single issuer. An investment in either of the Funds, therefore, will entail greater risk than would exist in a diversified investment company because the higher percentage of investments among fewer issuers may result in greater fluctuations in the total market value of the Fund's portfolio. Any adverse developments affecting the value of the securities in a Fund's portfolio will have a greater impact on the total value of the portfolio than would be the case if the portfolio were diversified among more issuers. Bond yields are dependent on several factors including market conditions, the size of an offering, the maturity of the bond, ratings of the bond and the ability of issuers to meet their obligations. There is no limit on the maturity of the bonds purchased by the Funds. The prices of bonds fluctuate inversely in relation to the direction of interest rates, i.e., as interest rates decline the values of the bonds increase, and vice versa. 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. The prices of longer term bonds fluctuate more widely in response to market interest rate changes. Although the Funds will not purchase securities rated below BBB by Standard & Poor's Ratings Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's"), or if unrated, securities judged by the Fund's investment adviser to be comparable quality to such rated securities (i.e., "junk bonds"), the Funds are not required to dispose of securities that have been downgraded subsequent to their purchase. If the municipal obligations held by a Fund are downgraded, the Fund's concentration in securities of Virginia may cause the Fund to be subject to the risks inherent in holding material amounts of low-rated debt securities in its portfolio. Bonds rated BBB by S&P or Baa by Moody's, although considered to be investment grade, have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity of such lower rated investment grade bonds to make principal and interest payments than is the case with higher rated bonds. It should be noted that municipal securities may be adversely affected by local political and economic conditions and developments within a state. For example, adverse conditions in a significant industry within Virginia may from time to time have a correspondingly adverse effect on specific issuers within Virginia or on anticipated revenue to the state itself; conversely, an improving economic outlook for a significant industry may have a positive effect on such issuers or revenues. Since each Fund concentrates investments in securities issued by Virginia and Virginia's political subdivisions, each provides a greater level of risk than a fund which is diversified across numerous states and municipal entities. The value of municipal securities may also be affected by general conditions in the money markets or the municipal bond markets, the levels of federal and state income tax rates, the supply of tax-exempt bonds, the size of the particular offering, the maturity of the obligation, the credit quality and rating of the issue, and perceptions with respect to the level of interest rates. Each Fund is permitted to make taxable temporary investments. Neither Fund has a current intention of generating income subject to federal regular income tax. However, certain temporary investments may generate income that is subject to state taxes. 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 VA 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 VA and determined that the interests of existing shareholders of Virtus VA 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 VA. 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 VA'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 VA and Virtus VA. Specifically, Evergreen VA and Virtus VA have substantially similar investment objectives and policies and comparable risk profiles. See "Comparison of Investment Objectives and Policies" below. At the same time, the Board of Trustees evaluated the potential economies of scale associated with larger mutual funds and concluded that operational efficiencies may be achieved upon the combination of Virtus VA with Evergreen VA. As of September 30, 1997, Evergreen VA's net assets were approximately $17 million and Virtus VA's net assets were approximately $97 million. In addition, assuming that an alternative to the Reorganization would be to propose that Virtus VA continue its existence and be separately managed by FUNB or one of its affiliates, Virtus VA would be offered through common distribution channels with the similar Evergreen VA. Virtus VA 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 VA and Virtus VA; (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 VA in connection with the Reorganization; (x) the fact that Evergreen VA will assume certain identified liabilities of Virtus VA; and (xi) the expected federal income tax consequences of the Reorganization. The Trustees also considered the benefits to be derived by shareholders of Virtus VA from the sale of its assets to Evergreen VA. In this regard, the Trustees considered the potential benefits of being associated with a larger entity and the economies of scale that could be realized by the participation in such an entity by shareholders of Virtus VA. In addition, the Trustees considered that there are alternatives available to shareholders of Virtus VA, 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 Municipal Trust also concluded at a meeting on September 16, 1997 that the proposed Reorganization would be in the best interests of shareholders of Evergreen VA and that the interests of the shareholders of Evergreen VA 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 VA 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 VA will acquire all of the assets of Virtus VA in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities of Virtus VA 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 VA will endeavor to discharge all of its known liabilities and obligations. Evergreen VA will not assume any liabilities or obligations of Virtus VA other than those reflected in an unaudited statement of assets and liabilities of Virtus VA 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 VA to be received by the shareholders of Virtus VA will be determined by multiplying the respective outstanding class of shares of Virtus VA by a factor which shall be computed by dividing the net asset value per share of the respective class of shares of Virtus VA by the net asset value per share of the respective class of shares of Evergreen VA. Such computations will take place as of the close of regular trading on the NYSE on the business day immediately prior to the Closing Date. The net asset value per share of each class will be determined by dividing assets, less liabilities, in each case attributable to the respective class, by the total number of outstanding shares. State Street Bank and Trust Company, the custodian for Evergreen VA, 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 VA, 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 VA 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 VA 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 VA received by Virtus VA. 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 VA's transfer agent. Each account will represent the respective pro rata number of full and fractional shares of Evergreen VA due to the Fund's shareholders. All issued and outstanding shares of Virtus VA, including those represented by certificates, will be canceled. The shares of Evergreen VA to be issued will have no preemptive or conversion rights. After such distributions and the winding up of its affairs, Virtus VA 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 VA's shareholders, accuracy of various representations and warranties and receipt of opinions of counsel, including opinions with respect to those matters referred to in "Federal Income Tax Consequences" below. Notwithstanding approval of Virtus VA's shareholders, the Plan may be terminated (a) by the mutual agreement of Virtus VA and Evergreen VA; 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 VA 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 VA or its shareholders. There are not any liabilities or any expected reimbursements in connection with the 12b-1 Plan of Virtus VA. As a result, no 12b-1 liabilities will be assumed by Evergreen VA following the Reorganization. If the Reorganization is not approved by shareholders of Virtus VA, 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 VA 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 VA solely in exchange for shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities, followed by the distribution of Evergreen VA's shares by Virtus VA in dissolution and liquidation of Virtus VA, will constitute a "reorganization" within the meaning of section 368(a)(1)(D) of the Code, and Evergreen VA and Virtus VA will each be a "party to a reorganization" within the meaning of section 368(b) of the Code; (2) No gain or loss will be recognized by Virtus VA on the transfer of all of its assets to Evergreen VA solely in exchange for Evergreen VA's shares and the assumption by Evergreen VA of certain identified liabilities of Virtus VA or upon the distribution of Evergreen VA's shares to Virtus VA's shareholders in exchange for their shares of Virtus VA; (3) The tax basis of the assets transferred will be the same to Evergreen VA as the tax basis of such assets to Virtus VA immediately prior to the Reorganization, and the holding period of such assets in the hands of Evergreen VA will include the period during which the assets were held by Virtus VA; (4) No gain or loss will be recognized by Evergreen VA upon the receipt of the assets from Virtus VA solely in exchange for the shares of Evergreen VA and the assumption by Evergreen VA of certain identified liabilities of Virtus VA; (5) No gain or loss will be recognized by Virtus VA's shareholders upon the issuance of the shares of Evergreen VA to them, provided they receive solely such shares (including fractional shares) in exchange for their shares of Virtus VA; and (6) The aggregate tax basis of the shares of Evergreen VA, including any fractional shares, received by each of the shareholders of Virtus VA pursuant to the Reorganization will be the same as the aggregate tax basis of the shares of Virtus VA held by such shareholder immediately prior to the Reorganization, and the holding period of the shares of Evergreen VA, including fractional shares, received by each such shareholder will include the period during which the shares of Virtus VA exchanged therefor were held by such shareholder (provided that the shares of Virtus VA 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 VA 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 VA shares he or she received. Shareholders of Virtus VA should consult their tax advisers regarding the effect, if any, of the proposed Reorganization in light of their individual circumstances. It is not anticipated that the securities of the combined portfolio will be sold in significant amounts in order to comply with the policies and investment practices of Evergreen VA. Since the foregoing discussion relates only to the federal income tax consequences of the Reorganization, shareholders of Virtus VA 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 VA and Virtus VA as of September 30, 1997, and the capitalization of Evergreen VA on a pro forma basis as of that date, giving effect to the proposed acquisition of assets at net asset value. The pro forma data reflects an exchange ratio of approximately 1.09 and 1.09 Class Y and Class A shares, respectively, of Evergreen VA issued for each Trust and Investment share, respectively, of Virtus VA.
Capitalization of Virtus VA, Evergreen VA and Evergreen VA (Pro Forma) Evergreen VA (After Reorgani- Virtus VA Evergreen VA zation) --------- -------- ------------ Net Assets Trust.......................... $19,891,348 N/A N/A Investment..................... $58,881,216 N/A N/A Class A........................ N/A $2,953,726 $61,834,942 Class B........................ N/A $7,007,347 $7,007,347 Class Y........................ N/A $6,853,790 $26,745,138 ----------- ----------- ------------ Total Net $78,772,564 $16,814,863 $95,587,427 Assets....................... Net Asset Value Per Share Trust.......................... $11.07 N/A N/A Investment..................... $11.07 N/A N/A Class A........................ N/A $10.12 $10.12 Class B........................ N/A $10.12 $10.12 Class Y........................ N/A $10.12 $10.12 Shares Outstanding Trust.......................... 1,797,148 N/A N/A Investment..................... 5,319,803 N/A N/A Class A........................ N/A 291,948 6,111,140 Class B........................ N/A 692,585 692,585 Class Y........................ N/A 677,389 2,643,242 --------- -------- ---------- All Classes.................... 7,116,951 1,661,922 9,446,967
The table set forth above should not be relied upon to reflect the number of shares to be received in the Reorganization; the actual number of shares to be received will depend upon the net asset value and number of shares outstanding of each Fund at the time of the Reorganization. Shareholder Information As of December 26, 1997 (the "Record Date"), the following number of each Class of shares of beneficial interest of Virtus VA 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 VA. To Virtus VA's knowledge, the following persons owned beneficially or of record more than 5% of Virtus VA's total outstanding shares as of September 30, 1997:
Percentage Percentage of Shares of Shares of Class of Class Before After No. of Reorgani- Reorgani- Name and Address Class Shares zation zation - ---------------- ----- ------ --------- --------- Stephens, Inc. Investment 1,753,230 32.97% 111 Center Street Little Rock, AR 72201-3507 Bova & Co. Trust 1,797,136 100% Signet Trust Company P.O. Box 26311 Richmond, VA 23260-6311
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES The following discussion is based upon and qualified in its entirety by the descriptions of the respective investment objectives, policies and restrictions set forth in the respective Prospectuses and Statements of Additional Information of the Funds. The investment objectives, policies and restrictions of Evergreen VA can be found in the Prospectuses of Evergreen VA under the caption "Investment Objectives and Policies." Evergreen VA'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 VA 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 VA, which is fundamental, the investment objective of Evergreen VA is non-fundamental and can be changed by the Board of Trustees without shareholder approval. The investment objective and policies of Evergreen VA and of Virtus VA are substantially identical. The investment objective of Evergreen VA is to seek current income exempt from federal regular income tax and from income taxes of the Commonwealth of Virginia. The investment objective of Virtus VA is to provide current income which is exempt from federal regular income tax and the personal income tax imposed by the Commonwealth of Virginia. Each Fund will normally invest its assets so that at least 80% of its annual interest income is derived from, or at least 80% of its net assets are invested in, debt obligations which provide interest income which is exempt from federal regular income taxes. The interest retains its tax-free status when distributed to the Fund's shareholders. In addition, at least 65% of the value of each Fund's total assets will be invested in municipal bonds of Virginia. Each Fund seeks to achieve its investment objective by investing principally in municipal bonds, including industrial development bonds, of Virginia. Although each Fund may invest in obligations issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or their political subdivisions or agencies and instrumentalities, the interest from which is exempt from federal (regular, if applicable) income tax, Virtus VA, unlike Evergreen VA, requires that interest from all such "non Virginia" debt obligations also be exempt from personal income tax imposed by the Commonwealth of Virginia. Both Funds seek to invest in debt obligations rated Baa or better by Moody's, or BBB or better by S&P, or, if unrated, then determined by the Fund's investment adviser to be of comparable quality to bonds with such investment grade ratings. Evergreen VA may also invest in municipal bonds which are insured by a municipal bond insurance company which is rated Aa by Moody's or AA by S&P, which are guaranteed at the time of purchase by the U.S. government as to the payment of principal and interest, or which are fully collateralized by an escrow of U.S. government securities. Virus VA may invest in insured or guaranteed municipal debt obligations if, in the opinion of the Trustees, the creditworthiness of the insurer or guarantor is considered satisfactory. If any security owned by a Fund loses its rating or has its rating reduced after the Fund has purchased it, neither Evergreen VA nor Virtus VA is required to sell or otherwise dispose of the security, but may consider doing so. If ratings made by Moody's or S&P change because of changes in those organization or their ratings system, each Fund will try to use comparable ratings as standards in accordance with its investment objective. Both Funds may employ for hedging purposes the strategy of engaging in futures transactions and related options, and Evergreen VA may write covered put and call options and purchase put and call options on securities. The characteristics of each investment policy and the associated risks are described in each Fund's respective Prospectuses and Statements of Additional Information. The Funds have other investment policies and restrictions which are also set forth in the Prospectuses and Statements of Additional Information of each Fund. COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS Forms of Organization Evergreen Municipal 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 Municipal Trust is organized as a Delaware business trust and The Virtus Funds is organized as a Massachusetts business trust. Each Trust is governed by a Declaration of Trust, By-Laws and a Board of Trustees. Each Trust is also governed by applicable Delaware, Massachusetts and federal law. Evergreen VA is a series of Evergreen Municipal Trust and Virtus VA is a series of The Virtus Funds. As set forth in the Supplement to Evergreen VA's Prospectuses, effective December 22, 1997, Evergreen Virginia Municipal Bond Fund, a series of Evergreen Investment Trust, a Massachusetts business trust, was reorganized (the "Delaware Reorganization") into a corresponding series (Evergreen VA) of Evergreen Municipal Trust. In connection with the Delaware Reorganization, the Fund's investment objective was reclassified from "fundamental" to "non-fundamental" and therefore may be changed without shareholder approval; the Fund adopted certain standardized investment restrictions; and the Fund eliminated or reclassified from fundamental to non- fundamental certain of the Fund's other currently fundamental investment restrictions. Capitalization The beneficial interests in Evergreen VA are represented by an unlimited number of transferable shares of beneficial interest, $.001 par value per share. The beneficial interests in Virtus VA are represented by an unlimited number of transferable shares of beneficial interest without par value. The respective Declaration of Trust under which each Fund has been established permits the Trustees to allocate shares into an unlimited number of series, and classes thereof, with rights determined by the Trustees, all without shareholder approval. Fractional shares may be issued. Each Fund's shares represent equal proportionate interests in the assets belonging to the Funds. Shareholders of each Fund are entitled to receive dividends and other amounts as determined by the Trustees. Shareholders of each Fund vote separately, by class, as to matters, such as approval of or amendments to Rule 12b-1 distribution plans, that affect only their particular class and by series as to matters, such as approval of or amendments to investment advisory agreements or proposed reorganizations, that affect only their particular series. Shareholder Liability Under Massachusetts law, shareholders of a business trust could, under certain circumstances, be held personally liable for the obligations of the business trust. However, the Declaration of Trust under which Virtus VA was established disclaims shareholder liability for acts or obligations of the series and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Fund or the Trustees. The Virtus Funds' Declaration of Trust provides for indemnification out of the series property for all losses and expenses of any shareholder held personally liable for the obligations of the series. Thus, the risk of a shareholder of The Virtus Funds incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which a disclaimer is inoperative and the series or the trust itself would be unable to meet its obligations. Under Delaware law, shareholders of a Delaware business trust are entitled to the same limitation of personal liability extended to stockholders of Delaware corporations. No similar statutory or other authority limiting business trust shareholder liability exists in any other state. As a result, to the extent that Evergreen Municipal Trust or a shareholder is subject to the jurisdiction of courts in those states, the courts may not apply Delaware law, and may thereby subject shareholders of a Delaware trust to liability. To guard against this risk, the Declaration of Trust of Evergreen Municipal 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 that the obligation is not binding upon the shareholders of the Trust; however, the omission of such a disclaimer will not operate to create personal liability for any shareholder; and (b) provides for indemnification out of Trust property of any shareholder held personally liable for the obligations of the Trust. Accordingly, the risk of a shareholder of Evergreen Municipal Trust incurring financial loss beyond that shareholder's investment because of shareholder liability is limited to circumstances in which: (i) the court refuses to apply Delaware law; (ii) no contractual limitation of liability was in effect; and (iii) Evergreen Municipal Trust itself would be unable to meet its obligations. In light of Delaware law, the nature of the Trust's business, and the nature of its assets, the risk of personal liability to a shareholder of Evergreen Municipal Trust is remote. Shareholder Meetings and Voting Rights Neither Evergreen Municipal Trust on behalf of Evergreen VA nor The Virtus Funds on behalf of Virtus VA 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 25% or 10% of the outstanding shares of Evergreen Municipal Trust or The Virtus Funds, respectively. 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 VA, twenty-five percent (25%) of the outstanding shares entitled to vote, and with respect to Virtus VA, a majority of the outstanding shares entitled to vote constitutes a quorum for consideration of such matter. For Evergreen VA and for Virtus VA, 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 Municipal Trust, each share of Evergreen VA is entitled to one vote for each dollar of net asset value applicable to each share. Under the voting provisions governing Virtus VA, each share is entitled to one vote. Over time, the net asset values of the mutual funds which are each a series of The Virtus Funds have changed in relation to one another and are expected to continue to do so in the future. Because of the divergence in net asset values, a given dollar investment in a fund which is a series of The Virtus Funds and which has a lower net asset value will purchase more shares, and under the current voting provisions of The Virtus Funds, will have more votes, than the same investment in a series with a higher net asset value. Under the Declaration of Trust of Evergreen Municipal Trust, voting power is related to the dollar value of the shareholders' investment rather than to the number of shares held. Liquidation or Dissolution In the event of the liquidation of Evergreen Municipal Trust and The Virtus Funds the shareholders are entitled to receive, when, and as declared by the Trustees, the excess of the assets belonging to such Fund and attributable to the class in which they hold shares 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 Municipal Trust, a Trustee is liable to the Trust and its shareholders only for such Trustee's own willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of the office of Trustee or the discharge of such Trustee's functions. As provided in the Declaration of Trust, each Trustee of the Trust is entitled to be indemnified against all liabilities against him or her, including the costs of litigation, unless it is determined that the Trustee (i) did not act in good faith in the reasonable belief that such Trustee's action was in or not opposed to the best interests of the Trust; (ii) had acted with willful misfeasance, bad faith, gross negligence or reckless disregard of such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause to believe that such Trustee's conduct was unlawful (collectively, "disabling conduct"). A determination that the Trustee did not engage in disabling conduct and is, therefore, entitled to indemnification may be based upon the outcome of a court action or administrative proceeding or by (a) a vote of a majority of those Trustees who are neither "interested persons" within the meaning of the 1940 Act nor parties to the proceeding or (b) an independent legal counsel in a written opinion. The Trust may also advance money for such litigation expenses provided that the Trustee undertakes to repay the Trust if his or her conduct is later determined to preclude indemnification and certain other conditions are met. The foregoing is only a summary of certain characteristics of the operations of the Declarations of Trust, By-Laws, Delaware and Massachusetts law and is not a complete description of those documents or law. Shareholders should refer to the provisions of such Declarations of Trust, By-Laws, Delaware and Massachusetts law directly for more complete information. INFORMATION REGARDING THE INTERIM ADVISORY AGREEMENT Introduction In view of the Merger discussed above, and the factors discussed below, the Board of Trustees of The Virtus Funds recommends that shareholders of Virtus VA 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 VA, as well as the services to be provided by Virtus pursuant thereto is set forth below under "Advisory Services." The description of the Interim Advisory Agreement in this Prospectus/Proxy Statement is qualified in its entirety by reference to the Interim Advisory Agreement, attached hereto as Exhibit B. Virtus, a Maryland corporation formed in 1995 to succeed to the business of Signet Asset Management (adviser to the Fund since 1990), is an indirect wholly-owned subsidiary of First Union. Virtus' address is 707 East Main Street, Suite 1300, Richmond, Virginia 23219. Virtus has served as investment adviser pursuant to an Investment Advisory Agreement dated March 1, 1995, as amended on October 21, 1996. As used herein, the Investment Advisory Agreement, as amended, for Virtus VA 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 VA. The Trustees have authorized The Virtus Funds, on behalf of Virtus VA, to enter into the Interim Advisory Agreement with Virtus. Such Agreement became effective on November 26, 1997. If the Interim Advisory Agreement for Virtus VA is not approved by shareholders, the Trustees will consider appropriate actions to be taken with respect to Virtus VA'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 VA 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 VA. FAS will continue during the term of the Interim Advisory Agreement as Virtus VA'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 Tax Free'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 VA under the Previous Advisory Agreement and the Interim Advisory Agreement are identical. See "Summary - Investment Advisers." Expense Reimbursement. The Previous Advisory Agreement included a provision which provides that Virtus may from time to time and for such periods as it deems appropriate reduce its compensation to the extent that the Fund's expenses exceed such lower expense limitation as Virtus may, by notice to The Virtus Funds, voluntarily declare to be effective. Furthermore, Virtus may, if it deems appropriate, assume expenses of the Fund or 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 VA (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 VA's Investment Adviser Virtus, a registered investment adviser, manages, in addition to the Fund, other funds of The Virtus Funds, the Blanchard Group of Funds and three fixed income trust funds. The name and address of each executive officer and director of Virtus are set forth in Appendix A to this Prospectus/Proxy Statement. During the fiscal years ended September 30, 1997, 1996 and 1995, Virtus received from Virtus VA management fees of $650,276, $762,051 and $775,247, respectively, of which $0, $20,993 and $227,301, respectively, were voluntarily waived. Signet acts as custodian for Virtus VA and received $28,448 for the fiscal year ended September 30, 1997. Signet will continue to act as Virtus VA'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 VA APPROVE THE INTERIM ADVISORY AGREEMENT ADDITIONAL INFORMATION Evergreen VA. Information concerning the operation and management of Evergreen VA is incorporated herein by reference from the Prospectuses dated December , 1997, copies of which are enclosed, and the Statement of Additional Information of the same date. A copy of such Statement of Additional Information is available upon request and without charge by writing to Evergreen VA at the address listed on the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898. Virtus VA. 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 VA at the address listed on the cover page of this Prospectus/Proxy Statement or by calling toll-free 1-800-829-3863. Evergreen VA and Virtus VA 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 VA 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 Meeting or a majority of the outstanding voting securities. A proxy may be revoked at any time on or before the Meeting by written notice to the Secretary of The Virtus Funds, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. Unless revoked, all valid proxies will be voted in accordance with the specifications thereon or, in the absence of such specifications, FOR approval of the Plan and the Reorganization contemplated thereby, and FOR approval of the Interim Advisory Agreement. Approval of the Plan will require the affirmative vote of a majority of the shares voted and entitled to vote, with all classes voting together as a single class at the Meeting at which a quorum of the Fund's shares is present. Approval of the Interim Advisory Agreement will require the affirmative vote of (i) 67% or more of the outstanding voting securities if holders of more than 50% of the outstanding voting securities are present, in person or by proxy, at the Meeting, or (ii) more than 50% of the outstanding voting securities, whichever is less, with all classes voting together as one class. Each full share outstanding is entitled to one vote and each fractional share outstanding is entitled to a proportionate share of one vote. Proxy solicitations will be made primarily by mail, but proxy solicitations may also be made by telephone, telegraph or personal solicitations conducted by officers and employees of FUNB or Signet, their affiliates or other representatives of Virtus VA (who will not be paid for their soliciting activities). Shareholder Communications Corporation has been engaged by Virtus VA to assist in soliciting proxies. If you wish to participate in the Meeting, you may submit the proxy card included with this Prospectus/Proxy Statement or attend in person. Any proxy given by you is revocable. In the event that sufficient votes to approve the Reorganization are not received by February 20, 1998, the persons named as proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies. In determining whether to adjourn the Meeting, the following factors may be considered: the percentage of votes actually cast, the percentage of negative votes actually cast, the nature of any further solicitation and the information to be provided to shareholders with respect to the reasons for the solicitation. Any such adjournment will require an affirmative vote by the holders of a majority of the shares present in person or by proxy and entitled to vote at the Meeting. The persons named as proxies will vote upon such adjournment after consideration of all circumstances which may bear upon a decision to adjourn the Meeting. A shareholder who objects to the proposed Reorganization will not be entitled under either Massachusetts law or the Declaration of Trust of The Virtus Funds to demand payment for, or an appraisal of, his or her shares. However, shareholders should be aware that the Reorganization as proposed is not expected to result in recognition of gain or loss to shareholders for federal income tax purposes and that, if the Reorganization is consummated, shareholders will be free to redeem the shares of Evergreen VA which they receive in the transaction at their then-current net asset value. Shares of Virtus VA may be redeemed at any time prior to the consummation of the Reorganization. Shareholders of Virtus VA 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 VA 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 VA 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 VA 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 VA as of August 31, 1997, and the financial statements and financial highlights for the periods indicated therein, have been incorporated by reference herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements and financial highlights of Virtus VA 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 VA will be passed upon by Sullivan & Worcester LLP, Washington, D.C. OTHER BUSINESS The Trustees of The Virtus Funds do not intend to present any other business at the Meeting. If, however, any other matters are properly brought before the Meeting, the persons named in the accompanying form of proxy will vote thereon in accordance with their judgment. THE TRUSTEES OF THE VIRTUS FUNDS RECOMMEND APPROVAL OF THE PLAN AND THE INTERIM ADVISORY AGREEMENT, AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN AND THE INTERIM ADVISORY AGREEMENT. January 5, 1998 APPENDIX A The names and addresses 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 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 Municipal 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 Virginia Municipal Bond 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 Virginia Municipal Bond 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 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 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 (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. 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. ARTICLE III CLOSING AND CLOSING DATE 3.1 CLOSING DATE. The Closing (the "Closing") shall take place on or about February 27, 1998 or such other date as the parties may agree to in writing (the "Closing Date"). All acts taking place at the Closing shall be deemed to take place simultaneously immediately prior to the opening of business on the Closing Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA 02116, or at such other time and/or place as the parties may agree. 3.2 CUSTODIAN'S CERTIFICATE. Signet Trust Company, as custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a certificate of an authorized officer stating that (a) the Selling Fund's portfolio securities, cash, and any other assets shall have been delivered in proper form to the Acquiring Fund on the Closing Date; and (b) all necessary taxes including all applicable federal and state stock transfer stamps, if any, shall have been paid, or provision for payment shall have been made, in conjunction with the delivery of portfolio securities by the Selling Fund. 3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation Date (a) the New York Stock Exchange or another primary trading market for portfolio securities of the Acquiring Fund or the Selling Fund shall be closed to trading or trading thereon shall be restricted; or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Selling Fund is impracticable, the Valuation Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. 3.4 TRANSFER AGENT'S CERTIFICATE. Evergreen Service Company, as transfer agent for the Selling Fund as of the Closing Date shall deliver at the Closing a certificate of an authorized officer stating that its records contain the names and addresses of the Selling Fund Shareholders and the number and percentage ownership of outstanding shares owned by each such shareholder immediately prior to the Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service Company, its transfer agent as of the Closing Date, to issue and deliver a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date to the Secretary of Virtus Funds or provide evidence satisfactory to the Selling Fund that such Acquiring Fund Shares have been credited to the Selling Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, share certificates, if any, receipts and other documents as such other party or its counsel may reasonably request. ARTICLE IV REPRESENTATIONS AND WARRANTIES 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 except for liabilities, if any, to be discharged or reflected on the Statement of Assets and Liabilities as provided in paragraph 1.3 hereof. (f) Except as otherwise disclosed in writing to and accepted by the Acquiring Fund, no litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Selling Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition, the conduct of its business, or the ability of the Selling Fund to carry out the transactions contemplated by this Agreement. The Selling Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions herein contemplated. (g) The financial statements of the Selling Fund at September 30, 1997 are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Acquiring Fund) fairly reflect the financial condition of the Selling Fund as of such date, and there are no known contingent liabilities of the Selling Fund as of such date not disclosed therein. (h) Since September 30, 1997 there has not been any material adverse change in the Selling Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Selling Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a decline in the net asset value of the Selling Fund shall not constitute a material adverse change. (i) At the Closing Date, all federal and other tax returns and reports of the Selling Fund required by law to have been filed by such dates shall have been filed, and all federal and other taxes shown due on said returns and reports shall have been paid, or provision shall have been made for the payment thereof. To the best of the Selling Fund's knowledge, no such return is currently under audit, and no assessment has been asserted with respect to such returns. (j) For each fiscal year of its operation, the Selling Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and has distributed in each such year all net investment income and realized capital gains. (k) All issued and outstanding shares of the Selling Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Selling Fund (except that, under Massachusetts law, Selling Fund Shareholders could under certain circumstances be held personally liable for obligations of the Selling Fund). All of the issued and outstanding shares of the Selling Fund will, at the time of the Closing Date, be held by the persons and in the amounts set forth in the records of the transfer agent as provided in paragraph 3.4. The Selling Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any of the Selling Fund shares, nor is there outstanding any security convertible into any of the Selling Fund shares. (l) At the Closing Date, the Selling Fund will have good and marketable title to the Selling Fund's assets to be transferred to the Acquiring Fund pursuant to paragraph 1.2 and full right, power, and authority to sell, assign, transfer, and deliver such assets hereunder, and, upon delivery and payment for such assets, the Acquiring Fund will acquire good and marketable title thereto, subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by the Acquiring Fund. (m) The execution, delivery, and performance of this Agreement have been duly authorized by all necessary action on the part of the Selling Fund and, subject to approval by the Selling Fund Shareholders, this Agreement constitutes a valid and binding obligation of the Selling Fund, enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights and to general equity principles. (n) The information to be furnished by the Selling Fund for use in no-action letters, applications for orders, registration statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto. (o) The Proxy Statement of the Selling Fund to be included in the Registration Statement (as defined in paragraph 5.7)(other than information therein that relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. 4.2.1 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents and warrants to the Selling Fund as follows: (a) The Acquiring Fund is a separate investment series of a Delaware business trust duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Acquiring Fund is a separate investment series of a Delaware business trust that is registered as an investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect. (c) The current prospectus and statement of additional information of the Acquiring Fund conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and do not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) The Acquiring Fund is not, and the execution, delivery and performance of this Agreement will not result, in violation of the Trust's Declaration of Trust or By-Laws or of any material agreement, indenture, instrument, contract, lease, or other undertaking to which the Acquiring Fund is a party or by which it is bound. (e) Except as otherwise disclosed in writing to the Selling Fund and accepted by the Selling Fund, no litigation, administrative proceeding or investigation of or before any court or governmental body is presently pending or to its knowledge threatened against the Acquiring Fund or any of its properties or assets, which, if adversely determined, would materially and adversely affect its financial condition and the conduct of its business or the ability of the Acquiring Fund to carry out the transactions contemplated by this Agreement. The Acquiring Fund knows of no facts that might form the basis for the institution of such proceedings and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially and adversely affects its business or its ability to consummate the transactions contemplated herein. (f) The financial statements of the Acquiring Fund at August 31, 1997 are in accordance with generally accepted accounting principles consistently applied, and such statements (copies of which have been furnished to the Selling Fund) fairly reflect the financial condition of the Acquiring Fund as of such date, and there are no known contingent liabilities of the Acquiring Fund as of such date not disclosed therein. (g) Since August 31, 1997, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Selling Fund. For the purposes of this subparagraph (g), a decline in the net asset value of the Acquiring Fund shall not constitute a material adverse change. (h) At the Closing Date, all federal and other tax returns and reports of the Acquiring Fund required by law then to be filed by such dates shall have been filed, and all federal and other taxes shown due on said returns and reports shall have been paid or provision shall have been made for the payment thereof. To the best of the Acquiring Fund's knowledge, no such return is currently under audit, and no assessment has been asserted with respect to such returns. (i) For each fiscal year of its operation, the Acquiring Fund has met the requirements of Subchapter M of the Code for qualification and treatment as a regulated investment company and has distributed in each such year all net investment income and realized capital gains. (j) All issued and outstanding Acquiring Fund Shares are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable. The Acquiring Fund does not have outstanding any options, warrants, or other rights to subscribe for or purchase any Acquiring Fund Shares, nor is there outstanding any security convertible into any Acquiring Fund Shares. (k) The execution, delivery, and performance of this Agreement have been duly authorized by all necessary action on the part of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization, moratorium, and other laws relating to or affecting creditors' rights and to general equity principles. (l) The Acquiring Fund Shares to be issued and delivered to the Selling Fund, for the account of the Selling Fund Shareholders, pursuant to the terms of this Agreement will, at the Closing Date, have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund Shares, and will be fully paid and non-assessable. (m) The information to be furnished by the Acquiring Fund for use in no-action letters, applications for orders, registration statements, proxy materials, and other documents that may be necessary in connection with the transactions contemplated hereby shall be accurate and complete in all material respects and shall comply in all material respects with federal securities and other laws and regulations applicable thereto. (n) The Prospectus and Proxy Statement (as defined in paragraph 5.7) to be included in the Registration Statement (only insofar as it relates to the Acquiring Fund) will, on the effective date of the Registration Statement and on the Closing Date, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading. (o) The Acquiring Fund agrees to use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act, and such of the state Blue Sky or securities laws as it may deem appropriate in order to continue its operations after the Closing Date. 4.2.2 REPRESENTATIONS OF PREDECESSOR FUND. The representations and warranties set forth in Section 4.2.1 shall be deemed to include, to the extent applicable, representations and warranties made by and on behalf of Evergreen Virginia Municipal Bond Fund (the "Predecessor Fund"), a series of Evergreen Investment Trust, a Massachusetts business trust, as of the date hereof. The Acquiring Fund shall deliver to the Selling Fund a certificate of the Predecessor Fund of even date making the representations set forth in Section 4.2.1 with respect to the Predecessor Fund to the extent applicable to the Predecessor Fund as of the date hereof. ARTICLE V COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND 5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund each will operate its business in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions. 5.2 APPROVAL OF SHAREHOLDERS. Virtus Funds will call a meeting of the Selling Fund Shareholders to consider and act upon this Agreement and to take all other action necessary to obtain approval of the transactions contemplated herein. 5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Selling Fund shares. 5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the Acquiring Fund and the Selling Fund will each take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, including any actions required to be taken after the Closing Date. 5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within sixty days after the Closing Date, the Selling Fund shall furnish the Acquiring Fund, in such form as is reasonably satisfactory to the Acquiring Fund, a statement of the earnings and profits of the Selling Fund for federal income tax purposes that will be carried over by the Acquiring Fund as a result of Section 381 of the Code, and which will be reviewed by KPMG Peat Marwick 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 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 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 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 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. (e) The execution and delivery of this Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation of Virtus Funds' Declaration of Trust or By-laws, or any provision of any material agreement, indenture, instrument, contract, lease or other undertaking (in each case known to such counsel) to which the Selling Fund is a party or by which it or any of its properties may be bound or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty, under any agreement, judgment, or decree to which the Selling Fund is a party or by which it is bound. (f) The descriptions in the Prospectus and Proxy Statement of this Agreement, as set forth under the caption "Reasons for the Reorganization - Agreement and Plan of Reorganization," the Interim Advisory Agreement and the Previous Advisory Agreement, as set forth under the caption "Information Regarding the Interim Advisory Agreement," and the description of voting requirements applicable to approval of the Interim Advisory Agreement, as set forth under the caption "Voting Information Concerning the Meeting," insofar as the latter constitutes a summary of applicable voting requirements under the Investment Company Act of 1940, as amended, are, in each case, accurate and fairly present the information required to be shown by the applicable requirements of Form N-14. (g) Such counsel does not know of any legal or governmental proceedings, insofar as they relate to the Selling Fund existing on or before the date of mailing of the Prospectus and Proxy Statement and the Closing Date, required to be described in the Prospectus and Proxy Statement or to be filed as an exhibit to the Registration Statement which are not described or filed as required. (h) To the knowledge of such counsel, no litigation or administrative proceeding or investigation of or before any court or governmental body is presently pending or threatened as to the Selling Fund or any of its respective properties or assets and the Selling Fund is neither a party to nor subject to the provisions of any order, decree or judgment of any court or governmental body, which materially and adversely affects its business other than as previously disclosed in the Prospectus and Proxy Statement. 7.3.2 The Acquiring Fund shall have received on the Closing Date an opinion of C. Grant Anderson, Esq., Assistant Secretary of Virtus Funds, in form satisfactory to the Acquiring Fund as follows: Assuming that a consideration therefor of not less than the net asset value thereof has been paid, and assuming that such shares were issued in accordance with the terms of the Selling Fund's registration statement, or any amendment thereto, in effect at the time of such issuance, all issued and outstanding shares of the Selling Fund are legally issued and fully paid and non-assessable (except that, under Massachusetts law, Selling Fund Shareholders could under certain circumstances be held personally liable for obligations of the Selling Fund). 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. 7.4 The merger between First Union Corporation and Signet Banking corporation shall be completed prior to the Closing Date. ARTICLE VIII FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE SELLING FUND If any of the conditions set forth below do not exist on or before the Closing Date with respect to the Selling Fund or the Acquiring Fund, the other party to this Agreement shall, at its option, not be required to consummate the transactions contemplated by this Agreement: 8.1 This Agreement and the transactions contemplated herein shall have been approved by the requisite vote of the holders of the outstanding shares of the Selling Fund in accordance with the provisions of Virtus Funds' Declaration of Trust and By-Laws and certified copies of the resolutions evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund may waive the conditions set forth in this paragraph 8.1. 8.2 On the Closing Date, the Commission shall not have issued an unfavorable report under Section 25(b) of the 1940 Act, nor instituted any proceeding seeking to enjoin the consummation of the transactions contemplated by this Agreement under Section 25(c) of the 1940 Act and no action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein. 8.3 All required consents of other parties and all other consents, orders, and permits of federal, state and local regulatory authorities (including those of the Commission and of state Blue Sky securities authorities, including any necessary "no-action" positions of and exemptive orders from such federal and state authorities) to permit consummation of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order, or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Selling Fund, provided that either party hereto may for itself waive any of such conditions. 8.4 The Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the 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 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 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, 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. 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 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. IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above. EVERGREEN MUNICIPAL TRUST ON BEHALF OF EVERGREEN VIRGINIA MUNICIPAL BOND FUND By: Name: Title: THE VIRTUS FUNDS ON BEHALF OF THE VIRGINIA MUNICIPAL BOND FUND By: Name: Title: EXHIBIT B THE VIRTUS FUNDS INTERIM INVESTMENT ADVISORY AGREEMENT This Agreement is made between Virtus Capital Management, Inc., a Maryland corporation having its principal place of business in Richmond, Virginia (the "Adviser"), and The Virtus Funds, a Massachusetts business trust having its principal place of business in Pittsburgh, Pennsylvania (the "Trust"). WHEREAS, the Trust is an open-end management investment company as that term is defined in the Investment Company Act of 1940 (the "Act") and is registered as such with the Securities and Exchange Commission; and WHEREAS, the Adviser is engaged in the business of rendering investment advisory and management services. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. The Trust hereby appoints Adviser as Investment Adviser for each of the portfolios ("Funds") of the Trust, which may be offered in one or more classes of shares ("Classes"), on whose behalf the Trust executes an exhibit to this Agreement, and Adviser, by its execution of each such exhibit, accepts the appointments. Subject to the direction of the Trustees of the Trust, Adviser shall provide investment research and supervision of the investments of each of the Funds and conduct a continuous program of investment evaluation and of appropriate sale or other disposition and reinvestment of each Fund's assets. 2. Adviser, in its supervision of the investments of each of the Funds, will be guided by each of the Fund's fundamental investment policies and the provisions and restrictions contained in the Declaration of Trust and By-Laws of the Trust and as set forth in the Registration Statement and exhibits as may be on file with the Securities and Exchange Commission. 3. The Trust shall pay or cause to be paid on behalf of each Fund or Class, all of the Fund's or Classes' expenses and the Fund's or Classes' allocable share of Trust expenses. 4. The Trust, on behalf of each of the Funds shall pay to Adviser for all services rendered to such Fund by Adviser hereunder the fees set forth in the exhibits attached hereto. 5. The Adviser may from time to time and for such periods as it deems appropriate reduce its compensation to the extent that any Fund's expenses exceed such lower expense limitation as the Adviser may, by notice to the Trust, voluntarily declare to be effective. Furthermore, the Adviser may, if it deems appropriate, assume expenses of one or more Fund or Class to the extent that any Fund's or Classes' expenses exceed such lower expense limitation as the Adviser may, by notice to the Trust, voluntarily declare to be effective. 6. This Agreement shall begin for each Fund on the date that the Trust executes an exhibit to this Contract relating to such Fund. This Agreement shall remain in effect for each Fund until the earlier of the Closing Date defined in the Agreement and Plan of Reorganization to be dated as of November 26, 1997 with respect to each Fund or for two years from the date of its execution and from year to year thereafter, subject to the provisions for termination and all of the other terms and conditions hereof if: (a) such continuation shall be specifically approved at least annually by the vote of a majority of the Trustees of the Trust, including a majority of the Trustees who are not parties to this Agreement or interested persons of any such party (other than as Trustees of the Trust) cast in person at a meeting called for that purpose; and (b) Adviser shall not have notified the Trust in writing at least sixty (60) days prior to the anniversary date of this Agreement in any year thereafter that it does not desire such continuation with respect to that Fund. 7. Notwithstanding any provision in this Agreement, it may be terminated at any time with respect to any Fund, without the payment of any penalty, by the Trustees of the Trust or by a vote of a majority of the outstanding voting securities of that Fund, as defined in Section 2(a)(42) of the Act on sixty (60) days' written notice to Adviser. 8. This Agreement may not be assigned by Adviser and shall automatically terminate in the event of any assignment. Adviser may employ or contract with such other person, persons, corporation or corporations at its own cost and expense as it shall determine in order to assist it in carrying out this Agreement. 9. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties under this Agreement on the part of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or to any shareholder for any act or omission in the course of or connected in any way with rendering services or for any losses that may be sustained in the purchase, holding or sale of any security. 10. This Agreement may be amended at any time by agreement of the parties provided that the amendment shall be approved both by vote of a majority of the Trustees of the Trust, including a majority of the Trustees who are not parties to this Agreement or interested persons of any such party to this Agreement (other 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. 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 (logo) EVERGREEN VIRGINIA MUNICIPAL BOND FUND - -------------------------------------------------------------------------------- FUND AT A GLANCE As of August 31, 1997
PERFORMANCE - ---------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUALIZED 1 YEAR TOTAL RETURN(1) ---------------------------- ----------------------- CUMULATIVE TOTAL SHARE INCEPTION WITHOUT SALES WITH SALES SINCE RETURN(1) SINCE 12-MONTH CLASS DATE CHARGE CHARGE 3 YEARS INCEPTION INCEPTION DISTRIBUTION - ---------------------------------------------------------------------------------------------------------------------- A 7/2/93 9.05% 3.87% 6.08% 3.90% 17.25% $0.50 B 7/2/93 8.24% 3.24% 6.14% 3.98% 17.71% $0.41 Y 2/28/94 9.32% -- 8.08% 6.06% 22.93% $0.51 - ----------------------------------------------------------------------------------------------------------------------
(1) Adjusted for maximum sales charge. CURRENT STRATEGY - -------------------------------------------------------------------------------- For the twelve months ended September 30, 1997, the Fund's class Y and class A shares ranked number 6 and 8, respectively, out of 32 Virginia municipal debt funds tracked by Lipper Analytical Services, an independent mutual fund rating company. (2) During the course of the fiscal year, we continued to emphasize a income-oriented approach. In doing so, we maintained a higher-coupon structure which allows our funds to provide tax-free income and in the long term, produce a strong total return with reduced volatility. A substantial portion of the total return of the Fund is produced by the portfolio's higher coupon structure. To ensure credit quality and increase total return, our municipal credit analysts work in conjunction with portfolio managers to carefully monitor existing holdings and seek out new investment opportunities. (Photo of Charles E. Jeanne) CHARLES E. JEANNE ASSISTANT VICE PRESIDENT, PORTFOLIO MANAGER - -------------------------------------------------------------------------------- GROWTH OF INVESTMENT Evergreen Virginia Municipal Bond Fund Comparison of a $10,000 investment in Evergreen South Carolina Municipal Bond Fund, Class A shares, versus a similar investment in the Lehman Brothers Virginia Municipal Bond Index (LBVMBI) and the Consumer Price Index (CPI). (A chart appears here with the following plot points.) In Thousands 7/93 8/93 8/94 8/95 8/96 8/97 Class A Shares 9,525 9,675 9,355 10,228 10,752 $11,725 CPI 10,000 10,028 10,318 10,589 10,893 $11,113 LBVMBI 10,000 10,189 10,241 11,151 11,665 $12,695 Past performance is no guarantee of future results. The performance of each class may vary based on differences in loads and fees paid by the shareholders investing in different classes. The Lehman Brothers Virginia Municipal Bond Index is an unmanaged market index. The index does not include transaction costs associated with buying and selling securities nor any management fees. The Consumer Price Index, a measure of inflation, is through August 31, 1997.
PORTFOLIO CHARACTERISTICS - ---------------------------------------------------------------- Total Net Assets: $15,824,821 Average Credit Quality: AA Average Maturity: 20.56 years Average Duration: 10.96 years
PORTFOLIO COMPOSITION (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie chart appears here with the following plot points.) Housing 24.9% Lease 14.8% Other 12.9% Industrial Development 9.5% Hospital 7.6% Transportation 7.5% Residential Care 7.2% Public Facilities 6.4% General Obligation Local 4.6% Education 4.6% PORTFOLIO QUALITY (AS A PERCENTAGE OF PORTFOLIO ASSETS) (A pie chart appears here with the following plot points.) A 27.7% AA 32.7% AAA 19.5% BBB 3.7% NR 16.4% (2) THE RANKINGS ARE BASED ON TOTAL RETURN AND DO NOT INCLUDE THE EFFECT OF A SALES CHARGE. STATEMENT OF ADDITIONAL INFORMATION Acquisition of the Assets of THE VIRGINIA MUNICIPAL BOND 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 VIRGINIA MUNICIPAL BOND FUND a Series of EVERGREEN MUNICIPAL 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 Virginia Municipal Bond Fund ("Virtus VA"), a series of The Virtus Funds, to Evergreen Virginia Municipal Bond Fund ("Evergreen VA"), a series of the Evergreen Municipal Trust, in exchange for Class A shares (to be issued to holders of Investment shares of Virtus VA) and Class Y shares (to be issued to holders of Trust shares of Virtus VA) of beneficial interest, $.001 par value per share, of Evergreen VA, 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 VA dated December , 1997; (To be filed by amendment) (2) The Statement of Additional Information of Virtus VA dated November 30, 1997; (To be filed by amendment) (3) Annual Report of Virtus VA for the year ended September 30, 1997; (To be filed by amendment) (4) Annual Report of Evergreen VA for the year ended August 31, 1997; (To be filed by amendment) and (5) Pro-Forma Combining Financial Statements (unaudited) dated August 31, 1997. This Statement of Additional Information, which is not a prospectus, supplements, and should be read in conjunction with, the Prospectus/Proxy Statement of Evergreen VA and Virtus VA dated January 5, 1998. A copy of the Prospectus/Proxy Statement may be obtained without charge by calling or writing to Evergreen VA or Virtus VA at the telephone numbers or addresses set forth above. The date of this Statement of Additional Information is January 5, 1998. Evergreen Virginia Municipal Bond Fund PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) SCHEDULE OF INVESTMENTS (000's omitted) August 31, 1997
Evergreen Virginia Municipal Bond Fund ------------------- Maturity Market Coupon Date Principal Value - ----------------------------------------------------------------------------------------------------------------------------------- Long Term Investments - 97.1% Albemarle County IDA-RB, Residential Care Fac. Our Lady of Peace Inc. 6.450% 7/1/15 $ 100 $ 103 Albemarle County IDA-RB, Residential Care Fac. Our Lady of Peace Inc. 6.625 7/1/21 145 149 Albemarle County, Virginia Hospital Revenue Refunding, Martha Jefferson Hospital 5.750 10/1/08 Arlington County, IDA-RB, The Nature Conservancy 5.400 7/1/17 350 347 Arlington County Virginia 5.300 6/1/11 Big Stone Gap Virginia Redevelopment and Housing Wallens Ridge Dev. Project 6.000 9/1/07 Buena Vista IDA-RB, Water & Sewer Fac. Route 60 Proj. 6.250 7/15/11 390 391 Charlottesville-Albemarle, Airport Authority RB 6.125 12/1/13 250 256 Chesapeake Redev. & Hsg. Auth. RB, MFHB, Cedar Assoc 7.750 6/1/20 500 516 Chesapeake Bay Bridge and Tunnel Common 5.875 7/1/10 Chesapeake Virginia Public Improvement 5.375 5/1/10 Chesterfield County, Virginia Hlth. Ctr. Comn Mtg. RB, Lucy Corr. Nursing Home Proj. 5.875 12/1/21 500 511 Chesterfield County, Virginia Refunding 5.250 3/1/10 Danville Virginia IDA Hospital Danville Regional Medical Center 6.200 10/1/09 Fairfax County, Virginia, IDA-RB Inova Hlth System Project 5.875 8/15/16 370 381 Fairfax County, Virginia Redev. & Hsg. Auth. RB, Hsg. For The Elderly 6.000 9/1/16 500 514 Fairfax County Virginia, Public Improvement Series A 5.250 6/1/09 Fairfax County Virginia Sewer RB 5.300 11/15/06 Fairfax County Virginia Sewer RB 5.400 11/15/07 Fairfax County Virginia Sewer RB 5.625 7/15/11 Fairfax County Virginia Water Authority Revenue Refunding 4.650 4/1/10 Fairfax County Virginia Water Authority Revenue Prerefunded Refunding 6.000 4/1/22 Fairfax County Virginia Water Authority Revenue Refunding 6.000 4/1/22 Giles County, IDA-RB, Hoechst Celanese Proj. 5.950 12/1/25 250 257 Giles County, IDA-RB, Hoechst Celanese Proj. 6.450 5/1/26 500 538 Harrisonburg, Virginia Redev. & Hsg. Auth. RB, Greens of Salem Run Proj. 6.200 4/1/17 500 518 Henrico County, Virginia IDA Refunding Health Care Bon Secours Hosp. 5.600 8/15/10 Isle Wright County IDA-RB Solid Waste Disp. Fac. Union Camp Corp. Proj. 6.550 4/1/24 350 377 James City County IDA-RB Williamsburg Landing 6.625 3/1/23 600 614 King & Queen Cnty. IDA-RB King & Queen Cnty. Courts Complex 5.625 7/15/17 1,000 995 King George Cnty. IDA-RB King George Cnty. School Proj. 6.400 8/1/16 700 723 Loudoun County, Virginia Series A 5.500 10/1/07 Loudoun County, Virginia IDA, North Virginia Criminal Justice Academy 5.500 6/1/08 Metro. Washington DC Airport Authority RB 5.500 10/1/23 250 245 Newport News Virginia 5.750 1/15/17 Norfolk Virginia 5.700 6/1/08 Norfolk Virginia 5.250 6/1/11 Portsmouth, Virginia Redev. & Hsg. Auth. RB, MFHB 6.300 9/1/26 640 668 Portsmouth, Virginia 5.000 8/1/11 Prince William County IDA-RB 6.750 10/1/15 500 543 Prince William County IDA-RB 6.000 2/1/14 500 518 Prince William County Park Authority RB 6.875 10/15/16 1,250 1,366 Riverside, Virginia Regional Jail Authority RB 6.000 7/1/25 400 421 Riverside, Virginia Regional Jail Authority RB 5.625 7/1/07 Roanoke, Virginia IDA Hospital Revenue Series B 6.000 7/1/07 Virginia Port Auth. RB, Comwlth. Port. Fund 5.900 7/1/16 750 769 Virginia Port Auth. RB, Port. Fund 5.600 7/1/27 400 397 Virginia College Building Authority RB, Hampton Univ. Proj. 5.750 4/1/14 700 716 Virginia College Building Authority, 21st Century College Program 5.400 8/1/15 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 6.950 1/1/10 100 104 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 7.100 1/1/17 100 106 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 6.100 1/1/19 300 311 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 6.650 1/1/13 500 537 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 6.250 7/1/12 300 314 State of Virginia Hsg. Dev. Auth. RB, MFHB 6.350 11/1/11 300 314 State of Virginia Hsg. Dev. Auth. RB, MFHB 6.050 11/1/17 500 507 State of Virginia Series A 5.700 6/1/08 State of Virginia 5.375 6/1/09 Virginia Public Building Authority Revenue 5.200 8/1/10 Virginia Transportation Board Revenue 5.375 5/15/07 Virginia Transportation Board Revenue, Northern Virginia Transportation District Proj. A 6.000 5/15/08 Virginia State University, General Obligation, Series A 5.750 5/1/21 West Point, Virginia, IDA-RB Solid Waste Disposal Facility, Chesapeake Corp. Proj. 6.250 3/1/19 300 315 - ------------------------------------------------------------------------------------------------------------------------------------ Total Long Term Investments (Cost-$89,671) 15,339 - ------------------------------------------------------------------------------------------------------------------------------------ Virtus Virginia Pro Forma Municipal Bond Fund Combined ------------------- ------------------- Market Market Principal Value Adj Principal Value - ------------------------------------------------------------------------------------------------------------------------------------ Long Term Investments - 97.1% Albemarle County IDA-RB, Residential Care Fac. Our Lady of Peace Inc. $ 100 $ 103 Albemarle County IDA-RB, Residential Care Fac. Our Lady of Peace Inc. 145 149 Albemarle County, Virginia Hospital Revenue Refunding, Martha Jefferson Hospital $ 1,000 $ 1,046 1,000 1,046 Arlington County, IDA-RB, The Nature Conservancy 350 347 Arlington County Virginia 1,000 1,021 1,000 1,021 Big Stone Gap Virginia Redevelopment and Housing Wallens Ridge Dev. Project 3,675 4,018 3,675 4,018 Buena Vista IDA-RB, Water & Sewer Fac. Route 60 Proj. 390 391 Charlottesville-Albemarle, Airport Authority RB 250 256 Chesapeake Redev. & Hsg. Auth. RB, MFHB, Cedar Assoc 500 516 Chesapeake Bay Bridge and Tunnel Common 2,890 3,075 2,890 3,075 Chesapeake Virginia Public Improvement 3,500 3,596 3,500 3,596 Chesterfield County, Virginia Hlth. Ctr. Comn Mtg. RB, Lucy Corr. Nursing Home Proj. 500 511 Chesterfield County, Virginia Refunding 2,980 3,026 2,980 3,026 Danville Virginia IDA Hospital Danville Regional Medical Center 2,545 2,751 2,545 2,751 Fairfax County, Virginia, IDA-RB Inova Hlth System Project 370 381 Fairfax County, Virginia Redev. & Hsg. Auth. RB, Hsg. For The Elderly 500 514 Fairfax County Virginia, Public Improvement Series A 4,000 4,101 4,000 4,101 Fairfax County Virginia Sewer RB 1,140 1,185 1,140 1,185 Fairfax County Virginia Sewer RB 1,505 1,570 1,505 1,570 Fairfax County Virginia Sewer RB 2,605 2,716 2,605 2,716 Fairfax County Virginia Water Authority Revenue Refunding 1,000 964 1,000 964 Fairfax County Virginia Water Authority Revenue Prerefunded Refunding 745 825 745 825 Fairfax County Virginia Water Authority Revenue Refunding 1,255 1,322 1,255 1,322 Giles County, IDA-RB, Hoechst Celanese Proj. 250 257 Giles County, IDA-RB, Hoechst Celanese Proj. 500 538 Harrisonburg, Virginia Redev. & Hsg. Auth. RB, Greens of Salem Run Proj. 500 518 Henrico County, Virginia IDA Refunding Health Care Bon Secours Hosp. 2,000 2,065 2,000 2,065 Isle Wright County IDA-RB Solid Waste Disp. Fac. Union Camp Corp. Proj. 350 377 James City County IDA-RB Williamsburg Landing 600 614 King & Queen Cnty. IDA-RB King & Queen Cnty. Courts Complex 1,000 995 King George Cnty. IDA-RB King George Cnty. School Proj. 700 723 Loudoun County, Virginia Series A 1,000 1,051 1,000 1,051 Loudoun County, Virginia IDA, North Virginia Criminal Justice Academy 600 620 600 620 Metro. Washington DC Airport Authority RB 250 245 Newport News Virginia 4,440 4,563 4,440 4,563 Norfolk Virginia 2,000 2,128 2,000 2,128 Norfolk Virginia 3,000 3,027 3,000 3,027 Portsmouth, Virginia Redev. & Hsg. Auth. RB, MFHB 640 668 Portsmouth, Virginia 2,535 2,505 2,535 2,505 Prince William County IDA-RB 500 543 Prince William County IDA-RB 500 518 Prince William County Park Authority RB 1,250 1,366 Riverside, Virginia Regional Jail Authority RB 400 421 Riverside, Virginia Regional Jail Authority RB 3,375 3,602 3,375 3,602 Roanoke, Virginia IDA Hospital Revenue Series B 1,185 1,251 1,185 1,251 Virginia Port Auth. RB, Comwlth. Port. Fund 750 769 Virginia Port Auth. RB, Port. Fund 400 397 Virginia College Building Authority RB, Hampton Univ. Proj. 700 716 Virginia College Building Authority, 21st Century College Program 4,010 4,030 4,010 4,030 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 100 104 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 100 106 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 300 311 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 500 537 State of Virginia Hsg. Dev. Auth. RB, Comwlth. Mtg. 300 314 State of Virginia Hsg. Dev. Auth. RB, MFHB 300 314 State of Virginia Hsg. Dev. Auth. RB, MFHB 500 507 State of Virginia Series A 4,000 4,246 4,000 4,246 State of Virginia 2,860 2,962 2,860 2,962 Virginia Public Building Authority Revenue 8,255 8,304 8,255 8,304 Virginia Transportation Board Revenue 1,000 1,039 1,000 1,039 Virginia Transportation Board Revenue, Northern Virginia Transportation District Proj. A 2,030 2,178 2,030 2,178 Virginia State University, General Obligation, Series A 2,325 2,365 2,325 2,365 West Point, Virginia, IDA-RB Solid Waste Disposal Facility, Chesapeake Corp. Proj. 300 315 - ------------------------------------------------------------------------------------------------------------------------------------ Total Long Term Investments (Cost-$89,671) 77,154 92,493 - ------------------------------------------------------------------------------------------------------------------------------------
Evergreen Virginia Municipal Bond Fund PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) SCHEDULE OF INVESTMENTS (000's omitted) August 31, 1997
Evergreen Virginia Virtus Virginia Pro Forma Municipal Bond Fund Municipal Bond Fund Combined ------------------- ------------------- -------------------- Market Market Market Mutual Fund Shares - 2.0% Shares Value Shares Value Shares Value ------ ------ ------ ------ ------ ------ Federated Municipal Obligation Fund 232 232 232 232 Goldman Sachs Institutional Tax Exempt Fund 908 908 908 908 Municipal Fund For Temporary Investment 797 797 797 797 - ------------------------------------------------------------------------------------------------------------------------------------ Total Mutual Fund Shares (Cost - $ 1,937) 232 1,705 1,937 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments (Cost-$ 91,608) 99.1% 15,571 78,859 94,430 Other Assets and Liabilities 0.9 254 559 813 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL NET ASSETS 100.0% $15,825 $ 79,418 $ 95,243 - ------------------------------------------------------------------------------------------------------------------------------------
Legend of Portfolio Abbreviations: IDA Industrial Development Authority MFHB Multi Family Housing Revenue Bond RB Revenue Bond See Notes to Pro Forma Combining Financial Statements. Evergreen Virginia Municipal Bond Fund PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) Statement of Assets and Liabilities (000's) August 31, 1997
Evergreen Virtus Virginia Municipal Virginia Municipal Pro Forma Bond Fund Bond Fund Adjustments Combined ------------------------------------------------------------ -------------- Assets Investments at value (cost $91,608) $15,571 $78,859 $94,430 Cash 1 91 92 Interest receivable 263 995 1,258 Receivable for Fund shares sold 36 5 41 Prepaid expenses 6 0 6 ---------------------------------------------------------- -------------- Total Assets 15,877 79,950 95,827 Liabilities Dividends payable 25 266 291 Payable for Fund shares redeemed 0 173 173 Distribution fees payable 9 15 24 Due to related parties 11 74 85 Accrued expenses and other liabilities 7 4 11 --------------------------------------------------------------------------- Total Liabilities 52 532 584 Net Assets $15,825 $79,418 $95,243 =========================================================================== Net assets are comprised of: Paid-in capital 15,457 77,311 92,768 Undistributed net investment income 6 0 6 Accumulated net realized loss on investments (205) (238) (443) Net unrealized appreciation on investments 567 2,345 2,912 --------------------------------------------------------------------------- Net Assets $15,825 $79,418 $95,243 =========================================================================== Class A Shares Net Assets $2,934 $59,546 $62,480 Shares of Beneficial Interest Outstanding 292 5,431 489 6,212 Net Asset Value $10.05 $10.96 $10.05 Maximum Offering Price (4.75%) $10.55 $10.55 Class B Shares Net Assets $6,695 $6,695 Shares of Beneficial Interest Outstanding 666 666 Net Asset Value $10.05 $10.05 Class Y Shares Net Assets $6,195 $19,872 $26,067 Shares of Beneficial Interest Outstanding 616 1,812 163 2,591 Net Asset Value $10.05 $10.97 $10.05
See Notes to Pro Forma Combining Financial Statements. Evergreen Virginia Municipal Bond Fund PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) Statement of Operations (000's) Year ended August 31, 1997
Evergreen Virtus Virginia Municipal Virginia Municipal Pro Forma Bond Fund Bond Fund Adjustments Combined ------------------------------------------------------ ----------- Investment income Interest income $ 849 $ 4,608 $ 5,457 Expenses Advisory fee 71 659 (220)a 510 Administrative services fees 10 85 (23)b 72 Distribution fee 69 159 228 Transfer agent fee 39 101 65 c 205 Custodian fee 40 32 215 b 287 Registration and filing fees 21 13 (13)d 21 Professional fees 16 73 (68)d 21 Organization expenses 9 0 9 Trustees' fees and expenses 1 2 4 b 7 Other 18 12 19 b 49 Less: Fee waivers and/or reimbursements (114) (3) (340) (457) ----------------------------------------------------------------------- Total Expenses 180 1,133 (361) 952 Less: Indirectly paid expenses (1) 0 (6)b (7) ----------------------------------------------------------------------- Net expenses 179 1,133 (367) 945 ----------------------------------------------------------------------- Net investment income 670 3,475 367 4,512 Net realized and unrealized gain on investments: Net realized gain on investments 177 489 666 Net change in unrealized appreciation (depreciation) on investments 362 2,247 2,609 ----------------------------------------------------------------------- Net realized and unrealized gain on investments 539 2,736 3,275 Net increase in net assets resulting from operations $ 1,209 $ 6,211 367 $ 7,787 =======================================================================
a Reflects decrease based on the fee structure of the surviving fund. b Reflects increase (decrease) based on assets of the combined fund. d Reflects expected savings from combining the funds together. e Reflects increase due to additional accounts in the combined fund. See Notes to Pro Forma Combining Financial Statements. Evergreen Virginia Municipal Bond Fund Notes to Pro Forma Combining Financial Statements (Unaudited) August 31, 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 Virginia Municipal Bond Fund ("Evergreen") and Virtus Virginia Municipal Bond Fund ("Virtus") at August 31, 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 August 31, 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 August 31, 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 August 31, 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 August 31, 1997. EVERGREEN INVESTMENT TRUST 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(a). Declaration of Trust. Incorporated by reference to Evergreen Municipal Trust's Registration Statement on Form N- 1A filed on October 8, 1997 - Registration No. 333-36033 ("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 Trust of Evergreen Municipal Trust Articles II., III.6(c), IV.(3), IV.(8), V., VI., VII., and VIII and By-Laws Articles II., III. and VIII. 6(a). Form of Investment Advisory Agreement between First Union National Bank and Evergreen Municipal 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 Municipal Trust. Incorporated by reference to the Form N-1A Registration Statement. 7(b). Form of Dealer Agreement for Class A and Class B shares used by Evergreen Distributor, Inc. Incorporated by reference to the Form N-1A Registration Statement. 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 Municipal Trust. Incorporated by reference to Post-Effective Amendment No. 38 to the 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 filed on November 13, 1984 - Registration No. 2-94560. 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 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. 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. EVERGREEN INVESTMENT TRUST 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 /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. INDEX TO EXHIBITS N-14 EXHIBIT NO. 14 Consent of KPMG Peat Marwick LLP 16 Powers of Attorney 17(a) Form of Proxy - -------------------- EX-99.B14 2 CONSENT OF INDEPENDENT AUDITORS The Trustees and Shareholders Evergreen Investment Trust We consent to the use of our report dated October 10, 1997 for Evergreen Virginia Municipal Bond 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 EX-99.B16 3 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 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 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 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 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. 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 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 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 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 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 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 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 EX-99.B17 4 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 VIRGINIA MUNICIPAL BOND 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 Virginia Municipal Bond Fund, a series of The Virtus Funds ("Virtus VA") that the undersigned is entitled to vote at the special meeting of shareholders of Virtus VA 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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 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 Virginia Municipal Bond Fund, a series of Evergreen Municipal Trust, will (i) acquire all of the assets of Virtus VA in exchange for shares of Evergreen Virginia Municipal Bond Fund; and (ii) assume certain identified liabilities of Virtus VA, 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. -----END PRIVACY-ENHANCED MESSAGE-----