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PROSPECTUS May 1, 1998
(As supplemented July 1, 1998)
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[EVERGREEN FUNDS LOGO APPEARS HERE]
EVERGREEN(SM) VARIABLE ANNUITY TRUST
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Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
(Each a "Fund", collectively the "Funds")
The Evergreen Variable Annuity Trust (the "Trust") is designed to provide
investors with a selection of investment alternatives which seek to provide
capital growth, income and diversification through its seven investment series.
The Trust is an open-end management investment company. This Prospectus sets
forth concise information about three of the Trust's Funds that a prospective
investor should know before investing. Shares of the Funds are only sold to
separate accounts funding variable annuity and variable life insurance
contracts issued by life insurance companies. The address of the Trust is 200
Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information (the "SAI") for the Trust dated May
1, 1998, as supplemented from time to time has been filed with the Securities
and Exchange Commission and is incorporated by reference herein. The SAI
provides information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to investors, and may be obtained
without charge by calling the Trust at (800)321-9332. There can be no assurance
that the investment objective of any Fund will be achieved. Investors are
advised to read this Prospectus carefully.
The shares offered by this Prospectus are not deposits or obligations of any
bank or any subsidiaries of a bank, are not endorsed or guaranteed by 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 risk, including the possible loss of principal.
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. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Keep This Prospectus for Future Reference
EVERGREENSM is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995, Evergreen Asset Management Corp.
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TABLE OF CONTENTS
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FINANCIAL HIGHLIGHTS 3
DESCRIPTION OF THE FUNDS 6
Investment Objectives and Policies 6
Investment Practices and Restrictions 8
MANAGEMENT OF THE FUNDS 14
Investment Advisers 14
Administrator 15
Portfolio Managers 15
Sub-Adviser 15
SALE AND REDEMPTION OF SHARES 16
Participating Insurance Companies 16
Purchases 16
Redemptions 16
Dividends 16
Tax Status 17
Effect of Banking Laws 17
GENERAL INFORMATION 17
Custodian, and Transfer and Dividend
Paying Agent 17
Expenses of the Trust 18
Shareholder Rights 18
Description of Shares 18
Performance 18
General 19
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FINANCIAL HIGHLIGHTS
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The tables on the following pages present, for Evergreen VA Fund,
Evergreen VA Foundation Fund and Evergreen VA Growth and Income Fund financial
highlights for a share outstanding throughout each period presented. The
information in the tables has been audited by KPMG Peat Marwick LLP. The report
of KPMG Peat Marwick LLP with respect to the Funds is incorporated by reference
in the Funds' SAI. The following information for each Fund should be read in
conjunction with the financial statements and related notes which are
incorporated by reference in the Fund's SAI.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
Evergreen VA Fund
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------
<S> <C> <C>
1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period ............................. $ 11.41 $ 10.00
--------- --------
Income from investment operations:
Net investment income ........................................... 0.06 0.05
Net realized and unrealized gain on investments ................. 4.15 1.44
--------- --------
Total from investment operations ................................. 4.21 1.49
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Less distributions from:
Net investment income ........................................... (0.05) (0.05)
Net realized gain on investments ................................ (0.68) (0.03)
--------- --------
Total distributions .............................................. (0.73) (0.08)
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Net asset value, end of period ................................... $ 14.89 $ 11.41
========= ========
Total Return ..................................................... 37.16% 14.90%
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses .................................................. 1.01% 1.00%+
Total expenses, excluding indirectly paid expenses .............. 1.00% 1.00%+
Total expenses, excluding fee waivers and/or reimbursements ..... 1.31% 2.38%+
Net investment income ........................................... 0.42% 0.87%+
Portfolio turnover rate .......................................... 32% 6%
Average commission rate paid per share ...........................$ 0.0576 $ 0.0661
Net assets end of period (thousands) .............................$ 21,600 $ 10,862
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** Calculated using average shares outstanding throughout the period.
3
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Evergreen VA Foundation Fund
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------
<S> <C> <C>
1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period ............................. $ 11.31 $ 10.00
--------- --------
Income from investment operations:
Net investment income ........................................... 0.26 0.16
Net realized and unrealized gain on investments ................. 2.86 1.37
--------- --------
Total from investment operations ................................. 3.12 1.53
--------- --------
Less distributions from:
Net investment income ........................................... (0.24) ( 0.16)
Distributions in excess of net investment income ................ 0.00(a) 0.00
Net realized gain on investments ................................ (0.65) ( 0.06)
--------- --------
Total distributions .............................................. (0.89) ( 0.22)
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Net asset value, end of period ................................... $ 13.54 $ 11.31
=========== ========
Total Return ..................................................... 27.80% 15.30%
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses .................................................. 1.01% 1.00%+
Total expenses, excluding indirectly paid expenses .............. 1.00% 1.00%+
Total expenses, excluding fee waivers and/or reimbursements ..... 1.10% 1.72%+
Net investment income ........................................... 2.15% 2.70%+
Portfolio turnover rate .......................................... 26% 12%
Average commission rate paid per share ........................... $ 0.0675 $ 0.0675
Net assets end of period (thousands) ............................. $ 31,840 $ 15,812
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
(a) Amount is less than 1/2 of one cent per share.
** Calculated using average shares outstanding throughout the period.
4
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Evergreen VA Growth and Income Fund
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
<S> <C> <C>
1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period ............................. $ 11.83 $ 10.00
--------- --------
Income from investment operations:
Net investment income ........................................... 0.08 0.06
Net realized and unrealized gain on investments ................. 4.01 1.84
--------- --------
Total from investment operations ................................. 4.09 1.90
--------- --------
Less distributions from:
Net investment income ........................................... (0.07) ( 0.06)
Net realized gain on investments ................................ (0.56) ( 0.01)
--------- --------
Total distributions .............................................. (0.63) ( 0.07)
--------- --------
Net asset value, end of period ................................... $ 15.29 $ 11.83
========= ========
Total Return ..................................................... 34.66% 19.00%
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses .................................................. 1.01% 1.00%+
Total expenses, excluding indirectly paid expenses .............. 1.00% 1.00%+
Total expenses, excluding fee waivers and/or reimbursements ..... 1.23% 2.05%+
Net investment income ........................................... 0.59% 1.00%+
Portfolio turnover rate .......................................... 18% 2%
Average commission rate paid per share ........................... $ 0.0600 $ 0.0579
Net assets end of period (thousands) ............................. $ 31,088 $ 14,484
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** Calculated using average shares outstanding throughout the period.
5
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DESCRIPTION OF THE FUNDS
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective is nonfundamental and can be changed
without shareholder approval. Shareholders would be given notice prior to the
implementation of any such change. In addition to the investment policies
detailed below, each Fund may employ certain additional investment strategies
which are discussed in "Investment Practices and Restrictions" and may be
subject to certain risks discussed under "Special Risk Considerations." There
can be no assurance that a Fund's investment objective will be achieved.
Evergreen VA Fund
The Evergreen VA Fund seeks to achieve its investment objective of capital
appreciation principally through investments in common stock and securities
convertible into or exchangeable for common stock of companies which are
little-known, relatively small or represent special situations which, in the
opinion of the Fund's investment adviser, offer potential for capital
appreciation. A "little-known" company means one whose business is limited to a
regional market or whose securities are closely held with only a small
proportion traded publicly. A "relatively small" company means one which has a
small share of the market for its products or services in comparison with other
companies in its field, or which provides goods or services for a limited
market. A "special situation" company is one which offers potential for capital
appreciation because of a recent or anticipated change in structure,
management, products or services. In addition to the securities described
above, the Fund may invest in securities of relatively well-known and large
companies with potential for capital appreciation. Investments may also be made
to a limited degree in non-convertible debt securities and preferred stocks
which offer an opportunity for capital appreciation. Short-term investments may
also be made if the Fund's investment adviser believes that such action will
benefit the Fund.
Evergreen VA Growth and Income Fund
The investment objective of the Evergreen VA Growth and Income Fund is to
seek to achieve a return composed of capital appreciation in the value of its
shares and current income.
The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
These companies are often found among those which have had a record of
financial success but are currently in disfavor in the marketplace for reasons
the Fund's investment adviser perceives as temporary or erroneous.
Such investments when successfully timed are expected to be the means for
achieving the Fund's investment objective. This inherently contrarian approach
may require greater reliance upon the analytical and research capabilities of
the Fund's investment adviser than an investment in certain other equity funds.
Consequently, an investment in the Fund may involve more risk than an
investment in other equity funds.
The Fund will use the "value timing" approach as a process for purchasing
securities when events indicate that fundamental investment values are being
ignored in the marketplace. Fundamental investment value is based on one or
more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses); capitalization of earnings; cash flow
or potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities. If the
securities in which the Fund invests never reach their perceived potential or
the valuation of such securities in the marketplace does not in fact reflect
significant undervaluation, there may be little or no appreciation or a
depreciation in the value of such securities.
The Fund will invest primarily in common stocks and securities convertible
into or exchangeable for common stock. It is anticipated that the Fund's
investments in these securities will contribute to the Fund's return primarily
through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation
but the
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current income component of return will be a more significant factor in their
selection. However, the Fund will invest in nonconvertible preferred stock and
debt securities only if the anticipated capital appreciation plus income from
such investments is equivalent to that anticipated from investments in equity
or equity-related securities. The Fund may invest up to 5% of its total assets
in debt securities which are rated below investment grade, commonly known as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. The Fund may invest up to 25% of its assets in foreign
securities. See "Special Risk Considerations."
Evergreen VA Foundation Fund
The investment objectives of the Evergreen VA Foundation Fund, in order of
priority, are to seek to provide reasonable income, conservation of capital and
capital appreciation. The Fund seeks to achieve these objectives by investing
in a combination of common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks, corporate and U.S. Government debt
obligations, and short-term debt instruments, such as commercial paper. The
Fund's common stock investments will include those which (at the time of
purchase) pay dividends and in the view of the Fund's investment adviser have
potential for capital enhancement. The Fund may also invest up to 25% of its
assets in foreign securities. See "Special Risk Considerations."
The Fund may make investments in securities regardless of whether or not
such securities are traded on a national securities exchange. Securities not
traded on a national securities exchange are generally traded on a "net" basis
with dealers acting as principals for their own accounts without stated
commissions, although the price of the securities usually includes profits to
the dealers. While the Fund's investment adviser generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available. Also the market for such securities may
not be as liquid as those traded on a national securities exchange.
While income will be a factor in the selection of equity securities, the
Fund's investment adviser will attempt to identify securities that offer
potential for long term capital appreciation, but that do not exhibit any
speculative characteristics. The Fund will not make equity investments with a
view toward realizing short-term gains. The value of portfolio securities and
their yields are expected to fluctuate over time because of varying general
economic and market conditions. Accordingly, there can be no assurance that the
Fund's investment objectives will be achieved.
The Fund's asset allocation will vary from time to time in accordance with
changing economic and market conditions, including: inflation rates; business
cycle trends; business regulations; and tax law impacts on the investment
markets. The composition of its portfolio will be largely unrestricted and
subject to the discretion of the Fund's investment adviser. Under normal
circumstances, the Fund anticipates that at least 25% of its net assets will
consist of fixed income securities. The balance will be invested in equity
securities (including securities convertible into equity securities).
In selecting fixed income securities for the Fund's portfolio, emphasis
will be placed on issues expected to fluctuate little in value other than as a
result of changes in prevailing interest rates. The market value of the debt
obligations in the Fund's portfolio can be expected to vary inversely to
changes in prevailing interest rates. The Fund may at times emphasize the
generation of interest income by investing in high-yielding debt securities,
with short, medium or long-term maturities. While fixed income investments will
generally be made for the purpose of generating interest income, investments in
medium to long-term debt securities (i.e., those with maturities from five to
ten years and those with maturities over ten years, respectively) may be made
with a view to realizing capital appreciation when the Fund's investment
adviser believes changes in interest rates will lead to an increase in the
value of such securities. The fixed income portion of the Fund's portfolio may
include:
1. Marketable obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities, including issues of the United
States Treasury, such as bills, certificates of indebtedness, notes and bonds,
and issues of agencies and instrumentalities established under the authority of
an act of Congress. Some of these securities are supported by the full faith
and credit of the United States Government, and others are supported only by
the credit of the agency or instrumentality. Agencies or instrumentalities
whose securities are supported by the full faith and credit of the United
States include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration and Government National Mortgage Association. Agencies
or instrumentalities whose securities are supported only by the credit of
7
<PAGE>
the agency or instrumentality include the Interamerican Development Bank and
the International Bank for Reconstruction and Development. These obligations
are supported by appropriated but unpaid commitments of their member countries.
There are no assurances that the commitments will be fulfilled in the future.
2. Corporate obligations rated no lower than A by Moody's Investors
Service, Inc. ("Moody's") or A-2 by Standard & Poor's Ratings Group ("S&P").
3. Obligations of banks or banking institutions having total assets of
more than $2 billion which are members of the Federal Deposit Insurance
Corporation.
4. Commercial paper of high quality (rated no lower than A-2 by S&P or
Prime-2 by Moody's or, if not rated, issued by companies which have an
outstanding long-term debt issue rated AAA or AA by S&P or Aaa or Aa by
Moody's).
Certain obligations may be entitled to the benefit of standby letters of
credit or similar commitments issued by banks and, in such instances, the
Fund's investment adviser will take into account the obligation of the bank in
assessing the quality of such security. For a description of the ratings set
forth above, see the Statement of Additional Information.
INVESTMENT PRACTICES AND RESTRICTIONS
In addition to making the investments described above, each of the Funds
(except as stated herein) may invest in cash and cash equivalents and
short-term debt securities, write covered put and call options, purchase put
and call options, engage in transactions in futures contracts and related
options, engage in forward foreign currency exchange transactions, enter into
repurchase agreements, lend portfolio securities, enter into transactions on a
"when issued" or delayed settlement basis, enter into forward commitments,
invest in the securities of other investment companies and borrow funds under
certain limited circumstances. These investment strategies and instruments
referred to above and the risks related to them are discussed below and certain
of these strategies and instruments are described in more detail in the SAI.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. Government securities if, in the opinion of the Funds'
investment advisers, market conditions warrant a temporary defensive investment
strategy.
Portfolio Turnover and Brokerage. It is anticipated that the annual portfolio
turnover rate for Evergreen VA Fund and Evergreen VA Growth and Income Fund may
exceed 100%. A portfolio turnover rate of 100% would occur if all of a Fund's
portfolio securities were replaced in one year. The annual turnover rate for
the fixed income portion of the Evergreen VA Foundation Fund generally will not
exceed 200%. A 200% turnover rate is greater than that of most other investment
companies. The portfolio turnover rate experienced by a Fund directly affects
brokerage commissions and other transaction costs which the Fund bears
directly. A high rate of portfolio turnover will increase such costs. It is
contemplated that Lieber & Company, an affiliate of Evergreen Asset and a
member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions for the
Funds managed by Evergreen Asset effected on those exchanges. See the SAI for
further information regarding the brokerage allocation practices of the Funds.
Borrowing. Each Fund may borrow money to the extent permitted by applicable
law. This includes borrowings from banks as a temporary measure for
extraordinary or emergency purposes. The proceeds from borrowings may be used
to facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The Funds will not engage in leveraging.
The specific limits and other terms applicable to borrowing by each Fund are
set forth in the SAI.
Lending of Portfolio Securities. In order to generate income and to offset
expenses, the Funds may lend portfolio securities to brokers, dealers and other
financial institutions. Each Fund's investment adviser will monitor the
creditworthiness of such borrowers. Loans of securities by the Funds, if and
when made, must be collateralized by cash or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the securities loaned, including accrued interest. While such
securities are on loan, the borrower will pay a Fund any income accruing
thereon, and the Fund may invest the cash collateral in portfolio securities,
thereby increasing its return. Any gain or loss in the market price of the
loaned securities which occurs during the
8
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term of the loan would affect a Fund and its investors. A Fund has the right to
call a loan and obtain the securities loaned at any time on notice of not more
than five business days. A Fund may pay reasonable fees in connection with such
loans. Lending portfolio securities involves risks of delay in recovery of the
loaned securities or, in some cases, loss of rights in the collateral should
the borrower fail financially.
Illiquid Securities. The Funds may invest up to 15% of their net assets in
illiquid securities and other securities which are not readily marketable,
including repurchase agreements with maturities longer than seven days.
Securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933, which have been determined to be liquid, will not be considered by
each Fund's investment adviser to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. The inability of a
Fund to dispose of illiquid or not readily marketable investments readily or at
a reasonable price could impair the Fund's ability to raise cash for
redemptions or other purposes. The liquidity of securities purchased by a Fund
which are eligible for resale be monitored by each Fund's investment adviser,
on an ongoing basis, subject to the oversight of the Trustees. In the event
that such a security is deemed to be no longer liquid, a Fund's holdings will
be reviewed to determine what action, if any, is required to ensure that the
retention of such security does not result in a Fund having more than 15% of
its assets invested in illiquid or not readily marketable securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
member banks of the Federal Reserve System, including a Fund's custodian or
primary dealers in U.S. Government securities. A repurchase agreement is an
arrangement pursuant to which a buyer purchases a security and simultaneously
agrees to resell it to the vendor at a price that results in an agreed-upon
market rate of return which is effective for the period of time (which is
normally one to seven days, but may be longer) the buyer's money is invested in
the security. The arrangement results in a fixed rate of return that is not
subject to market fluctuations during the holding period. A Fund requires
continued maintenance of collateral with its custodian in an amount at least
equal to the repurchase price (including accrued interest). In the event a
vendor defaults on its repurchase obligation, a Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor becomes the subject of bankruptcy proceedings,
a Fund might be delayed in selling the collateral. Each Fund's investment
adviser will review and continually monitor the creditworthiness of each
institution with which a Fund enters into a repurchase agreement to evaluate
these risks.
Reverse Repurchase Agreements. Each Fund may borrow money by entering into a
"reverse repurchase agreement" by which it agrees to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed upon date and price, for temporary or emergency
purposes. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, U.S. Government securities
or liquid high grade debt obligations having a value at least equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price of those securities.
When-Issued Securities. Each Fund may purchase securities on a when-issued
basis. In the event securities are purchased on a "when-issued" basis (i.e.,
for delivery beyond the normal settlement date at a stated price and yield), a
Fund generally would not pay for such securities or start earning interest on
them until they are received. However, when a Fund purchases securities on a
when-issued basis, it assumes the risks of ownership at the time of purchase,
not at the time of receipt. Failure of the issuer to deliver a security
purchased on a when-issued basis may result in the Fund incurring a loss or
missing an opportunity to make an alternative investment. Commitments to
purchase when-issued securities will not exceed 25% of a Fund's total assets. A
Fund will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. No Fund will
purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objectives. Evergreen VA Strategic Income Fund
currently does not intend to invest more than 5% of its total assets in
when-issued transactions.
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Securities of Other Investment Companies. Each Fund may invest in the
securities of other open-end investment companies that have investment
objectives and policies similar to its own or which are, in the opinion of each
Fund's investment adviser, suitable short-term investment vehicles. Each Fund's
investment adviser will waive its investment advisory fee on assets invested by
a Fund in securities of other open-end investment companies. Any investment by
a Fund in the securities of other investment companies will be subject to the
limitations on such investments contained in the Investment Company Act of
1940, as amended ("1940 Act").
American and European Depositary Receipts. Both Evergreen VA Foundation Fund
and Evergreen Growth and Income Fund may purchase foreign securities in the
form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), Global Depositary Receipts ("GDRs") or other securities convertible
into securities of corporations in which the Funds are permitted to invest
pursuant to their respective investment objectives and policies. These
securities may not necessarily be denominated in the same currency into which
they may be converted. ADRs are receipts typically issued by a United States
bank or trust company which evidence ownership of underlying securities issued
by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs,
in registered form, are designed for use in United States securities markets
and EDRs, in bearer form, are designed for use in European securities markets.
Forward Commitments. Each Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount sufficient
to meet the purchase price, or if it enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. Where
such purchases are made through dealers, the Fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to
the Fund of an advantageous yield or price.
Hedging Techniques
In addition to making investments directly in securities, the Funds may
write covered put and call options and hedge their investments by purchasing
options and engaging in transactions in futures contracts and related options.
The investment adviser to the Evergreen VA Fund, Evergreen VA Growth and Income
Fund and Evergreen VA Foundation Fund does not currently intend to write
covered put options, purchase options or engage in transactions in futures
contracts and related options, but may do so in the future. The Funds may
engage in foreign currency exchange transactions to protect against changes in
future exchange rates.
Writing Options. Each Fund may write covered call and put options on certain
portfolio securities in an attempt to earn income and realize a higher return
on their portfolios. A call option gives the purchaser of the option the right
to buy a security from the writer at the exercise price at any time during the
option period. An option may not be written if, afterwards, securities
comprising more than 5% of the market value of a Fund's equity securities would
be subject to call options. A Fund realizes income from the premium paid to it
in exchange for writing the call option. Once it has written a call option on a
portfolio security and until the expiration of such option, a Fund forgoes the
opportunity to profit from increases in the market price of such security in
excess of the exercise price of the call option. Should the price of the
security on which a call has been written decline, a Fund bears the risk of
loss, which would be offset to the extent the Fund has received premium income.
A Fund will only write "covered" options traded on recognized securities
exchanges. An option will be deemed covered when a Fund either owns the
security (or securities convertible into such security) on which the option has
been written in an amount sufficient to satisfy the obligations arising under a
call option; or (ii) in the case of call and put options, the Fund's custodian
maintains cash or high-grade liquid debt securities belonging to the Fund in an
amount not less that the amount needed to satisfy the Fund's obligations with
respect to options written on securities it does not own. A "closing purchase
transaction" may be entered into with respect to a call option written by a
Fund for the purpose of closing its position. The Fund will realize a profit
(or loss) from such transaction if the cost of such transaction is less (or
more) than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
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<PAGE>
Purchasing Put and Call Options on Securities. Each Fund may purchase put
options to protect its portfolio holdings in an underlying security against a
decline in market value. This protection is provided during the life of the put
option since the Fund, as holder of the put, is able to sell the underlying
security at the exercise price regardless of any decline in the underlying
security's market price. For the purchase of a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, any profit which the Fund might otherwise have realized on the
underlying security will be reduced by the premium paid for the put option and
by transaction costs.
A Fund may also purchase a call option to hedge against an increase in
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund might
have realized had it bought the underlying security at the time it purchased
the call option will be reduced by the premium paid for the call option and by
transaction costs.
Futures, Options and Other Derivative Instruments. In addition to writing
covered call and put options, a Fund may purchase and sell various financial
instruments ("Derivative Instruments") such as financial futures contracts
(including interest rate, index and foreign currency futures contracts),
options (such as options on securities, indices, foreign currencies and futures
contracts), forward currency contracts and interest rate, equity index and
currency swaps, caps, collars and floors. The index Derivative Instruments the
Fund may use may be based on indices of U.S. or foreign equity or debt
securities. These Derivative Instruments may be used, for example, to preserve
a return or spread, to lock in unrealized market value gains or losses, to
facilitate or substitute for the sale or purchase of securities, to manage the
duration of securities, to alter the exposure of a particular investment or
portion of the Fund's portfolio to fluctuations in interest rates or currency
rates, to uncap a capped security or to convert a fixed rate security into a
variable rate security or a variable rate security into a fixed rate security.
A Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. See the Statement of Additional Information for more
information regarding these instruments and the risks relating thereto.
Risks of Derivative Instruments. The use of Derivative Instruments, including
written put and call options, involves special risks, including: (1) the lack
of, or imperfect, correlation between price movements of the Fund's current or
proposed portfolio investments that are the subject of the transactions as well
as price movements of the Derivative Instruments involved in the transaction;
(2) possible lack of a liquid secondary market for any particular Derivative
Instrument at a particular time; (3) the need for additional portfolio
management skills and techniques; (4) losses due to unanticipated market price
movements; (5) the fact that, while such strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in portfolio investments; (6) incorrect
forecasts by a Fund's investment adviser concerning interest or currency
exchange rates or direction of price fluctuations of the investment that is the
subject of the transaction, which may result in the strategy being ineffective;
(7) loss of premiums paid by the Fund on options it purchases; and (8) the
possible inability of the Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the need to sell
a portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such
transactions and the possible inability of the Fund to close out or liquidate
its positions.
A Fund's investment adviser may use Derivative Instruments, including
written put and call options, for hedging purposes (i.e. by paying a premium or
foregoing the opportunity for profit in return for protection against downturns
in markets generally or the prices of individual securities or currencies) and
also may use Derivative Instruments to try to enhance the return
characteristics of a Fund's portfolio of investments (i.e. by receiving
premiums in connection with the writing of options and thereby accepting the
risk of downturns in markets generally or the prices of individual securities
or currencies or by paying premiums with the hope that the underlying
Derivative Instruments will appreciate). The use of Derivative Instruments for
hedging purposes or to enhance a Fund's return characteristics can increase
investment risk. If a Fund's investment adviser judges market conditions
incorrectly or employs
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a strategy that does not correlate well with the Fund's investments, these
techniques could result in a loss, regardless of whether the intent was to
reduce risk or increase return. These techniques may increase the volatility of
a Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed, resulting in leverage. In addition, these techniques could
result in a loss if the counterparty to the transaction does not perform as
promised or if there is not a liquid secondary market to close out a position
that the Fund has entered into. Options and futures transactions may increase
portfolio turnover rates, which would result in greater commission expenses and
transaction costs.
Foreign Currency Transactions. The Funds may enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts ("forward contracts"). A Fund may also enter into forward foreign
currency exchange contracts to protect Fund assets denominated in a foreign
currency against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. The use of
forward contracts for hedging purposes may limit any potential gain that might
result from a relative increase in the value of such currencies and might, in
certain cases, result in losses to the Fund.
Forward Foreign Currency Exchange Contracts. A forward contract is an
obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties. Generally, no commission
charges or deposits are involved. At the time a Fund enters into a forward
contract, Fund assets with a value equal to the Fund's obligation under the
forward contract are segregated and are maintained until the contract has been
settled. The Funds will not enter into a forward contract with a term of more
than one year. In addition to forward contracts entered into for hedging
purposes, the Funds will generally enter into a forward contract to provide the
proper currency to settle a securities transaction at the time the transaction
occurs ("trade date"). The period between trade date and settlement date will
vary between 24 hours and 60 days, depending upon local custom.
As described above, a Fund may enter into forward contracts in primarily
two circumstances. First, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transaction, the Fund will
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when a Fund's investment adviser believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars,
the amount of foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. The precise
matching of the forward contract amount and the value of such securities
denominated in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The Funds do not intend to
enter into such forward contracts under this second circumstance on a regular
or continuous basis.
In the second circumstance, a Fund's custodian will segregate cash or
liquid high-grade debt securities belonging to the Fund in an amount not less
than the value of the assets committed to forward foreign currency contracts
entered into under such transactions. If the value of the securities segregated
declines, additional cash or debt securities will be added on a daily basis
(i.e. marked to market) so that the segregated amount will not be less than the
amount of the Fund's commitments with respect to such contracts.
Hedging/Cross Hedging. A cross hedge is accomplished by entering into a forward
contract or other arrangement with respect to one foreign currency for the
purpose of hedging against a possible decline in the value of another foreign
currency in which certain of the Fund's portfolio instruments are denominated.
The Funds' investment advisers may cause a Fund to enter into a cross hedge,
rather than hedge directly, in instances where (i) the rates for forward
contracts, options, futures contract or options on futures contracts relating
to the currency in which the cross hedge is effected are more favorable than
rates for similar instruments denominated in the currency that is to be hedged,
and (ii) there is a high degree of correlation between the two currencies with
respect to their movement against the U.S. dollar. Cross hedges may be effected
using the various hedging instruments described below. A
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cross hedge cannot protect against exchange rate risks perfectly, and if a
Fund's investment adviser is incorrect in its judgment of future exchange rate
relationships, the Fund could be in a less advantageous position than if such a
hedge had not been established.
SPECIAL RISK CONSIDERATIONS
Fixed Income Investments. Investments by the Funds in fixed income securities
are subject to a number of risks. For example, changes in economic conditions
could result in the weakening of the capacity of the issuers of such securities
to make principal and interest payments, particularly in the case of issuers of
non-investment grade fixed income securities. In addition, the market value of
fixed-income securities in a Fund's portfolio can be expected to vary inversely
to changes in prevailing interest rates. In the event there is a downgrading in
the rating of a fixed income security held in a Fund's portfolio, the Fund may
continue to hold the security if such action is deemed to be in the best
interests of the Fund and its shareholders.
Investment in Small Companies. Evergreen VA Fund, Evergreen VA Growth and
Income Fund and Evergreen VA Foundation Fund may invest from time to time in
securities of little-known, relatively small and special situation companies.
Investments in such companies tend to be speculative and volatile. A lack of
management depth in such companies could increase the risks associated with the
loss of key personnel. Also, the material and financial resources of such
companies may be limited, with the consequence that funds or external financing
necessary for growth may be unavailable. Such companies may also be involved in
the development or marketing of new products or services for which there are no
established markets. If projected markets do not materialize or only regional
markets develop, such companies may be adversely affected or be subject to the
consequences of local events. Moreover, such companies may be insignificant
factors in their industries and may become subject to intense competition from
larger companies. Securities of small and special situation companies in which
the Funds invest will frequently be traded only in the over-the-counter market
or on regional stock exchanges and will often be closely held. Securities of
this type may have limited liquidity and be subject to wide price fluctuations.
As a result of the risk factors described above, the net asset value of each
Fund's shares can be expected to vary significantly.
Investment in Foreign Securities. Investing in non-U.S. securities involves
additional risks not normally associated with domestic investments. In an
attempt to reduce some of these risks, each Fund except Evergreen VA Fund may
diversify its investments broadly among foreign countries which may include
both developed and developing countries.
Foreign securities are denominated or traded in foreign currencies.
Therefore, the value in U.S. dollars of a Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Funds value
their assets daily in U.S. dollars, they will not convert their holdings of
foreign currencies to U.S. dollars daily. When a Fund converts its holdings to
another currency, it may incur conversion costs. Foreign exchange dealers
realize a profit on the difference between the prices at which such dealers buy
and sell currencies.
To the extent that securities purchased by the Funds are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Funds' net asset values; the value of interest earned;
gains and losses realized on the sale of securities; and net investment income
and capital gains, if any, to be distributed to shareholders by a Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of a
Fund's assets denominated in that currency will increase; correspondingly, if
the value of a foreign currency declines against the U.S. dollar, the value of
a Fund's assets denominated in that currency will decrease. The performance of
the Funds will be measured in U.S. dollars, the base currency for the Funds.
Securities markets of foreign countries in which the Fund may invest are
generally not subject to the same degree of regulation as the U.S. markets and
may be more volatile and less liquid than the major U.S. markets. The
differences between investing in foreign and U.S. companies include: (1) less
publicly available information about foreign companies; (2) the lack of uniform
financial accounting standards and practices among countries which could impair
the validity of direct comparisons of valuations measures (such as
price/earnings ratios) for securities in different countries; (3) less readily
available market quotations on foreign companies; (4) differences in government
regulation and supervision of foreign stock exchanges, brokers, listed
companies, and banks; (5) differences in legal systems which may affect the
ability to enforce contractual obligations or obtain court judgments; (6)
generally lower foreign stock market volume; (7) the likelihood that foreign
securities may be less liquid or more volatile, which may affect the Fund's
ability to purchase or sell large blocks of securities and thus obtain the best
price;
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(8) transactions costs, including brokerage charges and custodian charges
associated with holding foreign securities, may be higher; (9) the settlement
period for foreign securities, which are sometimes longer than those for
securities of U.S. issuers, may affect portfolio liquidity. These different
settlement practices may cause missed purchasing opportunities and/or loss of
interest on money market and debt investments; (10) foreign securities held by
a Fund may be traded on days that the Fund does not value its portfolio
securities, such as Saturdays and customary business holidays and, accordingly,
the Fund's net asset value may be significantly affected on days when
shareholders do not have access to the Fund; and (11) political and social
instability, expropriation, and political or financial changes which adversely
affect investment in some countries.
Investments Related to Real Estate. The Funds may invest without limit in
investments related to real estate, including real estate investment trusts
("REITS"). Risks associated with investment in securities of companies in the
real estate industry include: declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates. In addition, equity real estate investment trusts
may be affected by changes in the value of the underlying property owned by the
trusts, while mortgage real estate investment trusts may be affected by the
quality of credit extended. Equity and mortgage real estate investment trusts
are dependent upon management skills, may not be diversified and are subject to
the risks of financing projects. Such trusts are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code") and to maintain exemption from
the Investment Company Act of 1940, as amended (the "1940 Act"). In the event
an issuer of debt securities collateralized by real estate defaulted, it is
conceivable that a Fund could end up holding the underlying real estate.
Lower-Rated Securities. Evergreen VA Growth and Income Fund may invest a
portion of their assets in securities rated below Baa by Moody's or BBB by S&P
(commonly known as "junk bonds").
Lower-rated and comparable unrated securities (collectively referred to in
this section as "lower-rated securities") will likely have some quality and
protective characteristics that, in the judgment of the rating organization,
are out-weighed by large uncertainties or major risk exposures to adverse
conditions; and are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
the obligation.
While the market values of lower-rated securities tend to react less to
fluctuations in interest rate levels than the market values of higher rated
securities, the market values of certain lower-rated securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower-rated securities
generally present a higher degree of credit risk. Issuers of lower- rated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because lower-rated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. A
Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings. The existence of limited markets for lower-rated securities
may diminish a Fund's ability to obtain accurate market quotations for purposes
of valuing such securities and calculating its net asset value. For additional
information about the possible risks of investing in junk bonds, see
"Investment Objectives and Policies -- Junk Bonds" in the Statement of
Additional Information.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISERS
The management of each Fund is supervised by the Trustees of the Trust.
Evergreen Asset has been retained by the Trust to serve as investment adviser
to Evergreen VA Fund, Evergreen VA Growth and Income Fund and Evergreen VA
Foundation Fund. Evergreen Asset, with its predecessors, has served as
investment adviser to the Evergreen mutual funds since 1971. Evergreen Asset is
a wholly-owned subsidiary of First Union
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National Bank ("FUNB"), a subsidiary of First Union Corporation ("First
Union"). The address of Evergreen Asset is 2500 Westchester Avenue, Purchase,
New York 10577. FUNB is a subsidiary of First Union Corporation ("First
Union"), the sixth largest bank holding company in the United States. Lieber &
Company, as described below, provides certain subadvisory services to Evergreen
Asset in connection with its duties as investment adviser to the Funds.
First Union is headquartered in Charlotte, North Carolina, and had
approximately $140 billion in consolidated assets as of December 31, 1997.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States. CMG manages or
otherwise oversees the investment of over $45 billion in assets belonging to a
wide range of clients, including many of the Evergreen mutual funds.
Evergreen Asset manages each Fund's investments, provides various
administrative services, and supervises each Fund's daily business affairs,
subject to the authority of the Trustees. Evergreen Asset, as investment
adviser to Evergreen VA Fund and Evergreen VA Growth and Income Fund is
entitled to receive from such Funds an annual fee equal to .95 of 1% of average
daily net assets thereof. For the most recent fiscal year Evergreen VA Fund and
Evergreen VA Growth and Income Fund paid .65% and .73% of their average daily
net assets to Evergreen Asset. As compensation for its services as investment
adviser to Evergreen VA Foundation Fund, Evergreen Asset is entitled to receive
an annual fee equal to .825 of 1% of average daily net assets of such Fund. For
the most recent fiscal year, Evergreen VA Foundation Fund paid .735% of its
average daily net assets to Evergreen Asset. These fees are higher than the
rates paid by most other investment companies, but are not higher than the fees
paid by many funds with similar investment objectives.
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") also serves as administrator
to each Fund and is entitled to receive a fee based on the average daily net
assets of the Fund at a rate based on the total assets of the mutual funds
administered by EIS for which Evergreen Asset serves as investment adviser,
calculated in accordance with the following schedule: .050% of the first $7
billion; .035% on the next $3 billion; .030% on the next $5 billion; .020% on
the next $10 billion; .015% on the next $5 billion; and .010% on assets in
excess of $30 billion.
PORTFOLIO MANAGERS
The portfolio manager for Evergreen VA Fund and Evergreen VA Foundation
Fund is Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of
Evergreen Asset and has been associated with Evergreen Asset and its
predecessor since 1969. Mr. Lieber has served as the portfolio manager of
Evergreen Foundation Fund since its inception in 1990 and as the portfolio
manager of Evergreen Fund since its inception in 1970. The portfolio managers
for Evergreen VA Growth and Income Fund are Stephen A. Lieber (described above)
and Gary R. Buesser. Mr. Buesser joined Lieber & Company in 1996 as an analyst.
Previously, he was a portfolio manager/ analyst with Cowen Asset Management
and Shearson Lehman Brothers.
SUB-ADVISER
Evergreen Asset has entered into a sub-advisory agreement with Lieber &
Company with respect to the Funds which provides that Lieber & Company's
research department and staff will furnish Evergreen Asset with information,
investment recommendations, advice and assistance, and will be generally
available for consultation on each Fund's portfolio. Lieber & Company will be
reimbursed by Evergreen Asset in connection with the rendering of services on
the basis of the direct and indirect costs of performing such services. There
is no additional charge to the Funds for the services provided by Lieber &
Company. It is contemplated that Lieber & Company will, to the extent
practicable, effect substantially all of the portfolio transactions for these
Funds on the New York and American Stock Exchanges. The address of Lieber &
Company is 2500 Westchester Avenue, Purchase, New York 10577. Lieber & Company
is an indirect, wholly-owned, subsidiary of First Union.
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SALE AND REDEMPTION OF SHARES
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PARTICIPATING INSURANCE COMPANIES
The Funds were organized to serve as investment vehicles for separate
accounts funding variable annuity ("VA") and variable life insurance ("VLI")
contracts issued by certain life insurance companies ("Participating Insurance
Companies"). The Trust does not currently foresee any disadvantages to the
holders of VA and VLI contracts arising from the fact that the interests of
holders of VA and VLI contracts may differ due to the difference of tax
treatment and other considerations.
Nevertheless, the Trustees have established procedures for the purpose of
identifying any irreconcilable material conflicts that may arise and to
determine what action, if any, would be taken in response thereto. The VA and
VLI contracts are described in the separate prospectuses issued by the
Participating Insurance Companies. The Trust assumes no responsibility for such
prospectuses.
PURCHASES
Shares of each Fund are sold at net asset value to the separate accounts
of Participating Insurance Companies. All investments in the Trust are credited
to the shareholder's account in the form of full or fractional shares of the
designated Fund (rounded to the nearest 1/1000 of a share). The Trust does not
issue share certificates. Initial and subsequent purchase payments allocated to
a specific Fund are subject to the limits described in the separate
prospectuses issued by the Participating Insurance Companies or in pension and
retirement plan documents.
How the Funds Value Their Shares. The net asset value of shares of a Fund is
calculated by dividing the value of the amount of the Fund's net assets by the
number of outstanding shares. Shares are valued each day the New York Stock
Exchange (the "Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in a Fund are valued at their current
market value determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the Trustees
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading markets.
REDEMPTIONS
The separate accounts of Participating Insurance Companies redeem shares
to make benefit or surrender payments under the terms of the VA or VLI
contract. Redemptions are processed on any day on which the Trust is open for
business and are effected at net asset value next determined after the
redemption order, in proper form, is received by the Trust or its agent. The
net asset value per share of each Fund is determined once daily, as of 4:00
p.m. Eastern time on each business day the Exchange is open and on such other
days as the Trustees determine, and on any other day during which there is a
sufficient degree of trading in a Fund's portfolio securities that the net
asset value of the Fund is materially affected by changes in the value of
portfolio securities.
The Trust may suspend the right of redemption only under the following
unusual circumstances: (1) when the Exchange is closed (other than weekends and
holidays) or trading is restricted; (2) when an emergency exists, making
disposal of portfolio securities or the valuation of net assets not reasonably
practicable; or (3) during any period when the Securities and Exchange
Commission ("SEC") has by order permitted a suspension of redemptions for the
protection of shareholders.
DIVIDENDS
All dividends payable by a Fund are distributed at least annually to the
separate accounts of Participating Insurance Companies and will be
automatically reinvested in additional shares of such Fund. Dividends and other
distributions made by the Funds to such separate accounts are taxable, if at
all, to the Participating Insurance Companies; they are not currently taxable
to the VA or VLI owners.
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TAX STATUS
Each Fund is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Funds. It is the intention of each
Fund to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and meet all other
requirements necessary for it to be relieved of federal income taxes on that
part of its net investment income and net capital gains distributed to its
shareholders. Each Fund intends to distribute all of its net investment income
and net capital gains to its shareholders.
For a discussion of the tax consequences of VA or VLI contracts, refer to
the prospectus of the VA or VLI contract offered by the Participating Insurance
Company. VA or VLI contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest, dividends,
and capital appreciation without current federal income tax liability to the
owner. Depending on the VA or VLI contract, distributions from the contract may
be subject to ordinary income tax and, in addition, a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution
attributable to income on the investment in the contract is subject to Federal
income tax. Investors should consult with competent tax advisers for a more
complete discussion of possible tax consequences in a particular situation.
Section 817(h) of the Code provides that investments of a separate account
underlying a VA or VLI contract (or the investments of a mutual fund, the
shares of which are owned by the VA or VLI separate account) must be
"adequately diversified" in order for the VA or VLI contract to be treated as
an annuity for tax purposes. The Treasury Department has issued regulations
prescribing these diversification requirements. Each Fund intends to comply
with these requirements. If a separate account underlying a VA or VLI contract
were not adequately diversified, the owner of such VA or VLI contract would be
immediately subject to tax on the earnings allocable to the contract.
Additional information about the tax status of the Funds is provided in the
Statement of Additional Information.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of their customer. Since it
is a subsidiary of FUNB and CMG, Evergreen Asset is subject to and in
compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in Evergreen Asset being prevented from
continuing to perform the services required under the investment advisory
contract or from acting as agents in connection with the purchase of shares of
a Fund by their customers. If Evergreen Asset were prevented from continuing to
provide the services called for under the investment advisory agreement, it is
expected that the Trustees would identify, and call upon each Fund's
shareholders to approve a new investment adviser. If this were to occur, it is
not anticipated that the shareholders of any Fund would suffer any adverse
financial consequences.
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GENERAL INFORMATION
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CUSTODIAN, AND TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02109 (the "Custodian") acts as custodian of the assets of the
Trust. Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts
02116 acts as the transfer agent and dividend disbursing agent for the Trust
and in doing so performs certain bookkeeping, data processing and
administrative services for the Trust and each Fund.
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EXPENSES OF THE TRUST
Each Fund bears all expenses of its operations other than those incurred
by Evergreen Asset under its Advisory Agreement, and EIS under its
Administration Agreement with the Trust. In particular, the Funds pay
investment advisory fees, administrative fees, custodian fees and expenses,
legal, accounting and auditing fees, brokerage fees, interest and taxes,
registration fees and expenses, expenses of the transfer and dividend
disbursing agent, the compensation and expenses of Trustees who are not
otherwise affiliated with the Trust, Evergreen Asset or any of its affiliates,
expenses of printing and mailing reports and notices and proxy material to
beneficial shareholders of the Trust, and any extraordinary expenses. Expenses
incurred jointly by the Funds are allocated among the Funds in a manner
determined by the Trustees to be fair and equitable. The organizational
expenses of each of the Funds have been capitalized and will be amortized
during the first five years of the Funds' operations. Such amortization will
reduce the amount of income available for payment as dividends.
SHAREHOLDER RIGHTS
The Trust is a Delaware business trust organized on December 23, 1997, and
was originally organized as a Massachusetts business trust in 1996. Pursuant to
current interpretations of the 1940 Act, each Participating Insurance Company
will solicit voting instructions from VA or VLI contract owners with respect to
any matters that are presented to a vote of shareholders. On any matter
submitted to a vote of shareholders, all the shares of the Trust then issued
and outstanding and entitled to vote shall be voted in the aggregate and not by
Fund except for matters concerning only a specific Fund. Certain matters
approved by a vote of shareholders of one Fund of the Trust may not be binding
on a Fund whose shareholders have not approved such matters. The holder of each
share of the Trust shall be entitled to one vote for each full share and a
fractional vote for each fractional share. Shares of one Fund may not bear the
same economic relationship to the Trust as shares of another Fund.
The Trust is not required to hold annual meetings of shareholders and does
not plan to do so. The Trustees may call special meetings of shareholders for
action by shareholder vote as may be required by the 1940 Act or the Trust's
Declaration of Trust. The Trustees will be a self-perpetuating body until fewer
than 50% of the Trustees, then serving as Trustees, are Trustees who were
elected by shareholders. At that time a meeting of shareholders will be called
to elect additional Trustees.
The Declaration of Trust may be amended by a vote of the Trustees;
provided, if any such amendment materially adversely affects the rights of any
shares of any series or any class with respect to matters to which such
amendment is applicable, such amendment shall be subject to approval by holders
of a majority of the outstanding voting securities, as that term is defined in
the 1940 Act, of such series or class. Shares have no pre-emptive or conversion
rights and are fully paid and nonassessable. When a majority is required, it
means the lesser of 67% or more of the shares present at a meeting when the
holders of more than 50% of the outstanding shares are present or represented
by proxy, or more than 50% of the outstanding shares.
DESCRIPTION OF SHARES
The Declaration of Trust permits the Trustees to establish and designate
series or classes in addition to the Funds. Each share of any series or class
represents an equal proportionate share in the net assets of that series or
class with each other share of that series or class. The Trustees may divide or
combine the shares of any series or class into a greater or lesser number of
shares of that series or class without thereby changing the proportionate
interests in the assets of that series or class. Upon liquidation of a
particular series or class, the shareholders of that series or class shall be
entitled to share pro rata in the net assets of such series or class available
for distribution to shareholders.
Any inquiries regarding the Trust should be directed to the Trust at the
telephone number or address shown on the cover page of this Prospectus. All
inquiries regarding the VA or VLI contracts should be directed to the
Participating Insurance Company, as indicated in the VA or VLI prospectus
accompanying this Prospectus.
PERFORMANCE
From time to time, the Trust may advertise the "average annual or
cumulative total return" of the Funds and may compare the performance of the
Funds with that of other mutual funds with similar investment objectives as
listed in rankings prepared by Lipper Analytical Services, Inc., or similar
independent services monitoring mutual fund performance, and with appropriate
securities or other relevant indices. The "average annual total return" of a
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Fund refers to the average annual compounded rate of return over the stated
period that would equate an initial investment in that Fund at the beginning of
the period to its ending redeemable value, assuming reinvestment of all
dividends and distributions and deduction of all recurring charges. Figures
will be given for the recent one, five and ten year periods and for the life of
the Fund if it has not been in existence for such periods. When considering
"average annual total return" figures for periods longer than one year it is
important to note that a Fund's annual total return for any given year might
have been greater or less than its average for the entire period. "Cumulative
total return" represents the total change in value of an investment in a Fund
for a specified period (again reflecting changes in a Fund's share price and
assuming reinvestment of Fund distributions).
The performance of each Fund will vary from time to time in response to
fluctuations in market conditions, interest rates, the composition of the
Fund's investments and expenses. Consequently, a Fund's performance figures are
historical and should not be considered representative of the performance of
the Fund for any future period.
The calculations of total return assume the reinvestment of all dividends
and capital gains distributions on the reinvestment dates during the period and
the deduction of all recurring expenses that were charged to shareholders
accounts. The above tables do not reflect charges and deductions which are, or
may be, imposed at the separate account level, under the VA or VLI contracts.
Such charges and deductions would result in performance lower than that shown
above.
GENERAL
Independent Auditors. KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, serves as the independent public accountants of the Trust.
Legal Counsel. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036, acts as counsel for the Trust.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment advisers and the
Funds' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Funds' investment advisers are
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use and to obtain assurances that comparable steps are being
taken by the Funds' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
Additional Information. This Prospectus and the SAI, which has been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Trust with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
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Investment Adviser
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Custodian
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts 02116-5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C. 20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
