[Federal Register Volume 63, Number 24 (Thursday, February 5, 1998)]
[Notices]
[Pages 5978-5979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2881]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23013; 812-10902]


The Virtus Funds, et al.; Notice of Application

January 30, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 17(b) of the 
Investment Company Act of 1940 (the ``Act'') from section 17(a) of the 
Act.

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SUMMARY OF APPLICATION: Applicants seek an order to permit the 
reorganization and consolidation of series of certain registered open-
end investment companies into certain series of another registered 
open-end investment company.

APPLICANTS: Evergreen Municipal Trust, Evergreen Equity Trust, 
Evergreen Fixed Income Trust, Evergreen International Trust, Evergreen 
Money Market Trust (together, ``Evergreen Funds'' or ``Acquiring 
Funds''), The Virtus Funds (``Virtus Funds''), and First Union National 
Bank (the ``Bank'').

FILING DATES: The application was filed on December 19, 1997, and 
amended on January 27, 1998. Applicants have agreed to file an 
amendment to the application during the notice period, the substance of 
which is included in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on February 24, 
1998, and should be accompanied by proof of service on the applicants, 
in the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: Bank, 201 S. College Street, Charlotte, North 
Carolina 28288; Virtus Funds, Federated Investors Tower, Pittsburgh, 
Pennsylvania 15222-3779; and Evergreen Funds, 200 Berkeley Street, 
Boston, Massachusetts 02116.

FOR FURTHER INFORMATION CONTACT: Joseph B. McDonald, Jr., Senior 
Counsel, at (202) 942-0533, or Mary Kay Frech, Branch Chief, at (202) 
942-0564, (Division of Investment Management, Office of Investment 
Company Regulation.)

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicant's Representations

    1. The Virtus Funds, a Massachusetts business trust consisting of 
eight series is an open-end management investment company registered 
under the Act. Virtus Capital Management, Inc. (``Virtus'') is 
registered under the Investment Advisers Act of 1940 (``Advisers Act'') 
and is the investment adviser for the Virtus Funds.
    2. The Evergreen Funds are Delaware business trusts and each is an 
open-end management investment company registered under the Act. The 
Bank is a North Carolina corporation and a banking subsidiary of First 
Union Corporation, a publicly held bank holding company. The Capital 
Management Group, a division of the Bank, and two of its subsidiaries, 
Evergreen Asset Management Corp. and Keystone Investment Management 
Company, are the investment advisers to the Evergreen Funds. Evergreen 
Asset Management Corp. and Keystone Investment Management Company are 
each registered as investment advisers under the Advisers Act.
    3. The Bank, as a fiduciary for its customers, controls, or holds 
with power to vote, 5% or more of the outstanding voting securities of 
the Virtus Funds. In addition, the Bank, as a fiduciary for its 
customers, owns of record or controls, or holds with power to vote, 5% 
or more of the outstanding voting securities of the Evergreen Funds.
    4. On September 16 and 17, 1997, the board of each Evergreen Fund 
and Virtus Fund (together, the ``Funds'') (''Board''), including a 
majority of the disinterested directors/trustees, authorized plans of 
reorganization pursuant to which a series of the Evergreen Funds will 
acquire a corresponding series of the Virtus Funds with similar 
investment objectives (``Plans'').
    Pursuant to the terms of the Plans, the Virtus Funds have agreed to 
sell all of their assets and certain stated liabilities to a 
corresponding series of the Acquiring Funds in exchange for shares of 
the Acquiring Fund (``Reorganization''). The number of Acquiring Fund 
shares to be issued in exchange for each Virtus Fund share of each 
class will be determined by dividing the net asset value of one 
Acquiring Fund share of the appropriate corresponding class by the net 
asset value of one Virtus Fund share of such class.
    5. Holders of Investment Shares of the Virtus Funds will receive 
Class A shares of the corresponding Evergreen Fund and holders of Trust 
Shares will receive

[[Page 5979]]

Class Y shares of the corresponding Evergreen Fund. Each such class of 
shares of the Evergreen Fund has the same distribution-related fees, if 
any, as the shares of the class of Virtus Funds held prior to the 
Reorganization and no initial sales charge will be imposed in 
connection with Class A shares of the Evergreen Funds received by 
Virtus Fund shareholders.
    6. The investment objectives of each Virtus Fund and its 
corresponding Acquiring Fund are similar. The investment restrictions 
and limitations of each Virtus Fund and corresponding Acquiring Fund 
are substantially similar, but in some cases involve differences that 
reflect the differences in the general investment strategies utilized 
by the Funds.
    7. The Board of each Fund approved the Reorganization as in the 
best interests of existing shareholders and determined that the 
interests of existing shareholders will not be diluted as a result of 
the Reorganization. The Bank will be responsible for the expenses 
incurred in connection with the Reorganization.
    8. The Board of each Fund considered a number of factors in 
authorizing the Reorganization, including: (a) The terms and conditions 
of the Reorganization; (b) whether the Reorganization would result in 
the dilution of shareholders' interests; (c) expense ratios, fees and 
expenses of the Funds participating in the Reorganization; (d) the 
comparative performance records of the Acquiring Fund and Virtus Fund; 
(e) compatibility of the Funds' investment objectives and policies; (f) 
the investment experience, expertise and resources of the Funds' 
advisers; (g) service features available to shareholders of the 
respective Acquiring Fund and Virtus Fund; (h) the fact that the Bank 
will bear the expenses incurred by the Funds in connection with the 
Reorganization other than the Acquiring Fund's federal and state 
registration fees; (i) the fact that the Acquiring Funds will assume 
certain stated liabilities of the Virtus Fund; and (j) the expected 
federal income tax consequences of the Reorganization.
    9. The Reorganization is subject to a number of conditions 
precedent, including requirements that: (a) the Plans have been 
approved by the Boards of the Acquiring Funds and the Virtus Funds and 
each of such Fund's shareholders in the manner required by law; (b) the 
Virtus Funds and the Acquiring Funds have received opinions of counsel 
stating, among other things, that the Reorganization will constitute a 
``reorganization'' under section 368 of the Internal Revenue Code of 
1986, as amended and, as a consequence, the Reorganization will not 
result in Federal income taxes for the Fund or its shareholders; and 
(c) the Virtus Funds and the Acquiring Funds have received from the SEC 
an order exempting the Reorganization from the provisions of the Act as 
requested in the application. Applicants agree not to make any material 
changes to the Plans that affect the application without prior SEC 
approval.

Applicants' Legal Analysis

    1. Section 17(a) of the Act provides that it is unlawful for any 
affiliated person of a registered investment company, or any affiliated 
person of such person, knowingly: (a) To sell any security or other 
property to such registered company; or (b) to purchase from such 
registered company any security or other property. Section 2(a)(3) of 
the Act defines the term ``affiliated person'' of another person to 
include: (a) Any person owning, controlling, or holding with power to 
vote, 5% or more of the outstanding voting securities of such other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote, by such other person; (c) any person controlling, 
controlled by, or under common control with, such other person; and (d) 
if such other person is an investment company, any investment adviser 
of the person.
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) of the Act mergers, consolidations, or purchases or sales 
of substantially all of the assets of registered investment companies 
that are affiliated persons, or affiliated persons of an affiliated 
person, solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions are 
satisfied. Applicants believe that the proposed transactions may not be 
exempt from the prohibitions of section 17(a) by reason of rule 17a-8 
because the Funds may be affiliated for reasons other than those set 
forth in the rule. The Virtus Funds may be affiliated persons of the 
Bank because the Bank, as fiduciary for its customers, owns of record 
or controls or holds with the power to vote 5% or more of the 
outstanding securities of the Virtus Funds. The Bank, in turn, is an 
affiliated person of the Evergreen Funds because the Bank, or one of 
its subsidiaries, serves as adviser to the Evergreen Funds. In 
addition, the Evergreen Funds may be affiliated persons of the Bank 
because the Bank, as fiduciary for its customers, owns of record or 
controls or holds with the power to vote 5% or more of the outstanding 
securities of the Evergreen Funds and a subsidiary of the Bank (i.e., 
Virtus) is the adviser to the Virtus Funds. Consequently. applicants 
are requesting an order pursuant to section 17(b) of the Act exempting 
them from section 17(a) to the extent necessary to complete the 
Reorganization.
    3. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from section 17(a) of the Act if evidence establishes that: 
(a) The terms of the proposed transaction, including the consideration 
to be paid, are reasonable and fair and do not involve overreaching on 
the part of any person concerned; (b) the proposed transaction is 
consistent with the policy of each registered investment company 
concerned; and (c) the proposed transaction is consistent with the 
general purposes of the Act.
    4. Applicants submit that the Reorganization satisfies the 
provisions of section 17(b) of the Act. The Board of each of the Funds 
has determined that the transactions are in the best interests of the 
shareholders. In approving the Plans, the Boards of the Funds 
considered: (a) That the interests of Fund shareholders will not be 
diluted; (b) that the Virtus and Acquiring Funds' investment objectives 
and policies are generally substantially identical; (c) that no sales 
charges will be imposed; (d) that the conditions and policies of rule 
17a-8 will be followed; and (e) that no overreaching by any affiliated 
person is occurring.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2881 Filed 2-4-98; 8:45 am]
BILLING CODE 8010-01-M