Registration No. 33-83100
811-8716
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 2 /x/
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 5 /x/
(Check appropriate box or boxes)
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THE EVERGREEN VARIABLE TRUST
(Exact name of registrant as specified in charter)
2500 Westchester Avenue
Purchase, N.Y. 10577
(Address of Principal Executive Offices)
(Registrant's Telephone Number, Including Area Code (914) 694-2020)
James P. Wallin, Esq.
Evergreen Asset Management Corp.
2500 Westchester Avenue, Purchase, N.Y. 10577
(Name and address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / Immediately upon filing pursuant to paragraph (b) or
/ / on (date) pursuant to paragraph (b) or
/ / 60 days after filing pursuant to paragraph (a)(i) or
/ / on(date) pursuant to paragraph (a)(i) or
/X/ 75 days after filing pursuant to paragraph (a)(ii) or
/ / on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
Registrant has registered an indefinite number of shares under the Securities
Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:
/ / filed a Notice required by that Rule on or about (date); or
/X/ intends to file the Notice required by that Rule on or about
February 28, 1997; or
/ / during the most recent fiscal year did not sell any securities pursuant to
Rule 24b-2 under the Investment Company Act of 1940, and pursuant
to Rule 24f-2(b)(2), need not file the Notice.
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CROSS REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
Part A Location in Prospectus
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Item 1. Cover Page Cover Page
Item 2. Synopsis and Fee Table Overview of the Funds
Item 3. Condensed Financial Information Not Applicable
Item 4. General Description of Registrant Cover Page; Description of
the Funds; General
Information
Item 5. Management of the Fund Management of the Funds;
General Information
Item 5A. Management's Discussion Not Applicable
Item 6. Capital Stock and Other Securities Dividends, Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being Offered Purchase and Redemption of
Shares; Participating
Insurance Companies
Item 8. Redemption or Repurchase Purchase and Redemption of
Shares; Participating
Insurance Companies
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of Part B
Additional Information
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Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not Applicable
Item 13. Investment Objectives and Policies Investment Objectives and
Policies; Investment
Restrictions
Item 14. Management of the Fund Management
Item 15. Control Persons and Principal Management
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Advisers;
Additional Purchase and
Redemption Information
Item 17. Brokerage Allocation Allocation of Brokerage
Item 18. Capital Stock and Other Securities Additional Purchase and
Redemption Information
Item 19. Purchase, Redemption and Pricing of Additional Purchase and
Securities Being Offered Redemption Information;
Net Asset Value
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Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Additional Purchase and
Redemption Information;
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
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PROSPECTUS March 3, 1997
EVERGREEN VARIABLE TRUST (Evergreen Tree Logo Appears Here)
EVERGREEN VA FUND
EVERGREEN VA GROWTH AND INCOME FUND
EVERGREEN VA FOUNDATION FUND
EVERGREEN VA GLOBAL LEADERS FUND
EVERGREEN VA STRATEGIC INCOME FUND
EVERGREEN VA SMALL COMPANY GROWTH FUND
The Evergreen Variable 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 three investment series (the
"Funds"). The Trust is an open-end management investment company. This
Prospectus sets forth concise information about the Trust and the Funds that a
prospective investor should know before investing. Shares of the Funds are only
sold to (a) separate accounts funding variable annuity and variable life
insurance contracts issued by life insurance companies; and (b) qualified
pension and retirement plans. The address of the Trust is 2500 Westchester
Avenue, Purchase, New York 10577.
A "Statement of Additional Information" for the Trust dated March 3, 1997
has been filed with the Securities and Exchange Commission and is incorporated
by reference herein.
The Statement of Additional Information 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
TABLE OF CONTENTS
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OVERVIEW OF THE FUNDS
FINANCIAL HIGHLIGHTS
DESCRIPTION OF THE FUNDS
Investment Objectives And Policies
Investment Practices and Restrictions
MANAGEMENT OF THE FUNDS
Investment Advisers
Sub-Adviser
SALE AND REDEMPTION OF SHARES
Participating Insurance Companies
Purchases
Redemptions
Dividends
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Tax Status
Effect of Banking Laws
GENERAL INFORMATION
Custodian, and Transfer and Dividend Paying
Agent
Expenses of the Trust
Shareholder Rights
Description of Shares
Performance
General
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OVERVIEW OF THE FUNDS
The following summary is qualified in its entirety by the more detailed
information contained elsewhere in this Prospectus. See "Description of the
Funds" and "Management of the Funds".
The investment adviser to the EVERGREEN VA FUND, EVERGREEN VA FOUNDATION
FUND, EVERGREEN VA GROWTH AND INCOME FUND and EVERGREEN VA GLOBAL LEADERS FUND
is Evergreen Asset Management Corp. ("Evergreen Asset") which, with its
predecessors, has served as investment adviser to the Evergreen group of mutual
funds since 1971. Evergreen Asset is a wholly-owned subsidiary of First Union
National Bank of North Carolina ("FUNB"), which in turn is a subsidiary of First
Union Corporation, the sixth largest bank holding company in the United States.
Lieber & Company, which is also a wholly-owned subsidiary of FUNB, furnishes
Evergreen Asset with information, investment recommendations, advice and
assistance to augment its investment advisory services. The investment adviser
to the EVERGREEN VA STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH
FUND is Keystone Investment Management Company ("Keystone") which, along with
its predecessors, has provided investment advisory and management services since
1932. Keystone is a wholly-owned subsidiary of FUNB.
EVERGREEN VA FUND seeks to achieve capital appreciation by investing in the
securities of little-known or relatively small companies, or companies
undergoing changes which the Fund's investment adviser believes will have
favorable consequences. Income will not be a factor in the selection of
portfolio investments.
EVERGREEN VA GROWTH AND INCOME FUND seeks to achieve a return composed of
capital appreciation in the value of its shares and current income. The Fund
will attempt to meet its 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.
EVERGREEN VA FOUNDATION FUND seeks, in order of priority, reasonable
income, conservation of capital and capital appreciation. The Fund invests
principally in income-producing common and preferred stocks, securities
convertible into or exchangeable for common stocks and fixed income securities.
EVERGREEN VA GLOBAL LEADERS FUND seeks to achieve capital appreciation by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
The Fund's investment adviser will attempt to screen the largest companies in
the world's major industrialized countries and cause the Fund to invest, in the
opinion of the Fund's investment adviser, in the 100 best based on certain
qualitative and quantitative criteria.
EVERGREEN VA STRATEGIC INCOME FUND seeks high current income from interest
on debt securities and, secondarily, considers potential for growth of capital
in selecting securities.
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EVERGREEN VA SMALL COMPANY GROWTH FUND seeks to provide long-term growth of
capital through investments in equity securities of companies with market
capitalizations of less than $1 billion.
FINANCIAL HIGHLIGHTS
[FINANCIAL HIGHLIGHTS TO BE ADDED BY AMENDMENT]
The offering of shares of the EVERGREEN VA GLOBAL LEADERS FUND, EVERGREEN
VA STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH FUND is expected
to commence on or about the date of this Prospectus. Accordingly, no comparable
data is available for shares of these Funds.
DESCRIPTION OF THE FUNDS
INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective is fundamental and cannot be changed
without shareholder approval. 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
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.
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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 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 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 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
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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 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.
EVERGREEN VA GLOBAL LEADERS FUND
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The investment objective of the EVERGREEN VA GLOBAL LEADERS FUND is to
provide long-term capital growth. It will attempt to achieve its objective by
investing primarily in a diversified portfolio of U.S. and non-U.S. equity
securities of companies located in the world's major industrialized countries.
There can be no assurance that the Fund will be able to achieve its investment
objective. Under normal conditions at least 65% of the Fund's total assets will
consist of global equity securities. The Fund will make investments in no less
than three countries, which may include the United States. In addition to the
United States, the countries in which the Fund may invest include, but are not
limited to, Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway,
Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.
Evergreen Asset, the Fund's investment adviser, will attempt to screen the
largest companies in these and other major industrialized countries and cause
the Fund to invest, in the opinion of the Fund's investment adviser, in the 100
best based on certain qualitative and quantitative criteria. Such companies may
include those with the highest return on equity and consistent earnings growth.
They may also include companies with an established market presence, or which
operate in industries or sectors that have, in the opinion of the Fund's
investment adviser, significant growth prospects. The criteria will be reviewed
and evaluated on an ongoing basis by the Fund's investment adviser.
In determining what constitutes a major industrialized country, the Fund's
investment adviser will look to classifications set forth in the Morgan Stanley
Capital International ("MSCI") Index and the various reports on this subject
disseminated by the World Bank. The Fund's investment adviser will utilize a
series of weighing techniques to insure adequate diversification by country and
industry and attempt to identify the largest companies in each market, primarily
by reference to the market capitalizations published in the MSCI Index.
Although, as stated above, the Fund expects that investments will be made
in no less than three countries including the United States, the Fund may invest
more than 25% of its total assets in one country. To the extent that the Fund
invests more than 25% of its total assets in the securities of issuers located
in one country, the value of the Fund's shares may be subject to greater
fluctuations due to the lesser degree of diversification across countries such a
policy affords, and the fact that the securities markets of certain countries
may be subject to greater risks and volatility than that which exists in the
United States. See "Special Risk Considerations."
EVERGREEN VA STRATEGIC INCOME FUND
EVERGREEN VA STRATEGIC INCOME FUND seeks high current income from interest
on debt securities. Secondarily, the Fund considers potential for growth of
capital in selecting securities. The Fund allocates its assets principally
between eligible domestic high yield, high risk bonds and debt securities of
foreign governments and foreign corporations. In addition, the Fund will, from
time to time, allocate a portion of its assets to U.S. Government securities.
This allocation will be made on the basis of the assessment by the Fund's
investment adviser of global opportunities for high income. From time to time,
the Fund may invest 100% of its assets in U.S. or foreign securities.
The Fund may invest principally in domestic debt obligations, including
zero coupon bonds and payment-in-kind securities ("PIKs"), debentures,
convertible debentures, fixed, increasing and adjustable rate bonds, stripped
bonds, mortgage bonds, mortgage-backed securities, corporate notes (including
convertible notes) with maturities at the date of issue of at least five years
(which may be senior or junior to other bonds), equipment trust certificates,
and units consisting of bonds with stock or warrants to buy stock attached.
The Fund may also invest in debt obligations issued or guaranteed by
foreign corporations, certain supranational entities (such as the World Bank)
and foreign governments, their agencies and instrumentalities, and debt
obligations issued by U.S.
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corporations denominated in non-U.S. currencies. The Fund may also invest in
debt instruments issued or guaranteed by the U.S. Government, its agencies or
instrumentalities ("U.S. Government securities"). Certain of these obligations,
including U.S. Treasury notes and bonds, and Government National Mortgage
Association debentures, are issued by, or guaranteed with respect to both
principal and interest by, the full faith and credit of the U.S.Government.
Certain other U.S. Government securities, issued or guaranteed by federal
agencies or government-sponsored enterprises, are not supported by the full
faith and credit of the U.S. Government. These latter securities may include
obligations supported by the right of the issuer to borrow from the U.S.
Treasury, such as obligations of Federal Home Loan Mortgage Corporation, and
obligations supported by the credit of the instrumentality such as Federal
National Mortgage Association bonds. U.S. Government securities in which the
Fund may invest include zero coupon U.S. Treasury securities, mortgage-backed
securities and money market instruments.
While the Fund may invest in securities of any maturity, it is currently
expected that the Fund will not invest in securities with maturities of more
than 30 years.
The level of income sought by the Fund is ordinarily associated with high
yield, high risk bonds and similar securities in the lower rating categories of
the recognized rating agencies or with securities that are unrated. Such bonds
generally involve greater volatility of price and risk of principal and income
than bonds in the higher rating categories and are, on balance, considered
predominantly speculative. See "Special Risk Considerations." The Fund's
investment adviser considers the ratings of Moody's and S&P assigned to various
securities, but does not rely solely on these ratings because (1) Moody's and
S&P assigned ratings are based largely on historical financial data and may not
accurately reflect the current financial outlook of companies; and (2) there can
be large differences among the current financial conditions of issuers within
the same rating category.
Since the Fund takes an aggressive approach to investing, the Fund's
investment adviser tries to maximize the return by controlling risk through
diversification, credit analysis, review of sector and industry trends, interest
rate forecasts and economic analysis. The analysis by the Fund's investment
adviser of securities focuses on factors such as interest or dividend coverage,
asset values, earnings prospects and the quality of management of the issuer. In
making investment recommendations, the Fund's investment adviser also considers
current income, potential for capital appreciation, maturity structure, quality
guidelines, coupon structure, average yield, percentage of zero coupon bonds and
PIKs, percentage of non-accruing items and yield to maturity.
The Fund may also invest in preferred stocks, including adjustable rate
preferred stocks and convertible preferred stocks, common stocks and other
equity securities, including convertible securities and warrants, which may be
used to create other permissible investments. Such investments must be
consistent with the Fund's primary objective of seeking a high level of current
income or be acquired as part of a unit combining income and equity securities.
In addition, the Fund may invest in limited partnerships, including master
limited partnerships.
The Fund may also invest in the following types of money market securities:
(1) obligations issued or guaranteed by the U.S. Government or by any agency or
instrumentality of the U.S. Government; (2) commercial paper, including master
demand notes, that at the date of investment is rated A-1 by S&P, Prime-1 by
Moody's, or, if not rated by such services, is issued by a company that at the
date of investment has an outstanding issue rated A or better by S&P or Moody's;
(3) obligations, including certificates of deposit and bankers' acceptances, of
banks or savings and loan associations having at least $1 billion in assets as
of the date of their most recently published financial statements that are
members of the Federal Deposit Insurance Corporation, including U.S. branches of
foreign banks and foreign branches of U.S. banks; and (4) obligations of U.S.
corporations that at the date of
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investment are rated A or better by S&P or Moody's. For a description of the
ratings set forth above, see the Statement of Additional Information.
EVERGREEN VA SMALL COMPANY GROWTH FUND
The investment objective of EVERGREEN VA SMALL COMPANY GROWTH FUND is to
provide shareholders with long-term growth of capital. EVERGREEN VA SMALL
COMPANY GROWTH FUND invests, under normal circumstances, at least 65% of its
total assets in equity securities of companies with small market
capitalizations. For this purpose, companies with small market capitalizations
are those with market capitalization that is in the bottom 20% of publicly
traded companies ("small cap") at the time of the Fund's investment. Companies
whose capitalization falls outside this range after the purchase continue to be
considered small cap for this purpose.
The Fund is best suited to patient investors who can afford to maintain
their investment over a relatively long period of time, and who are seeking a
fund that is aggressive and has the potential for high returns. The Fund
involves a high degree of risk and is not an appropriate investment for
conservative investors who are seeking preservation of capital and/or income.
See "Special Risk Considerations."
While the Fund focuses on small cap stocks, it may also invest in other
types of securities without regard to the market capitalization of the issuer
and which may be listed on national securities exchanges or traded over the
counter, including other common stocks, debt securities convertible into common
stocks or having common stock characteristics, and rights and warrants to
purchase common stocks.
In addition to its other investment options, the Fund may invest in limited
partnerships, and up to 25% of its assets in foreign securities. See "Special
Risk Considerations". The Fund does not currently intend to invest more than 5%
of its assets in foreign securities.
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 Statement of
Additional Information.
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
Fund's investment adviser, 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 Statement of Additional
Information for further information regarding the brokerage allocation practices
of the Funds.
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BORROWING. As a matter of fundamental policy, the Funds may not borrow
money except 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 specific limits and other terms applicable to borrowing by each
Fund are set forth in the Statement of Additional Information.
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, may not exceed 30% (15% in the case of EVERGREEN VA STRATEGIC INCOME
FUND and EVERGREEN VA SMALL COMPANY GROWTH FUND) of the value of a Fund's total
assets and 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 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
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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. EVERGREEN VA FOUNDATION FUND, EVERGREEN VA FUND, EVERGREEN VA
GROWTH AND INCOME FUND and EVERGREEN VA GLOBAL LEADERS FUND will not enter into
reverse repurchase agreements exceeding 5% of the value of its total net assets
and EVERGREEN VA STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH
FUND will not enter into reverse repurchase agreements exceeding 33 1/3% of the
value of its total net assets.
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's 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 and
EVERGREEN VA SMALL COMPANY GROWTH FUND currently do not intend to invest more
than 5% of their total assets in when-issued transactions.
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.
AMERICAN AND EUROPEAN DEPOSITARY RECEIPTS. All Funds except EVERGREEN VA
FUND may purchase foreign securities in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") 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
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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.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. A 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
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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 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 will 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
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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 contract 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 in 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. market 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 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.
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OPTIONS ON FOREIGN CURRENCIES. EVERGREEN VA GLOBAL LEADERS FUND, EVERGREEN VA
STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH FUND also purchase
foreign currency put options. A put option gives the holder, upon payment of a
premium, the right to sell a currency at the exercise price until the expiration
of the option and serves to ensure against adverse currency price movements in
the underlying portfolio assets denominated in that currency. Exchange listed
options on seven major currencies are traded in the U.S. In addition, several
major U.S. investment firms make markets in unlisted options on foreign
currencies. Such unlisted options may be available with respect to a wide range
of foreign currencies than listed options and may have more flexible terms.
Unlisted foreign currency options are generally less liquid than listed options
and involve the credit risks associated with the individual issuer. No more than
5% of a Fund's net assets may be represented by premiums paid by the Fund with
respect to options on foreign currencies outstanding at any one time.
Furthermore, the market value of unlisted options on foreign currencies will be
included with other illiquid assets held by the Fund for purposes of the 15%
limit on such assets.
The Funds may write a call option on a foreign currency only in conjunction
with a purchase of a put option on that currency. A call option written by a
Fund gives the purchaser, upon payment of a premium, the right to purchase from
the Fund a currency at the exercise price until the expiration of the option.
Writing call options in this manner is designed to reduce the cost of downside
currency protection but has the effect of limiting currency appreciation
potential.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES
MORTGAGE BACKED SECURITIES. EVERGREEN VA STRATEGIC INCOME FUND may invest in
mortgage-backed securities, which are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. The term mortgage-backed securities includes
adjustable rate mortgage securities and derivative mortgage products such as
collateralized mortgage obligations.
There are currently three basic types of mortgage-backed securities: (i)
those issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities, such as Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), and FHLMC (securities issued by
GNMA, but not those issued by FNMA or FHLMC, are backed by the "full-faith and
credit" of the U.S.); (ii) those issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities;
and (iii) those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit enhancement.
EVERGREEN VA STRATEGIC INCOME FUND will invest in mortgage pass-through
securities representing participation interests in pools of residential mortgage
loans originated by governmental or private lenders. Such securities, which are
ownership interests in the underlying mortgage loans, differ from conventional
debt securities, which provide for periodic payment of interest in fixed amounts
(usually semi-annually) with principal payments at maturity or on specified call
dates. Mortgage pass-through securities provide for monthly payments that are a
"pass through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such mortgage loans, net of any fees paid
to the guarantor of such securities and the servicers of the underlying mortgage
loans.
EVERGREEN VA STRATEGIC INCOME FUND may also invest in fixed rate and
adjustable rate collateralized mortgage obligations ("CMOs"), including CMOs
with rates that move inversely to market rates that are issued by and guaranteed
as to principal and interest by the U.S. Government, its agencies or
instrumentalities. The principal governmental issuer of CMOs is FNMA. In
addition, FHLMC issues a significant number of CMOs. The Fund will not invest in
CMOs that are issued by private issuers. CMOs are debt obligations
collateralized by mortgage
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securities in which the payment of the principal and interest is supported by
the credit of, or guaranteed by, the U.S. Government or an agency or
instrumentality of the U.S. Government. The secondary market for CMOs is
actively traded.
CMOs are structured by redirecting the total payment of principal and
interest on the underlying mortgage securities used as collateral to create
classes with different interest rates, maturities and payment schedules. Instead
of interest and principal payments on the underlying mortgage securities being
passed through or paid pro rata to each holder (e.g., the Fund), each class of a
CMO is paid from and secured by a separate priority payment of the cash flow
generated by the pledged mortgage securities.
In addition to the mortgage-backed securities described above,
EVERGREEN VA STRATEGIC INCOME FUND may invest in asset-backed securities
representing underlying interests in loans or other assets such as credit cards,
auto loans, leases and industrial plant and equipment. These include equipment
trust certificates, which are a mechanism for financing the purchase of
transportation equipment, such as railroad cars and locomotives, trucks,
airplanes and oil tankers.
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, and
EVERGREEN VA SMALL COMPANY GROWTH FUND will invest in securities of
little-known, relatively small and special situation companies. Investments in
such companies may 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. With respect to EVERGREEN VA GLOBAL LEADERS
FUND at least three different countries will always be represented.
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.
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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.
EVERGREEN VA STRATEGIC INCOME FUND may also invest in debt obligations
issued or guaranteed by foreign corporations, certain supranational entities
(such as the World Bank) and foreign governments, their agencies and
instrumentalities, and debt obligations issued by U.S. corporations denominated
in non-U.S. 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; (8) transactions cost, 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; (11) political and social
instability, expropriation, and political or financial changes which adversely
affect investment in some countries.
LOWER-RATED SECURITIES. EVERGREEN VA GROWTH AND INCOME FUND and
EVERGREEN VA STRATEGIC INCOME FUND may invest a portion of its 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 discussion 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
-19-
<PAGE>
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.
PAYMENT-IN-KIND BONDS. The EVERGREEN VA STRATEGIC INCOME FUND may
invest in payment-in- kind bonds. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in cash or in
additional bonds. The value of payment-in-kind bonds is either in cash or in
additional bonds. The value of payment-in-kind bonds is subject to greater
fluctuation in response to changes in market interest rates than bonds which pay
interest in cash currently. Payment-in-kind bonds allow an issuer to avoid the
need to generate cash to meet current interest payments. Accordingly, such bonds
may involve greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest income in cash, the Fund is
nonetheless required to accrue interest income on such investments and to
distribute such amounts at least annually to shareholders. Thus, the Fund could
be required, at times, to liquidate other investments in order to satisfy its
distribution requirements.
ZERO-COUPON BONDS. EVERGREEN VA STRATEGIC INCOME FUND may invest in
zero-coupon bonds. Zero-coupon bonds are issued at a significant discount from
their principal amount and pay interest only at maturity rather than at
intervals during the life of the security. The value of zero-coupon bonds is
subject to greater fluctuation in response to changes in market interest rates
than bonds which pay interest in cash currently. Zero-coupon bonds allow an
issuer to avoid he need to generate cash to meet current interest payments.
Accordingly, such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current interest in cash,
the Fund is nonetheless required to accrue interest income on such investments
and to distribute such amounts at least annually to shareholders. Thus, the Fund
could be required, at times, to liquidate other investments in order to satisfy
its distribution requirements.
MANAGEMENT OF THE FUNDS
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, EVERGREEN VA FOUNDATION
FUND and EVERGREEN VA GLOBAL LEADERS 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 FUNB. 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.
Keystone has been retained by the Trust to serve as investment adviser to
EVERGREEN VA STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH FUND.
Keystone succeeded on December 11, 1996 to the advisory business of a
corporation with the same name, but under different ownership, which provided
investment advisory and management services to
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<PAGE>
investment companies and private accounts since it was organized in 1932.
Keystone is a wholly-owned subsidiary of FUNB.
First Union is headquartered in Charlotte, North Carolina, and had $
billion in consolidated assets as of December 31, 1996. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States. The Capital Management Group of FUNB
("CMG") manages or otherwise oversees the investment of over $36 billion in
assets belonging to a wide range of clients, including all the series of
Evergreen Investment Trust (formerly known as First Union Funds) and certain of
the other Evergreen mutual funds.
Evergreen Asset and Keystone manage each Fund's investments, provide
various administrative services, and supervise each Fund's daily business
affairs, subject to the authority of the Trustees. Evergreen Asset, as
investment adviser to EVERGREEN VA FUND, EVERGREEN VA GROWTH and INCOME FUND and
EVERGREEN VA GLOBAL LEADERS FUND is entitled to receive from such Funds an
annual fee equal to .95 of 1% of average daily net assets thereof. 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. 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.
Keystone is entitled to receive a fee for its services as investment
adviser to EVERGREEN VA STRATEGIC INCOME FUND as follows: 2.0% of gross dividend
and interest income earned by the Fund during _________________ period plus
0.45% of average daily net assets up to $100,000,000; 0.40% of the next
$100,000,000 of average daily net assets; 0.35% of the next $100,000,000 of
average daily net assets; 0.30% of the next $100,000,000 of average daily net
assets; 0.25% of the next $100,000,000 of average daily net assets; and 0.20% of
average daily net assets over $500,000,000, computed as of the close of business
each business day and paid daily.
Keystone is entitled to receive a fee for its services as investment
adviser to EVERGREEN VA SMALL COMPANY GROWTH FUND as follows: 0.65% of average
daily net assets up to $100,000,000; 0.60% of the next $100,000,000 of average
daily net assets; 0.55% of the next $100,000,000 of average daily net assets;
0.50% of the next $100,000,000 of average daily net assets; 0.45% of the next
$100,000,000 of average daily net assets; 0.40% of the next $500,000,000 of
average daily net assets; 0.35% of the next $500,000,000 of average daily net
assets; and 0.30% of average daily net assets over $1,500,000,000, computed as
of the close of business each business day and paid daily.
XXXXXXXXXXXXXXX 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 XXXXXXXX for which
CMG, or Evergreen Asset or Keystone also serve 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. BISYS Fund Services, an affiliate of Evergreen Keystone Funds
Distributor, Inc., distributor for the Evergreen/Keystone group of mutual funds,
serves as sub-administrator to the Funds and is entitled to receive a fee from
each Fund calculated on the average daily net assets of the Fund at a rate based
on the total assets of the mutual funds administered by XXXXXXXXXXXXXXX for
which FUNB affiliates also serve as investment adviser, calculated in accordance
with the following schedule: .0100% of the first $7 billion; .0075% on the next
$3 billion; .0050% on the next $15 billion; and .0040% on assets in excess of
$25 billion. The total assets of the mutual funds administered by
XXXXXXXXXXXXXXXXXX for which FUNB affiliates serve as investment adviser as of
December 31, 1996 were approximately $30 billion.
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
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<PAGE>
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 January, 1990 and as the portfolio manager of Evergreen Fund
since its inception in 1970. The portfolio manager for EVERGREEN VA GROWTH AND
INCOME FUND is Edmund H. Nicklin, Jr. C.F.A. Mr. Nicklin has been associated
with Evergreen Asset as the manager of Evergreen Growth and Income Fund since
the Fund's inception in October, 1986. The portfolio of EVERGREEN VA GLOBAL
LEADERS FUND is managed by a committee composed of portfolio management and
analytical personnel employed by Evergreen Asset. The members of this committee
include Stephen A. Lieber and Edwin A. Miska, who has been an analyst with
Evergreen Asset and its predecessor since 1989. Mr. Lieber and Mr. Miska are
responsible for the day to day operations of the Fund and the Evergreen Global
Leaders Fund which commenced operations on November ?, 1995.
Richard M. Cryan is the portfolio manager of EVERGREEN VA STRATEGIC INCOME
FUND and has managed the domestic high yield, high risk bond portion of the
Keystone Strategic Income Fund's portfolio since 1994. Mr. Cryan is a Keystone
Senior Vice President and has more than 14 years of experience in fixed-income
investing. Christopher P. Conkey will manage the Fund's investments in U.S.
Government securities and has managed the portion of the Keystone Strategic
Income Fund's portfolio invested in U.S. Government Securities since 1993. Mr.
Conkey is a Keystone Senior Vice President and has more than 11 years of
experience in fixed-income investing.
Gary Craven is the portfolio manager of EVERGREEN VA SMALL COMPANY GROWTH
FUND and has managed the Keystone Small Company Growth Fund II and Keystone S-4
Fund since 1996. Mr. Craven has been a Keystone Senior Vice President since 1996
and has more than __ years of investment experience. Prior to joining Keystone,
Mr. Craven was ____________________.
SUB-ADVISER
Evergreen Asset has entered into sub-advisory agreements with Lieber &
Company with respect to EVERGREEN VA FUND, EVERGREEN VA GROWTH AND INCOME FUND,
EVERGREEN VA FOUNDATION FUND and EVERGREEN VA GLOBAL LEADERS FUND which provide
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 such 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.
SALE AND REDEMPTION OF SHARES
PARTICIPATING INSURANCE COMPANIES
The Funds were organized to serve as investment vehicles for (a) separate
accounts funding variable annuity ("VA") and variable life insurance ("VLI")
contracts issued by certain life insurance companies ("Participating Insurance
Companies"); and (b) qualified pension and retirement plans. 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 will establish 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.
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<PAGE>
PURCHASES
Shares of the Trust are sold at net asset value to the separate accounts
of Participating Insurance Companies and to qualified pension and retirement
plans. 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 market.
REDEMPTION
The separate accounts of Participating Insurance Companies redeems shares
to make benefit or surrender payments under the terms of the VA or VLI contract
and qualified pension and retirement plans may redeem shares pursuant to the
provisions of the plan documents. 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 it's agent. The net asset value per share of each Fund is determined once
daily, as of 4:00 p.m. 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 the 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 has by order permitted a suspension of redemption for the protection
of shareholders.
DIVIDENDS
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 account are taxable, if
at all, to the Participating Insurance Companies; they are not currently taxable
to the VA or VLI owners.
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 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.
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<PAGE>
For a discussion of the tax consequences of VA or VLI contracts, refer to
the prospectus of the VLI or VA 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 for the
owner, Depending on the VA or VLI contract, distributions from the contract may
be subject to ordinary income tax and, in addition, on distributions before age
59 1/2, a 10% penalty tax. 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. Evergreen
Asset and Keystone, since they are subsidiaries of FUNB, are 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 and Keystone being
prevented from continuing to perform the services required under the investment
advisory contract or from acting as agent in connection with the purchase of
shares of a Fund by its customers. If Evergreen Asset or Keystone 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.
GENERAL INFORMATION
CUSTODIAN, AND TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company (the "Custodian") acts as custodian
of the assets to the Trust. Boston Financial Data Services, Inc. ("BFDS"), 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.
EXPENSES OF THE TRUST
Each Fund bears all expenses of its operations other than those incurred
by Evergreen Asset and Keystone under their respective Advisory Agreements and
XXXXXXXX under its Administration Agreement with the Trust. In particular, the
Funds pay investment advisory
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<PAGE>
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, Keystone or any of their 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
Pursuant to current interpretations of the Investment Company Act of
1940, as amended ("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 Declaration of Trust provides that shareholders can
remove Trustees by a vote of two-thirds of the vote of the outstanding shares
and the Declaration of Trust sets out the procedures to be followed. 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 a majority 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 inquiries.
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
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<PAGE>
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
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 any 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 Fund share prices 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.
Evergreen Asset is the investment adviser to Evergreen Fund, Evergreen
Foundation Fund, Evergreen Growth and Income Fund and Evergreen Global Leaders
Fund. Each of the Evergreen Fund, Evergreen Foundation Fund, Evergreen Growth
and Income Fund and Evergreen Global Leaders Fund is substantially similar to
the Trust's EVERGREEN VA FUND, EVERGREEN VA FOUNDATION FUND, EVERGREEN VA GROWTH
AND INCOME FUND and EVERGREEN VA GLOBAL LEADERS FUND, respectively, in that each
has the same investment objective and each is managed using substantially the
same investment strategies and techniques. Keystone is the investment adviser to
Keystone Strategic Income Fund and Keystone Small Company Growth Fund II. Each
of Keystone Strategic Income Fund and Keystone Small Company Growth Fund II is
substantially similar to EVERGREEN VA STRATEGIC INCOME FUND and EVERGREEN VA
SMALL COMPANY GROWTH FUND in that each has the same investment objective and
each is managed using the same investment strategies and techniques. See
"Investment Objectives and Policies."
As of the date of this Prospectus, the EVERGREEN VA GLOBAL LEADERS FUND,
EVERGREEN VA STRATEGIC INCOME FUND and EVERGREEN VA SMALL COMPANY GROWTH FUND
had not commenced operations and the EVERGREEN VA FUND, EVERGREEN VA FOUNDATION
FUND and EVERGREEN VA GROWTH AND INCOME FUND only recently commenced operations
in January, 1996. Since the Funds lack any substantial operating history, along
with actual Fund performance information, if any, information has been included
regarding the historical performance of Evergreen Asset and Keystone in managing
comparable funds. Set forth below is certain performance information regarding
the Evergreen Fund, Evergreen Foundation Fund, Evergreen Growth and Income Fund,
Evergreen Global Leaders Fund, Keystone Strategic Income Fund and Keystone Small
Company Growth Fund II which has been obtained from Evergreen Asset and Keystone
and is set forth in the current prospectuses and statements of additional
information of each fund. Investors should not rely on the following financial
information as an indication of the future performance of the Funds.
AVERAGE ANNUAL TOTAL RETURN OF COMPARABLE FUNDS
The average annual compounded total return for Class Y shares offered by
Evergreen Fund, Evergreen Foundation Fund and Evergreen Growth and Income Fund
for the most recently completed one, five and ten year fiscal periods (or, with
respect to Evergreen Foundation
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<PAGE>
Fund, from inception through December 31, 1996) and the average annual
compounded total return for Class Y shares offered by Evergreen Global Leaders
Fund for the most recently completed fiscal year and from inception through
October 31, 1996 is set forth in the table below.
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
Ended Ended Ended
Evergreen Fund 9/30/96 9/30/96 9/30/96
<S> <C> <C> <C>
Class Y
<CAPTION>
1 Year 5 Years 10 Years
Ended Ended Ended
Evergreen Growth and Income Fund 12/31/96 12/31/96 12/31/96
<S> <C> <C> <C>
Class Y
<CAPTION>
1 Year 5 Years From 1/21/90
Ended Ended (inception)
Evergreen Foundation Fund 12/31/96 12/31/96 to 12/31/96
(1)
<S> <C> <C> <C>
Class Y
<CAPTION>
1 Year From 11/1/95
Ended (inception)
Evergreen Global Leaders Fund 10/31/96 to 10/31/96
<S> <C> <C>
Class Y
<CAPTION>
The average annual compounded total return for Class A shares offered by
Keystone Strategic Income Fund for the most recently completed one and five year
fiscal periods and the period from inception through July 31, 1996 and the
average annual compounded total return for class A shares offered by Keystone
Small Company Growth Fund II for the period from inception through May 31, 1996
is set forth in the table below.
1 Year 5 Years 2/13/87
Ended Ended (inception)
Keystone Strategic Income Fund 7/31/96 7/31/96 to 7/31/96
(1)
<S> <C> <C> <C>
Class
2/21/96
(inception)
Keystone Small Company Growth II to 5/31/96
<S> <C>
Class __
<CAPTION>
</TABLE>
HISTORICAL AVERAGE ANNUAL RETURN
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<PAGE>
The average annual compounded total return for the shares offered by
EVERGREEN VA FUND, EVERGREEN VA GROWTH AND INCOME FUND and EVERGREEN VA
FOUNDATION FUND for the period January 24, 1996 (commencement of operations)
through December 31, 1996 is set forth in the following table:
EVERGREEN VA FUND %
EVERGREEN VA GROWTH AND INCOME FUND %
EVERGREEN VA FOUNDATION FUND %
- -------------------------
(1) Reflects waiver of advisory fees and reimbursement of other expenses.
Without such waivers and reimbursements, the average annual total return during
this period would have been lower.
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 under the VA or VLI contracts.
GENERAL
Independent Accountants. KPMG Peat Marwick LLP, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15219, serves as the independent public accountants of
the Trust.
Counsel. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, acts as counsel for the Trust.
Liability Under Massachusetts Law. Under Massachusetts law, Trustees and
shareholders of a business trust may, in certain circumstances, be held
personally liable for its obligations. The Declaration of Trust under which the
Funds operate provide that no Trustee or shareholder will be personally liable
for the obligations of the Trust and that every written contract made by the
Trust contain a provision to that effect. If any Trustee or shareholder were
required to pay any liability of the Trust, that person would be entitled to
reimbursement from the general assets of the Trust.
Additional Information. This Prospectus and the Statement of Additional
Information, which has been incorporated by reference herein, do not contain all
the information set forth in the Registration Statements filed by the Trust with
the Securities and Exchange Commission under the Securities Act of 1933. Copies
of the Registration Statements may be obtained at a reasonable charge from the
Securities and Exchange Commission or may be examined, without charge, at the
offices of the Securities and Exchange Commission in Washington, D.C.
INVESTMENT ADVISER
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company, Box 9021, Boston,
Massachusetts 02205-9827
LEGAL COUNSEL
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, One Mellon Bank Center,
Pittsburgh, Pennsylvania 15219
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STATEMENT OF ADDITIONAL INFORMATION
March 3, 1997
EVERGREEN VARIABLE TRUST
2500 Westchester Avenue, Purchase, New York 10577
800-807-2940
Evergreen VA Fund ("Evergreen") Evergreen VA Growth and Income Fund
("Growth and Income") Evergreen VA Foundation Fund ("Foundation") Evergreen VA
Global Leaders Fund ("Global Leaders") Evergreen VA Small Company Growth Fund
("Small Company") Evergreen VA Strategic Income Fund ("Strategic Income")
This Statement of Additional Information pertains to the Funds listed
above. It is not a prospectus and should be read in conjunction with the
Prospectus dated March 1, 1997 for the Fund in which you are making or
contemplating an investment. The Funds are offered to (a) separate accounts
funding variable annuity and variable life insurance contracts issued by life
insurance companies ("Participating Insurance Companies"); and (b) qualified
pension and retirement plans. Copies of the Prospectus may be obtained without
charge by calling the number listed above.
TABLE OF CONTENTS
Page
Investment Objectives and Policies................................ 1
Investment Restrictions........................................... 4
Certain Risk Considerations....................................... 6
Management........................................................ 6
Investment Advisers................................................ 7
Allocation of Brokerage........................................... 9
Additional Tax Information........................................ 11
Net Asset Value................................................... 12
Additional Sale and Redemption Information........................ 13
Glass-Steagall Act................................................ 14
General Information............................................... 14
Performance Information........................................... 15
Financial Statements.............................................. 18
INVESTMENT OBJECTIVES AND POLICIES
(See also "Description of the Funds - Investment Objectives and
Policies" in the Funds' Prospectus)
The investment objective of each Fund and a description of the securities
in which each Fund may invest is set forth under "Description of the Funds -
"Investment Objectives and Policies" in the Prospectus. The Funds' investment
objectives are fundamental and cannot be changed without the approval of
shareholders. The following expands upon the discussion in the Prospectus
regarding certain investments of each Fund.
U.S. Government Securities (All Funds)
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The types of U.S. government securities in which the Funds may invest
generally include direct obligations of the U.S. Treasury such as U. S. Treasury
bills, notes and bonds and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
(i) the full faith and credit of the U.S. Treasury;
(ii) the issuer's right to borrow from the U.S. Treasury;
(iii) the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or (iv) the
credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities that may not always receive financial
support from the U.S. government are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation ("FHLMC");
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association
Strategic Income may invest in Brady Bonds. Brady Bonds are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
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Zero Coupon "Stripped" Bonds and Payment-in-Kind Bonds (Strategic Income)
The EVERGREEN VA STRATEGIC INCOME FUND may invest in zero-coupon and
pay-in-kind securities. These securities are debt securities that do not make
regular cash interest payments. Zero-coupon securities are sold at a deep
discount to their face value. Pay-in- kind securities pay interest through the
issuance of additional securities or, at the option of the issuer, cash. Because
such securities do not pay current cash income, the price of these securities
can be volatile when interest rates fluctuate. In order to continue to qualify
as a "regulated investment company" under the Internal Revenue Code of 1986, as
amended ("Code") and avoid a 4% non-deductible excise tax (as described in
greater detail in "Certain Tax Considerations"), the Fund may be required to
distribute a portion of such discount and income and may be required to dispose
of other portfolio securities, which may occur in periods of adverse market
prices, in order to generate cash to meet these distribution requirements.
In general, owners of zero coupon or payment-in-kind bonds have
substantially all the rights and privileges of owners of the underlying coupon
obligations or principal obligations. Owners of zero coupon or payment-in-kind
bonds have the right upon default on the underlying coupon obligations or
principal obligations to proceed directly and individually against the issuer
and are not required to act in concert with other holders of zero coupon bonds.
Restricted and Illiquid Securities (All Funds)
Each Fund may invest in restricted and illiquid securities. The ability of
the Board of Trustees ("Trustees") to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange Commission
("SEC") Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive, safe-harbor
for certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for sale under the
Rule. The Funds which invest in Rule 144A securities believe that the Staff of
the SEC has left the question of determining the liquidity of all restricted
securities (eligible for resale under the Rule) for determination by the
Trustees. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:
(i) the frequency of trades and quotes for the security;
(ii) the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
(iii) dealer undertakings to make a market in the security; and
(iv) the nature of the security and the nature of the marketplace trades.
Restricted securities would generally be acquired either from institutional
investors who originally acquired the securities in private placements or
directly from the issuers of the securities in private placements. Restricted
securities and securities that are not readily marketable may sell at a discount
from the price they would bring if freely marketable.
Reverse Repurchase Agreements (All Funds)
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees
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that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Options and Futures Transactions (All Funds)
Each Fund may seek to increase the current return on its investments by
writing covered call or put options. In addition, a Fund may at times seek to
hedge against either a decline in the value of its portfolio securities or an
increase in the price of securities which its investment adviser plans to
purchase through the writing and purchase and sale of options including options
on stock indices and the purchase and sale of futures contracts and related
options. THE INVESTMENT ADVISER TO EVERGREEN, GROWTH AND INCOME AND FOUNDATION
DOES NOT PRESENTLY INTEND TO UTILIZE OPTIONS (OTHER THAN WRITING COVERED CALL
OPTIONS AND ENTERING INTO CLOSING PURCHASE TRANSACTIONS) OR FUTURES CONTRACTS
AND RELATED OPTIONS BUT MAY DO SO IN THE FUTURE. Expenses and losses incurred as
a result of such hedging strategies will reduce a Fund's current return.
The ability of a Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. Markets in options and futures with respect to stock indices and
U.S. government securities are relatively new and still developing. It is
impossible to predict the amount of trading interest that may exist in various
types of options or futures. Therefore no assurance can be given that a Fund
will be able to utilize these instruments effectively for the purposes stated
below.
Writing Covered Options on Securities. A Fund may write covered call
options and covered put options on optionable securities of the types in which
it is permitted to invest from time to time as its investment adviser determines
is appropriate in seeking to attain the Fund's investment objective. Call
options written by a Fund give the holder the right to buy the underlying
security from the Fund at a stated exercise price; put options give the holder
the right to sell the underlying security to the Fund at a stated price.
A put option would be considered "covered" if the Fund owns an option to
sell the underlying security subject to the option having an exercise price
equal to or greater than the exercise price of the "covered" option at all times
while the put option is outstanding. A call option is covered if the Fund owns
or has the right to acquire the underlying securities subject to the call option
(or comparable securities satisfying the cover requirements of securities
exchanges) at all times during the option period or the Fund maintains in a
segregated account at the Fund's custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Fund's
obligation under the option. A Fund may also write combinations of covered puts
and covered calls on the same underlying security.
A Fund will receive a premium from writing an option, which increases the
Fund's return in the event the option expires unexercised or is terminated at a
profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, a Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, a Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price
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higher than its then current market price, resulting in a potential capital loss
if the purchase price exceeds the market price plus the amount of the premium
received.
A Fund may terminate an option which it has written prior to its expiration
by entering into a closing purchase transaction in which it purchases an option
having the same terms as the option written. 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.
Purchasing Put and Call Options on Securities. A 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.
Purchase and Sale of Options and Futures on Securities and Stock Indices. A
Fund may purchase and sell options on securities, stock indices and stock index
futures contracts as a hedge against movements in the equity markets. In the
future, a Fund may purchase and sell such options for other investment purposes.
Options on stock indices are similar to options on specific securities
except that, rather than the right to take or make delivery of the specific
security at a specific price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
level of that stock index is greater than, in the case of a call, or less than,
in the case of a put, the exercise price of the option. This amount of cash is
equal to such difference between the closing price of the index and the exercise
price of the option expressed in dollars times a specified multiple. The writer
of the option is obligated, in return for the premium received, to make delivery
of this amount. Unlike options on specific securities, all settlements of
options on stock indices are in cash and gain or loss depends on general
movements in the stocks included in the index rather than price movements in
particular stocks. Currently options traded include the Standard & Poor's 500
Composite Stock Price Index, the NYSE Composite Index, the AMEX Market Value
Index, the National Over-The-Counter Index, the Nikkei 225 Stock Average Index,
the Financial Times Stock Exchange 100 Index and other standard broadly based
stock market indices. Options are also traded in certain industry or market
segment indices such as the Pharmaceutical Index.
A stock index futures contract is an agreement in which one party agrees to
deliver to the other an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of securities is made.
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If a Fund's investment adviser expects general stock market prices to rise,
it might purchase a call option on a stock index or a futures contract on that
index as a hedge against an increase in prices of particular equity securities
it wants ultimately to buy for the Fund. If in fact the stock index does rise,
the price of the particular equity securities intended to be purchased may also
increase, but that increase would be offset in part by the increase in the value
of the Fund's index option or futures contract resulting from the increase in
the index. If, on the other hand, the Fund's investment adviser expects general
stock market prices to decline, it might purchase a put option or sell a futures
contract on the index. If that index does in fact decline, the value of some or
all of the equity securities held by the Fund may also be expected to decline,
but that decrease would be offset in part by the increase in the value of the
Fund's position in such put option or futures contract.
Purchase and Sale of Interest Rate Futures. A Fund may purchase and sell
interest rate futures contracts on U.S. Treasury bills, notes and bonds and
Government National Mortgage Association ("GNMA") certificates either for the
purpose of hedging its portfolio securities against the adverse effects of
anticipated movements in interest rates.
A Fund may sell interest rate futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest rates
rise, the market value of the securities held by a Fund, will fall, thus
reducing the net asset value of the Fund. This interest rate risk can be reduced
without employing futures as a hedge by selling such securities and either
reinvesting the proceeds in securities with shorter maturities or by holding
assets in cash. However, this strategy entails increased transaction costs in
the form of dealer spreads and brokerage commissions and would typically reduce
the Fund's average yield as a result of the shortening of maturities.
The sale of interest rate futures contracts provides a means of hedging
against rising interest rates. As rates increase, the value of a Fund's short
position in the futures contracts will also tend to increase thus offsetting all
or a portion of the depreciation in the market value of the Fund's investments
that are being hedged. While the Fund will incur commission expenses in selling
and closing out futures positions (which is done by taking an opposite position
in the futures contract), commissions on futures transactions are lower than
transaction costs incurred in the purchase and sale of portfolio securities.
A Fund may purchase interest rate futures contracts in anticipation of a
decline in interest rates when it is not fully invested. As such purchases are
made, it is expected that an equivalent amount of futures contracts will be
closed out.
A Fund will enter into futures contracts which are traded on national or
foreign futures exchanges, and are standardized as to maturity date and the
underlying financial instrument. Futures exchanges and trading in the United
States are regulated under the Commodity Exchange Act by the Commodity Futures
Trading Commission ("CFTC"). Futures are traded in London at the London
International Financial Futures Exchange, in Paris, at the MATIF, and in Tokyo
at the Tokyo Stock Exchange.
Options on Futures Contracts. A Fund may purchase and write call and put
options on securities, stock index and interest rate futures contracts. A Fund
may use such options on futures contracts in connection with its hedging
strategies in lieu of purchasing and writing options directly on the underlying
securities or stock indices or purchasing or selling the underlying futures. For
example, a Fund may purchase put options or write call options on stock index
futures or interest rate futures, rather than selling futures contracts, in
anticipation of a decline in general stock market prices or rise in interest
rates, respectively, or purchase call options or write put options on stock
index or interest rate futures, rather than purchasing such futures, to hedge
against possible increases in the price of equity securities or debt securities,
respectively, which the Fund intends to purchase.
In connection with transactions in stock index options, stock index
futures, interest rate futures and related options on such futures, a Fund will
be required to deposit as "initial margin" an amount of cash and short-term U.S.
government securities. The current
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initial margin requirement per contract is approximately 2% of the contract
amount. Thereafter, subsequent payments (referred to as "variation margin") are
made to and from the broker to reflect changes in the value of the futures
contract. Brokers may establish deposit requirements higher than exchange
minimums.
Limitations. A Fund will not purchase or sell futures contracts or options
on futures contracts or stock indices for non-hedging purposes if, as a result,
the sum of the initial margin deposits on its existing futures contracts and
related options positions and premiums paid for options on futures contracts or
stock indices would exceed 5% of the net assets of the Fund unless the
transaction meets certain "bona fide hedging" criteria.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on a Fund's ability to terminate
options and futures positions at times when its investment adviser deems it
desirable to do so. Although a Fund will not enter into an option or futures
position unless its investment adviser believes that a liquid market exists for
such option or future, there can be no assurance that a Fund will be able to
effect closing transactions at any particular time or at an acceptable price.
The investment advisers generally expect that options and futures transactions
for the Funds will be conducted on recognized exchanges. In certain instances,
however, a Fund may purchase and sell options in the over-the-counter market.
The staff of the Securities and Exchange Commission considers over-the-counter
options to be illiquid. A Fund's ability to terminate option positions
established in the over-the-counter market may be more limited than in the case
of exchange traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund.
The use of options and futures involves the risk of imperfect correlation
between movements in options and futures prices and movements in the price of
the securities that are the subject of the hedge. The successful use of these
strategies also depends on the ability of a Fund's investment adviser to
forecast correctly interest rate movements and general stock market price
movements. This risk increases as the composition of the securities held by the
Fund diverges from the composition of the relevant option or futures contract.
Junk Bonds (Growth and Income, Strategic Income)
Growth and Income may invest up to 5% of its total assets and Strategic Income
may invest without limit in bonds rated below Baa3 by Moody's Investors Service
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Service ("Standard &
Poor's") (commonly known as "junk bonds"). Securities rated less than Baa by
Moody's or BBB by Standard & Poor's are classified as non-investment grade
securities and are considered speculative by those rating agencies. It is the
policy of each Fund's investment adviser not to rely exclusively on ratings
issued by credit rating agencies but to supplement such ratings with the
investment adviser's own independent and ongoing review of credit quality. Junk
bonds may be issued as a consequence of corporate restructurings, such as
leveraged buyouts, mergers, acquisitions, debt recapitalizations, or similar
events or by smaller or highly leveraged companies. When economic conditions
appear to be deteriorating, junk bonds may decline in market value due to
investors' heightened concern over credit quality, regardless of prevailing
interest rates. Although the growth of the high yield securities market in the
1980s had paralleled a long economic expansion, recently many issuers have been
affected by adverse economic and market conditions. It should be recognized that
an economic downturn or increase in interest rates is likely to have a negative
effect on (i) the high yield bond market, (ii) the value of high yield
securities and (iii) the ability of the securities' issuers to service their
principal and interest payment obligations, to meet their projected business
goals or to obtain additional financing. The market for junk bonds, especially
during periods of deteriorating economic conditions, may be less liquid than the
market for investment grade bonds. In periods of reduced market liquidity, junk
bond prices may become more volatile and may experience sudden and substantial
price declines. Also, there may be significant disparities in the prices quoted
for junk bonds by various dealers. Under such conditions, a Fund may find it
difficult to value its junk bonds accurately. Under such conditions, a Fund may
have to use subjective rather than objective criteria to value its junk bond
investments accurately
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and rely more heavily on the judgment of the Trust's Board of Trustees. Prices
for junk bonds also may be affected by legislative and regulatory developments.
For example, recent federal rules require that savings and loans gradually
reduce their holdings of high-yield securities. Also, from time to time,
Congress has considered legislation to restrict or eliminate the corporate tax
deduction for interest payments or to regulate corporate restructurings such as
takeovers, mergers or leveraged buyouts. Such legislation, if enacted, could
depress the prices of outstanding junk bonds.
Variable and Floating Rate Securities (Foundation, Strategic Income)
Foundation may invest no more than 5% of its total assets, at the time of the
investment in question, and Strategic Income may invest without limit in
variable and floating rate securities. The terms of variable and floating rate
instruments provide for the interest rate to be adjusted according to a formula
on certain predetermined dates. Variable and floating rate instruments that are
repayable on demand at a future date are deemed to have a maturity equal to the
time remaining until the principal will be received on the assumption that the
demand feature is exercised on the earliest possible date. For the purposes of
evaluating the interest-rate sensitivity of the Fund, variable and floating rate
instruments are deemed to have a maturity equal to the period remaining until
the next interest-rate readjustment. For the purposes of evaluating the credit
risks of variable and floating rate instruments, these instruments are deemed to
have a maturity equal to the time remaining until the earliest date the Fund is
entitled to demand repayment of principal.
Convertible Securities -- (All Funds)
Each Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allow convertible securities to be employed for a
variety of investment strategies.
Each Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment adviser, the
investment characteristics of the underlying common shares will assist a Fund in
achieving its investment objective. A Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
adviser evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment adviser considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Warrants (All Funds Except Strategic Income)
Each Fund other than Strategic Income may invest in warrants. Warrants are
options to purchase common stock at a specific price (usually at a premium above
the market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than one year to
twenty years, or they may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, a warrant is worthless if the
market price of the common stock does not exceed the warrant's exercise price
during the life of the warrant. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. The percentage increase or decrease in the market price of the
warrant may tend to be
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greater than the percentage increase or decrease in the market price of the
optioned common stock.
Sovereign Debt Obligations (Growth and Income, Strategic Income)
Growth and Income and Strategic Income may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be in the form of conventional securities or other types of
debt instruments such as loans or loan participations. Sovereign debt of
developing countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for repayment of
the debt may be unable or unwilling to repay principal and interest when due,
and may require renegotiation or rescheduling of debt payments. In addition,
prospects for repayment of principal and interest may depend on political as
well as economic factors.
Closed-End Investment Companies (All Funds)
Each Fund may purchase the equity securities of closed-end investment
companies to facilitate investment in certain foreign countries. Equity
securities of closed-end investment companies generally trade at a discount to
their net asset value. Investments in closed-end investment companies involve
the payment of management fees to the advisers of such investment companies.
Foreign Currency Transactions; Currency Risks (All Funds)
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although a Fund values its assets daily
in U.S. dollars, a Fund generally does not convert its holdings to U.S. dollars
or any other currency. Foreign exchange dealers may realize a profit on the
difference between the price at which a Fund buys and sells currencies.
Each Fund will engage in foreign currency exchange transactions in
connection with its portfolio investments. A Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Forward Foreign Currency Exchange Contracts
Each Fund may enter into forward foreign currency exchange contracts in
order to protect against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and a foreign currency involved in an
underlying transaction. A forward foreign currency exchange contract involves an
obligation to purchase or sell a specific currency at a future date, which may
be any fixed number of days (usually less than one year) from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has a deposit requirement, and no commissions are charged at
any stage for trades. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the spread)
between the price at which they are buying and selling various currencies.
However, forward foreign currency exchange contracts may limit potential gains
which could result from a positive change in such currency relationships. The
Funds' investment advisers believe that it is important to have the flexibility
to enter into forward foreign currency exchange contracts whenever they
determine that it is in a Fund's best interest to do so. A Fund will not
speculate in foreign currency exchange.
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Except for cross-hedges, a Fund will not enter into forward foreign
currency exchange contracts or maintain a net exposure in such contracts when it
would be obligated to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency
or, in the case of a "cross-hedge" denominated in a currency or currencies that
the investment adviser believes will tend to be closely correlated with that
currency with regard to price movements. At the consummation of such a forward
contract, a Fund may either make delivery of the foreign currency or terminate
its contractual obligation to deliver the foreign currency by purchasing an
offsetting contract obligating it to purchase, at the same maturity date, the
same amount of such foreign currency. If a Fund chooses to make delivery of the
foreign currency, it may be required to obtain such currency through the sale of
portfolio securities denominated in such currency or through conversion of other
assets of the Fund into such currency. If a Fund engages in an offsetting
transaction, the Fund will incur a gain or loss to the extent that there has
been a change in forward contract prices.
Each Fund will place cash or high grade debt securities in a separate
account of the Fund at its custodian bank in an amount equal to the value of the
Fund's total assets committed to forward foreign currency exchange contracts
entered into as a hedge against a substantial decline in the value of a
particular foreign currency. If the value of the securities placed in the
separate account declines, additional cash or securities will be placed in the
account on a daily basis so that the value of the account will equal the amount
of the Fund's commitments with respect to such contracts.
It should be realized that this method of protecting the value of a Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. It simply
establishes a rate of exchange which can be achieved at some future point in
time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase. Generally, a Fund will not enter into a forward foreign currency
exchange contract with a term longer than one year.
Foreign Currency Options
A foreign currency option provides the option buyer with the right to buy
or sell a stated amount of foreign currency at the exercise price on a specified
date or during the option period. The owner of a call option has the right, but
not the obligation, to buy the currency. Conversely, the owner of a put option
has the right, but not the obligation, to sell the currency.
When the option is exercised, the seller (i.e., writer) of the option is
obligated to fulfill the terms of the sold option. However, either the seller or
the buyer may, in the secondary market, close its position during the option
period at any time prior to expiration.
A call option on a foreign currency generally rises in value if the
underlying currency appreciates in value, and a put option on a foreign currency
generally rises in value if the underlying currency depreciates in value.
Although purchasing a foreign currency option can protect the Fund against an
adverse movement in the value of a foreign currency, the option will not limit
the movement in the value of such currency. For example, if a Fund was holding
securities denominated in a foreign currency that was appreciating and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, the Fund would not have to exercise its put option. Likewise, if a
Fund were to enter into a contract to purchase a security denominated in foreign
currency and, in conjunction with that purchase, were to purchase a foreign
currency call option to hedge against a rise in value of the currency, and if
the value of the currency instead depreciated between the date of purchase and
the settlement date, the Fund would not have to exercise its call. Instead, the
Fund could acquire in the spot market the amount of foreign currency needed for
settlement.
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Special Risks Associated with Foreign Currency Options
Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally. In addition, there are certain additional
risks associated with foreign currency options. The markets in foreign currency
options are relatively new, and a Fund's ability to establish and close out
positions on such options is subject to the maintenance of a liquid secondary
market. Although the Funds will not purchase or write such options unless and
until, in the opinion of the investment advisers, the market for them has
developed sufficiently to ensure that the risks in connection with such options
are not greater than the risks in connection with the underlying currency, there
can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are
affected by all of those factors that influence foreign exchange rates and
investments generally.
The value of a foreign currency option depends upon the value of the
underlying currency relative to the U.S. dollar. As a result, the price of the
option position may vary with changes in the value of either or both currencies
and may have no relationship to the investment merits of a foreign security.
Because foreign currency transactions occurring in the interbank market involve
substantially larger amounts than those that may be involved in the use of
foreign currency options, investors may be disadvantaged by having to deal in an
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Available
quotation information is generally representative of very large transactions in
the interbank market and thus may not reflect relatively smaller transactions
(i.e, less than $1 million) where rates may be less favorable. The interbank
market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. option markets are closed while the markets for the underlying
currencies remain open, significant price and rate movements may take place in
the underlying markets that cannot be reflected in the options markets until
they reopen.
Foreign Currency Futures Transactions
By using foreign currency futures contracts and options on such contracts,
a Fund may be able to achieve many of the same objectives as it would through
the use of forward foreign currency exchange contracts. The Funds may be able to
achieve these objectives possibly more effectively and at a lower cost by using
futures transactions instead of forward foreign currency exchange contracts.
A foreign currency futures contract sale creates an obligation by the Fund,
as seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a loss. Similarly, the closing out of a currency
futures contract purchase is effected by the Fund entering into a currency
futures contract sale. If the offsetting sale price exceeds the purchase price,
the Fund realizes a gain, and if the offsetting sale price is less than the
purchase price, the Fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and
Related Options
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Buyers and sellers of foreign currency futures contracts are subject to the
same risks that apply to the use of futures generally. In addition, there are
risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on futures currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Funds will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the investment advisers, the
market for such options has developed sufficiently that the risks in connection
with such options are not greater than the risks in connection with transactions
in the underlying foreign currency futures contracts. Compared to the purchase
or sale of foreign currency futures contracts, the purchase of call or put
options on futures contracts involves less potential risk to the Funds because
the maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract.
Derivatives, Mortgage-Backed and Asset-Backed Securities
To the extent provided for elsewhere in this Statement of Additional
Information all Funds may use derivatives while seeking to achieve its
investment objective. Derivatives are financial contracts whose value depends
on, or is derived from, the value of an underlying asset, reference rate or
index. These assets, rates, and indices may include bonds, stocks, mortgages,
commodities, interest rates, currency exchange rates, bond indices and stock
indices. Derivatives can be used to earn income or protect against risk, or
both. For example, one party with unwanted risk may agree to pass that risk to
another party who is willing to accept the risk, the second party being
motivated, for example, by the desire either to earn income in the form of a fee
or premium from the first party, or to reduce its own unwanted risk by
attempting to pass all or part of that risk to the first party.
Derivatives can be used by investors such as Funds to earn income and
enhance returns, to hedge or adjust the risk profile of the portfolio, and
either in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. The Fund is permitted to use derivatives for one
or more of these purposes. The use of derivatives for non-hedging purposes
entails greater risks. The Funds use futures contracts and related options as
well as forwards for hedging purposes. Derivatives are a valuable tool, which,
when used properly, can provide significant benefit to Fund shareholders.
However, the Fund may take positions in those derivatives that are within its
investment policies if, in the investment adviser's judgment, this represents an
effective response to current or anticipated market conditions. Keystone's use
of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments - options,
futures, forwards and swaps - from which virtually any type of derivative
transaction can be created. Further information regarding options, futures,
forwards and swaps, is provided later in this section and is provided in the
Fund's statement of additional information.
Debt instruments that incorporate one or more of these building blocks for
the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities." An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations. See "Indexed
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Commercial Paper" and "Structured Securities" below. The term "derivative" is
also sometimes used to describe securities involving rights to a portion of the
cash flows from an underlying pool of mortgages or other assets from which
payments are passed through to the owner of, or that collateralize, the
securities. See "Mortgage Related Securities," "Collateralized Mortgage
Obligations," "Adjustable Rate Mortgage Securities," "Stripped Mortgage
Securities," "Mortgage Securities - Special Considerations," and "Other
Asset-Backed Securities" and the Fund's statement of additional information.
While the judicious use of derivatives by experienced investment managers
such as Keystone can be beneficial, derivatives also involve risks different
from, and, in certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that investors should
understand before investing in the Fund.
* Market Risk - This is the general risk attendant to all investments that the
value of a particular investment will decline or otherwise change in a way
detrimental to the Fund's interest.
* Management Risk - Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument, but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to the Fund's portfolio
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
* Credit Risk - This is the risk that a loss may be sustained by the Fund as a
result of the failure of another party to a derivative (usually referred to as a
"counterparty") to comply with the terms of the derivative contract. The credit
risk for exchange-traded derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e., margin
requirements) operated by the clearing house in order to reduce overall credit
risk. For privately negotiated derivatives, there is no similar clearing agency
guarantee. Therefore, the Fund considers the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential credit
risk.
* Liquidity Risk - Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly large
or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
* Leverage Risk - Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks - Other risks in using derivatives include the risk of mispricing
or improper valuation and the inability of derivatives to correlate perfectly
with underlying assets, rates and indices. Many derivatives, in particular
privately negotiated derivatives, are complex and often valued subjectively.
Improper valuations can result in increased cash payment requirements to
counterparties or a loss of value to the Fund. Derivatives do not always
perfectly or even highly correlate or track the value of the assets, rates or
indices they are designed to closely track. Consequently, the Fund's use of
derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering the Fund's investment objective.
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Mortgage Backed Securities (Strategic Income)
Mortgage-backed securities are securities that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
secured by real property. The term mortgage backed securities includes
adjustable rate mortgage securities and derivative mortgage products such as
collateralized mortgage obligations.
There are currently three basic types of mortgage-backed securities: (i)
those issued or guaranteed by the U.S. government or one of its agencies or
instrumentalities, such as Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), and FHLMC (securities issued by
GNMA, but not those issued by FNMA or FHLMC, are backed by the "full-faith and
credit" of the U.S.); (ii) those issued by private issuers that represent an
interest in or are collateralized by mortgage-backed securities issued or
guaranteed by the U.S. government or one of its agencies or instrumentalities;
and (iii) those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or mortgage-backed securities without a
government guarantee but usually having some form of private credit enhancement.
Strategic Income will invest in mortgage pass-through securities
representing participation interests in pools of residential mortgage loans
originated by governmental or private lenders. Such securities, which are
ownership interests in the underlying mortgage loans, differ from conventional
debt securities, which provide for periodic payment of interest in fixed amounts
(usually semi-annually) with principal payments at maturity or on specified call
dates. Mortgage pass-through securities provide for monthly payments that are a
"pass through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees paid to the guarantor of such mortgage loans, net of any fees paid
to the guarantor of such securities and the servicers of the underlying mortgage
loans.
Strategic Income may also invest in fixed rate and adjustable rate
collateralized mortgage obligations ("CMOs"), including CMOs with rates that
move inversely to market rates that are issued by and guaranteed as to principal
and interest by the U.S. government, its agencies or instrumentalities. The
principal governmental issuer of CMOs is FNMA. In addition, FHLMC issues a
significant number of CMOs. The Fund will not invest in CMOs that are issued by
private issuers. CMOs are debt obligations collateralized by mortgage securities
in which the payment of the principal and interest is supported by the credit
of, or guaranteed by, the U.S. government or an agency or instrumentality of the
U.S. government.
The secondary market for CMOs is actively traded.
CMOs are structured by redirecting the total payment of principal and
interest on the underlying mortgage securities used as collateral to create
classes with different interest rates, maturities and payment schedules. Instead
of interest and principal payments on the underlying mortgage securities being
passed through or paid pro rata to each holder (e.g., the Fund), each class of a
CMO is paid from and secured by a separate priority payment of the cash flow
generated by the pledged mortgage securities.
Most CMO issues have at least four classes. Classes with an earlier
maturity receive priority on payments to assure the early maturity. After the
first class is redeemed, excess cash flow not necessary to pay interest on the
remaining classes is directed to the repayment of the next maturing classes
until that class is fully redeemed. This process continues until all classes of
the CMO issue have been paid in full. Among the CMO classes available are
floating (adjustable) rate classes, which have characteristics similar to
adjustable rate mortgage securities ("ARMS"), and inverse floating rate classes
whose coupons vary inversely with the rate of some market index. The Fund may
purchase any class of CMO other than the residual (final) class.
Equipment Trust Certificates (Strategic Income)
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Equipment Trust Certificates are a mechanism for financing the purchase of
transportation equipment, such as railroad cars and locomotives, trucks,
airplanes and oil tankers.
Under an equipment trust certificate, the equipment is used as the security
for the debt and title to the equipment is vested in a trustee. The trustee
leases the equipment to the user, i.e. the railroad, airline, trucking or oil
company. At the same time equipment trust certificates in an aggregate amount
equal to a certain percentage of the equipment's purchase price are sold to
lenders. The trustee pays the proceeds from the sale of certificates to the
manufacturer. In addition, the company using the equipment makes an initial
payment of rent equal to their balance of the purchase price to the trustee,
which the trustee then pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest and principal on
the certificates. At maturity, the certificates are redeemed and paid, the
equipment is sold to the company and the lease is terminated.
Generally, these certificates are regarded as obligations of the company
that is leasing the equipment and are shown as liabilities in its balance sheet.
However, the company does not own the equipment until all the certificates are
redeemed and paid. In the event the company defaults under its lease, the
trustee terminates the lease. If another lessee is available, the trustee leases
the equipment to another user and makes payments on the certificates from new
lease rentals.
Interest-Rate Swap Contracts (Strategic Income)
Interest rate swaps are over-the-counter ("OTC") agreements between parties
and counterparties to make periodic payments to each other for a stated time,
generally entered into for the purpose of changing the nature or amount of
interest being received on debt securities held by one or both parties. The
calculation of these payments is based on an agreed-upon amount called the
"notional amount." The notional amount is not typically exchanged in swaps
(except in currency swaps). The periodic payments may be fixed or floating.
Floating payments change (positively or inversely) with fluctuations in interest
or currency rates or equity or commodity prices, depending on the swap
contract's terms.
Swaps may be used to hedge against adverse changes in interest rates, for
instance. Thus Strategic Income may have a portfolio of debt instruments (ARMS,
for instance) the floating interest rates of which adjust frequently because
they are tied positively to changes in market interest rates. The Fund would
then be exposed to interest rate risk because a decline in interest rates would
reduce the interest receipts on its portfolio. If the investment adviser
believed interest rates would decline, the Fund, could enter into an interest
rate swap with another financial institution to hedge the interest rate risk. In
the swap contract, the Fund would agree to make payments based on a floating
interest rate in exchange for receiving payments based on a fixed interest rate.
Thereafter, if interest rates declined, the Fund's fixed rate receipts on the
swap would offset the reduction in its portfolio receipts. If interest rates
rose, the higher rates the Fund could obtain from new portfolio investments
(assuming sale of existing investments) would offset the higher rates it paid
under the swap agreement.
Equity Swap Contracts (Small Company)
The counterparty to an equity swap contract would typically be a bank,
investment banking firm or broker/dealer. For example, the counterparty would
generally agree to pay Small Company the amount, if any, by which the notional
amount of the equity swap contract would have increased in value if such
notional amount had been invested in the stocks comprising the S&P 500 Index in
proportion to the composition of the Index, plus the dividends that would have
been received on those stocks. The Fund would agree to pay to the counterparty a
floating rate of interest (typically the London Inter Bank Offered Rate) on the
notional amount of the equity swap contract plus the amount, if any, by which
that notional amount would have decreased in value had it been invested in such
index stocks. Therefore, the return to the Fund on any equity swap contract
should be the gain comprising the S&P 500 Index less the interest paid by the
Fund on the notional amount. The Fund will only enter into
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equity swap contracts on a net basis, i.e., the two parties' obligations are
netted out, with the Fund paying or receiving, as the case may be, only the net
amount of any payments. Payments under equity swap contracts may be made at the
conclusion of the contract or periodically during its term.
The Fund may also from time to time enter into the opposite side of equity
swap contracts (i.e., where the Fund is obligated to pay the increase (net of
interest) or receive the decrease (plus interest) on the contract) to reduce the
amount of the Fund's equity market exposure consistent with the Fund's
investment objective and policies. These positions are sometimes referred to as
"reverse equity swap contracts."
Equity swap contracts will not be used to leverage the Fund. Since the
Securities and Exchange Commission considers equity swap contracts and reverse
equity swap contracts to be illiquid securities, the Fund will not invest in
equity swap contracts or reverse equity swap contracts if the total value of
such investments together with that of all other illiquid securities that the
Fund owns would exceed the Fund's limitations on investment in illiquid
securities.
The Fund does not believe that its obligations under equity swap contracts
or reverse equity swap contracts are senior securities and, accordingly, the
Fund will not treat them as being subject to its borrowing restrictions.
However, the net amount of the excess, if any, of the Fund's obligations over
its respective entitlement with respect to each equity swap contract and each
reverse equity swap contract will be accrued on a daily basis and an amount of
cash , U.S. Government securities or other liquid high quality debt securities
having an aggregate market value at least equal to the accrued excess will be
maintained in a segregated account by the Fund's custodian.
Currency Swaps, Index Swaps and Caps And Floors
(Strategic Income, Small Company)
A currency swap is an agreement to exchange cash flows on a notional amount
of two or more currencies based on the relative value differential among them.
An index swap is an agreement to swap cash flows on a notional amount based on
changes in the values of reference indices. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds an
agreed-upon interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate cap. The purchase of
an interest rate floor entitles the purchaser to receive payments of interest on
a notional principal amount from the party selling such interest rate floor. A
Fund's investment adviser expects to enter into these types of transactions on
behalf of the Fund primarily to preserve a return or spread on a particular
investment or portion of its portfolio or to protect against any increase in the
price of securities the Fund anticipates purchasing at later date rather than
for speculative purposes. Accordingly, Strategic Income and Small Company intend
to use these transactions as hedges and not as speculative investments and will
not sell interest rate caps or floors unless the Fund owns securities or other
instruments providing the income stream the Fund may be obligated to pay. Caps
and floors require segregation of assets with a value equal to the Fund's net
obligation, if any.
Special Risks of Swaps, Caps and Floors
As with futures, options, forward contracts, and mortgage backed and other
asset-backed securities, the use of swap, cap and floor contracts exposes the
Funds to additional investment risk and transaction costs. These risks include
operational risk, market risk and credit risk.
Operational risk includes, among others, the risks that a Fund's investment
adviser will incorrectly analyze market conditions or will not employ
appropriate strategies and monitoring with respect to these instruments or will
be forced to defer closing out certain hedged positions to avoid adverse tax
consequences.
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Market risk includes, among others, the risks of imperfect correlations
between the expected values of the contracts, or their underlying bases, and
movements in the prices of the securities or currencies being hedged, and the
possible absence of a liquid secondary market for any particular instrument at
any time. The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap market
has become relatively more liquid. Nevertheless, a secondary market for swaps is
never assured, and caps and floors, which are more recent innovations for which
standardized documentation has not been fully developed, are much less liquid
than swaps.
Credit risk is primarily the risk that counterparties may be financially
unable to fulfill their contracts on a timely basis, if at all. If there is a
default by the counterparty to any such contract, a Fund will be limited to
contractual remedies pursuant to the agreements related to the transaction.
There is no assurance that contract counterparties will be able to meet contract
obligations or that, in the event of default, a Fund will succeed in pursuing
contractual remedies. Each Fund thus assumes the risk that it may be delayed in
or prevented from obtaining payments owed to it pursuant to such contracts. Each
Fund will closely monitor the credit of swap counterparties in order to minimize
this risk. The Fund will not enter into any equity swap contract or reverse
equity swap contract unless, at the time of entering into such transaction, the
unsecured senior debt of the counterparty is rated at least A by Moody's or
Standard & Poor's.
INVESTMENT RESTRICTIONS
.........Except as noted, the investment restrictions set forth below are
fundamental and may not be changed with respect to each Fund without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Where an asterisk (*) appears, the relevant policy is non-fundamental with
respect to that Fund and may be changed by the Fund's investment adviser without
shareholder approval, subject to review and approval by the Trustees. As used in
this Statement of Additional Information and in the Prospectus, "a majority of
the outstanding voting securities of the Fund" means the lesser of (1) the
holders of more than 50% of the outstanding shares of beneficial interest of the
Fund or (2) 67% of the shares present if more than 50% of the shares are present
at a meeting in person or by proxy.
1.........Diversification
..........No Fund may invest more than 5% of its total assets, at the time of
the investment in question, in the securities of any one issuer other than the
U.S. government and its agencies or instrumentalities, except that up to 25% of
the value of a Fund's total assets may be invested without regard to such 5%
limitation.
2.........Ten Percent Limitation on Securities of Any One Issuer
..........No Fund may purchase more than 10% of the voting securities of any one
issuer other than the U.S. government and its agencies or instrumentalities.
3.........Investment for Purposes of Control or Management
..........No Fund may invest in companies for the purpose of exercising control
or management.
4.........Purchase of Securities on Margin
..........Neither Evergreen, Growth and Income, Foundation, Global Leaders*,
Small Company* nor Strategic Income* may purchase securities on margin, except
that each Fund may obtain such short-term credits as may be necessary for the
clearance of transactions. A deposit or payment by a Fund of initial or
variation margin in connection with financial
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futures contracts or related options transactions or forward transactions is not
considered the purchase of a security on margin.
5.........Unseasoned Issuers
..........No Fund* may invest more than 15% of its total assets in securities of
unseasoned issuers that have been in continuous operation for less than three
years, including operating periods of their predecessors.
6.........Underwriting
..........No Fund will underwrite any issue of securities except as they may be
deemed an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with their investment objectives, policies and
limitations.
7.........Interests in Oil, Gas or Other Mineral Exploration or Development
Programs
..........No Fund* may purchase, sell or invest in interests in oil, gas or
other mineral exploration or development programs.
8.........Concentration in Any One Industry
..........No Fund may invest 25% or more of its total assets in the securities
of issuers conducting their principal business activities in any one industry;
provided, that this limitation shall not apply (i) with respect to each Fund, to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, or municipal securities. For purposes of this restriction,
utility companies, gas, electric, water and telephone companies will be
considered separate industries.
9.........Warrants
..........No Fund* may invest more than 5% of its net assets in warrants, and of
this amount, no more than 2% of each Fund's net assets may be invested in
warrants that are listed on neither the New York nor the American Stock
Exchanges.
10........Ownership by Trustees/Officers
..........No Fund* may purchase or retain the securities of any issuer if (i)
one or more officers or Trustees of a Fund or its investment adviser
individually owns or would own, directly or beneficially, more than 1/2 of 1% of
the securities of such issuer, and (ii) in the aggregate, such persons own or
would own, directly or beneficially, more than 5% of such securities.
11........Short Sales
..........No Fund* may make short sales of securities unless, at the time of
each such sale and thereafter while a short position exists, each Fund owns an
equal amount of securities of the same issue or owns securities which, without
payment by the Fund of any consideration, are convertible into, or are
exchangeable for, an equal amount of securities of the same issue.
12........Lending of Funds and Securities
..........No Fund may lend its portfolio securities, unless the borrower is a
broker, dealer or financial institution that pledges and maintains collateral
with the Fund consisting of cash or securities issued or guaranteed by the U.S.
government having a value at all times not less than 100% of the current market
value of the loaned securities, including accrued interest, provided that the
aggregate amount of such loans shall not exceed 30% of the Fund's total assets.
No Fund may lend its funds to other persons, except
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through the purchase of a portion of an issue of debt securities publicly
distributed or the entering into of repurchase agreements.
13........Commodities
..........No Fund may purchase, sell or invest in commodities or commodity
contracts [note change to fundamental] except that Global Leaders, Small Company
and Strategic Income may purchase and sell currency futures contracts, enter
into forward foreign currency contracts and enter into financial futures
contracts and options thereon for hedging purposes and enter into forward
contracts.
14........Real Estate
..........No Fund may purchase, sell or invest in real estate or interests in
real estate, except that (i) each Fund may purchase, sell or invest in
marketable securities of companies holding real estate or interests in real
estate, including real estate investment trusts.
15........Borrowing, Senior Securities, Reverse Repurchase Agreements
..........Neither Evergreen, Growth and Income, Foundation nor Global Leaders
may borrow money, issue senior securities or enter into reverse repurchase
agreements, except for temporary or emergency purposes, and not for leveraging,
and then in amounts not in excess of 10% of the value of each Fund's total
assets at the time of such borrowing; or mortgage, pledge or hypothecate any
assets except in connection with any such borrowing and in amounts not in excess
of the lesser of the dollar amounts borrowed or 10% of the value of each Fund's
total assets at the time of such borrowing. Neither Evergreen, Growth and
Income, Foundation nor Global Leaders will enter into reverse repurchase
agreements exceeding 5% of the value of its total assets.
...........Neither Small Company nor Strategic Income may borrow money,
including entering into reverse repurchase agreements, except from banks for
temporary or emergency purposes, provided that immediately after any such
borrowing there is asset coverage of at least 300% for all such borrowings and
each Fund may enter into reverse repurchase agreements.
16.........Joint Trading
...........No Fund* may participate on a joint or joint and several basis in any
trading account in any securities. (The "bunching of orders for the purchase or
sale of portfolio securities with its investment adviser or accounts under its
management to reduce brokerage commissions, to average prices among them or to
facilitate such transactions is not considered a trading account in securities
for purposes of this restriction).
17.........Options
...........Neither Evergreen*, Growth and Income*, Foundation*, nor Global
Leaders* may write, purchase or sell put or call options, or combinations
thereof, except that Evergreen, Growth and Income and Foundation are authorized
to write covered call options on portfolio securities and to purchase call
options in closing purchase transactions and Global Leaders is authorized to
write covered call and put options on portfolio securities and to purchase put
and call options in closing transactions, provided that (i) such options are
listed on a national securities exchange, (ii) the aggregate market value of the
underlying securities do not exceed 25% (15% for Global Leaders) of the Fund's
net assets, taken at current market value on the date of any such writing, and
(iii) the Fund retains the underlying securities for so long as call options
written against them make the shares subject to transfer upon the exercise of
any options or the Fund's custodian has segregated and maintains cash or liquid
high-grade debt securities belonging to the Fund in an amount not less than the
value of the assets committed to the written options.
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.........Neither Small Company* nor Strategic Income* may write, purchase or
sell put or call options, or combinations thereof, except that each Fund is
authorized to write covered put and call options, purchase call and put options,
including call and put options to close out existing positions, provided that
(i) such options are listed on a national securities exchange or traded on an
automated quotations system ("NASDAQ"), (ii) the aggregate market value of the
underlying securities does not exceed 25% of the Fund's net assets, taken at
current market value on the date of any such writing, and (iii) the Fund either
retains the underlying securities for so long as call options written against
them make the shares subject to transfer upon the exercise of any options or the
Fund's custodian has segregated and maintains cash or liquid high-grade debt
securities belonging to the Fund in an amount not less than the value of the
assets committed to the written options.
18.......Investing in Securities of Other Investment Companies
.........Each Fund* will purchase securities of investment companies only in
open-market transactions involving customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation or acquisition of assets. It should be noted that investment
companies incur certain expenses such as management fees and therefore any
investment by a Fund in shares of another investment company would be subject to
such duplicate expenses.
19.......Illiquid Securities
.........No Fund* may invest more than 15% of its net assets in illiquid
securities and other securities which are not readily marketable, including
repurchase agreements which have a maturity of longer than seven days, but
excluding securities eligible for resale under Rule 144A of the Securities Act
of 1933, as amended, which the Trustees have determined to be liquid.
MANAGEMENT
Trustees & Officers
Overall responsibility for management of the Trust rests with the Trustees.
who are elected by the Shareholders of the Trust. The Trustees, in turn, elect
the officers of the Trust to supervise actively its day-to-day operations.
The current Trustees and officers of the Trust, their ages, addresses, and
principal occupations during the past five years are set forth below.
James S. Howell (72), 4124 Crossgate Road, Charlotte, NC-Chairman and Trustee.
Retired Vice President of Lance Inc. (food manufacturing); Chairman of the
Distribution Comm. Foundation for the Carolinas from 1989 to 1993.
Russell A. Salton, III, M.D. (49), 205 Regency Executive Park, Charlotte,
NC-Trustee. Medical Director, U.S. Healthcare of Charlotte, North Carolina since
1995; President, Primary Physician Care from 1990 to 1995.
Michael S. Scofield (53), 212 S. Tryon Street Suite 980, Charlotte, NC-Trustee.
Attorney, Law Offices of Michael S. Scofield since 1969.
John J. Pileggi (37), 237 Park Avenue, Suite 910, New York, NY-President and
Treasurer. Consultant to BISYS Fund Services since 1996; Senior Managing
Director, Furman Selz LLC since 1992, Managing Director of Furman Selz LLC from
1984 to 1992.
George O. Martinez (36), Secretary. Senior Vice President of . Vice President
and Assistant General Counsel of Alliance Capital Management L.P. since 1988.
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The officers of the Trust are all officers and/or employees of either
Furman Selz LLC or BISYS Fund Services. The Trustees and officers listed above
hold the same positions with a total of thirty registered investment companies
offering a total of seventy-four investment funds within the Evergreen Keystone
mutual fund complex. The officers of the Trust receive no direct compensation
from the Trust for performing their duties. BISYS Fund Services is an affiliate
of Evergreen Keystone Funds Distributor, Inc., the distributor for shares of the
Evergreen mutual funds that are offered to the general public.
The Funds do not pay any direct remuneration to any officer or Trustee who
is an "affiliated person" of either First Union National Bank of North Carolina,
Keystone Investment Management Company or Evergreen Asset Management Corp. or
their affiliates. See "Investment Adviser." Currently, none of the Trustees is
an "affiliated person" as defined in the 1940 Act. The Trust pays each Trustee
who is not an "affiliated person" an annual retainer of $3,000 and a fee of $100
per meeting attended, plus expenses. The annual retainer and the per meeting fee
paid by the Trust are allocated among its six series.
In addition:
(1) Each non-affiliated Trustee is paid a fee of $500 for each
special telephone meeting in which he participates, regardless
of the number of Funds for which meeting is called.
(2) The Chairman of the Board of the Evergreen group of mutual
funds is paid an annual retainer of $5,000, and the Chairman
of the Audit Committee is paid an annual retainer of $2,000.
These retainers are allocated among all the funds in the
Evergreen group of mutual funds, based upon assets.
(3) Each member of the Audit Committee is paid an annual retainer
of $500.
Set forth below for each of the Trustees is the aggregate compensation (and
expenses) paid to such Trustees by the Trust for the fiscal period ended
December 31, 1996.
Total
Compensation
From Trust
Aggregate and Fund
Compensation Complex Paid
Name of Trustee from Trust to Trustees
James S. Howell
Russell A. Salton, III, M.D.
Michael S. Scofield
As of the date of this Statement of Additional Information, the officers
and Trustees of the Trust as a group owned less than 1% of the outstanding
shares of the Funds.
As of October 31, 1996 Nationwide Separate Account-6 owned of record the
following percentages of the outstanding shares of each Fund: % of Evergreen; %
of Growth and Income; and % of Foundation. As of October 31, 1996, Great
American Reserve [Separate Account ] owned of record the following percentages
of the outstanding shares of each Fund:
% of Evergreen; % of Growth and Income; and % of Foundation.
INVESTMENT ADVISERS
(See also "Management of the Funds" in the Funds' Prospectus)
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The investment adviser to Evergreen, Growth and Income Fund, Foundation
Fund and Global Leaders Fund is Evergreen Asset Management Corp., a New York
corporation, with offices at 2500 Westchester Avenue, Purchase, New York
("Evergreen Asset" or the "Adviser."). Evergreen Asset is owned by First Union
National Bank of North Carolina ("FUNB") which, in turn, is a subsidiary of
First Union Corporation ("First Union"), a bank holding company headquartered in
Charlotte, North Carolina. The investment adviser to Small Company and Strategic
Income is Keystone Investment Management Company with offices at 200 Berkeley
Street, Boston, Massachusetts ("Keystone" or the "Adviser"). Keystone is owned
by FUNB. The Directors of Evergreen Asset are Richard K. Wagoner and Barbara J.
Colvin. The executive officers of Evergreen Asset are Stephen A. Lieber,
Chairman and Co-Chief Executive Officer, Nola Maddox Falcone, President and
Co-Chief Executive Officer, and Theodore J. Israel, Jr., Executive Vice
President. The executive officers of Keystone are Albert H. Elfner, III,
Chairman and Chief Executive Officer, James R. McCall, President, Edward F.
Godfrey, Senior Vice President, Chief Financial Officer and Treasurer, Philip M.
Byrne, Senior Vice President and Rosemary D. Van Antwerp, Senior Vice President,
General Counsel and Secretary. The Directors of Keystone are Donald McMullen,
William M. Ennis II and Barbara J. Colvin.
On June 30, 1994, Evergreen Asset and Lieber and Company ("Lieber") were
acquired by First Union through certain of its subsidiaries. Evergreen Asset was
acquired by FUNB, a wholly-owned subsidiary (except for directors' qualifying
shares) of First Union, by merger into EAMC Corporation ("EAMC") a wholly-owned
subsidiary of FUNB. EAMC then assumed the name "Evergreen Asset Management
Corp." and succeeded to the business of Evergreen Asset. At that time, EAMC also
entered into a new sub-advisory agreement with Lieber pursuant to which Lieber
provides certain services to Evergreen Asset in connection with its duties as
investment adviser. The partnership interests in Lieber, a New York general
partnership, were acquired by Lieber I Corp. and Lieber II Corp., which are both
wholly-owned subsidiaries of FUNB. The business of Lieber is being continued.
On September 6, 1996, First Union and FUNB entered into an Agreement and
Plan of Acquisition and Merger (the "Merger Agreement") with Keystone
Investments, Inc. ("Keystone Investments"), the corporate parent of Keystone,
which provided, among other things, for the merger of Keystone Investments with
and into a wholly-owned subsidiary of FUNB. The Merger was consummated on
December 11, 1996. Keystone has continued to provide investment advisory
services to the Keystone family of mutual funds.
Under its Investment Advisory Agreement with the Trust, each Adviser has
agreed to furnish each Fund with reports, statistical and research services and
recommendations with respect to each Fund's portfolio of investments. In
addition, each Adviser provides office facilities to the Funds and performs a
variety of administrative services. Each Fund pays the cost of all of its other
expenses and liabilities, including expenses and liabilities incurred in
connection with maintaining their registration under the Securities Act of 1933,
as amended, and the 1940 Act, printing prospectuses (for existing shareholders)
as they are updated, state qualifications, share certificates, mailings,
brokerage, custodian and stock transfer charges, printing, legal and auditing
expenses, expenses of shareholder meetings and reports to shareholders.
Notwithstanding the foregoing, the Adviser will pay the costs of printing and
distributing prospectuses used for prospective shareholders unless such costs
are paid by Participating Insurance Companies.
The method of computing the investment advisory fee for each Fund is
described in such Fund's Prospectus. The advisory fees paid by each Fund for the
fiscal period from commencement of operations (January 24, 1996) through
December 31, 1996 are set forth below:
EVERGREEN
Advisory Fee $
Waiver ( )
Net Advisory Fee $
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GROWTH AND INCOME
Advisory Fee $
Waiver ( )
Net Advisory Fee $
FOUNDATION
Advisory Fee $
Waiver ( )
Net Advisory Fee $
The Investment Advisory Agreements are terminable without the payment of
any penalty, on sixty days' written notice, by a vote of the holders of a
majority of each Fund's outstanding shares, or by a vote of a majority of the
Trust's Trustees or by the respective Adviser. The Investment Advisory
Agreements will automatically terminate in the event of their assignment. Each
Investment Advisory Agreement provides in substance that the Adviser shall not
be liable for any action or failure to act in accordance with its duties
thereunder in the absence of willful misfeasance, bad faith or gross negligence
on the part of the Adviser or of reckless disregard of its obligations
thereunder. The Investment Advisory Agreement with respect to Evergreen, Growth
and Income and Foundation was approved by the sole shareholder of each Fund by
written consent on February 8, 1996 and was also approved by the Trustees,
including a majority of the Trustees who are not parties thereto or "interested
persons" (as defined in the Investment Company Act of 1940 (the "1940 Act") of
any such party ("disinterested Trustees"), on that date. The Investment Advisory
Agreement became effective on February 8, 1996 and will continue in effect until
June 30, 1997, and thereafter from year to year provided that such continuance
is approved annually by a vote of a majority of the Trustees of the Trust
including a majority of the "disinterested Trustees," cast in person at a
meeting duly called for the purpose of voting on such approval or a majority of
the outstanding voting shares of each Fund. With respect to Global Leaders,
Small Company and Strategic Income, the Investment Advisory Agreements dated
were approved by the Trustees, including a majority of the "disinterested
Trustees" on August 1, 1996 (November 8, 1996, with respect to Small Company and
Strategic Income) and by each Fund's initial shareholder on (
with respect to Small Company and Strategic Income). The Investment Advisory
Agreements became effective on and will continue in effect until April 30, 1998,
and thereafter from year to year provided that their continuance is approved
annually by a vote of a majority of the Trustees of the Trust including a
majority of the "disinterested Trustees" cast in person at a meeting duly called
for the purpose of voting on such approval or by a vote of a majority of the
outstanding voting securities of each Fund.
The Sub-Advisory Agreements were approved by the sole shareholder of
Evergreen, Growth and Income and Foundation by written consent on February 8,
1996 ( with respect to Global Leaders) and was also approved by the Trustees,
including a majority of the "disinterested Trustees", on February 8, 1996
(August 1, 1996 with respect to Global Leaders). The Sub-Advisory Agreements
became effective on February 8, 1996 ( with respect to Global Leaders) and will
continue in effect until June 30, 1997 (April 30, 1998 with respect to Global
Leaders), and thereafter from year to year provided that their continuance is
approved annually by a vote of a majority of the Trustees of the Trust including
a majority of the "disinterested Trustees" cast in person at a meeting duly
called for the purpose of voting on such approval or a majority of the
outstanding voting shares of each Fund.
Certain other clients of each Adviser may have investment objectives and
policies similar to those of the Funds. Each Adviser (including the sub-adviser)
may, from time to time, make recommendations which result in the purchase or
sale of a particular security by its other clients simultaneously with a Fund.
If transactions on behalf of more than
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one client during the same period increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price or quantity. It is the policy of each Adviser to allocate advisory
recommendations and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Funds. When two or more
of the clients of the Adviser (including one or more of the Funds) are
purchasing or selling the same security on a given day from the same
broker-dealer, such transactions may be averaged as to price.
Although the investment objectives of the Funds are not the same, and their
investment decisions are made independently of each other, they rely upon the
same resources for investment advice and recommendations. Therefore, on
occasion, when a particular security meets the different investment objectives
of the various Funds, they may simultaneously purchase or sell the same
security. This could have a detrimental effect on the price and quantity of the
security available to each Fund. If simultaneous transactions occur, the Adviser
attempts to allocate the securities, both as to price and quantity, in
accordance with a method deemed equitable to each Fund and consistent with their
different investment objectives. In some cases, simultaneous purchases or sales
could have a beneficial effect, in that the ability of one Fund to participate
in volume transactions may produce better executions for that Fund.
Each Fund has adopted procedures under Rule 17a-7 of the 1940 Act to permit
purchase and sales transactions to be effected between each Fund and the other
registered investment companies for which either Evergreen Asset, Keystone or
FUNB acts as investment adviser or between the Fund and any advisory clients of
Evergreen Asset, Keystone, FUNB or Lieber. Each Fund may from time to time
engage in such transactions but only in accordance with these procedures and if
they are equitable to each participant and consistent with each participant's
investment objectives.
Evergreen Asset will provide administrative services to each of the Funds
for a fee based on the average daily net assets of each fund administered by
Evergreen Asset for which Evergreen Asset, Keystone or FUNB also serves as
investment adviser, calculated daily and payable monthly at the following annual
rates: .050% on 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. BISYS Fund Services serves as
sub-administrator to the Funds and is entitled to receive a fee from each Fund
calculated on the average daily net assets of each Fund at a rate based on the
total assets of the mutual funds administered by Evergreen Asset for which FUNB,
Keystone or Evergreen Asset also serve as investment adviser, calculated in
accordance with the following schedule: .0100% of the first $7 billion; .0075%
on the next $3 billion; .0050% on the next $15 billion; and .0040% on assets in
excess of $25 billion. The total assets of mutual funds administered by
Evergreen Asset for which Evergreen Asset, Keystone or FUNB served as investment
adviser as of December 31, 1996 were approximately $30 billion.
For the fiscal period ended December 31, 1996, Evergreen, Growth and Income
and Foundation incurred $ , and $ , respectively, in administrative service
costs, of which $ , $ and $ were waived, respectively.
As part of its regular banking operations, FUNB and its affiliates may make
loans to public companies. Thus, it may be possible, from time to time, for the
Funds to hold or acquire the securities of issuers which are also lending
clients of FUNB and its affiliates. The lending relationship will not be a
factor in the selection of securities.
ALLOCATION OF BROKERAGE
Decisions regarding each Fund's portfolio are made by its Adviser, subject
to the supervision and control of the Trustees. Orders for the purchase and sale
of securities and other investments are placed by employees of the Adviser, all
of whom, in the case of
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Evergreen Asset, are associated with Lieber. In general, the same individuals
perform the same functions for the other funds managed by the Adviser. A Fund
will not effect any brokerage transactions with any broker or dealer affiliated
directly or indirectly with the Adviser unless such transactions are fair and
reasonable, under the circumstances, to the Fund's shareholders. Circumstances
that may indicate that such transactions are fair or reasonable include the
frequency of such transactions, the selection process and the commissions
payable in connection with such transactions.
A substantial portion of the transactions in equity securities for each
Fund will occur on domestic stock exchanges. Transactions on stock exchanges
involve the payment of brokerage commissions. In transactions on stock exchanges
in the United States, these commissions are negotiated, whereas on many foreign
stock exchanges these commissions are fixed. In the case of securities traded in
the foreign and domestic over-the-counter markets, there is generally no stated
commission, but the price usually includes an undisclosed commission or markup.
Over-the-counter transactions will generally be placed directly with a principal
market maker, although the Fund may place an over-the-counter order with a
broker-dealer if a better price (including commission) and execution are
available.
It is anticipated that most purchase and sale transactions involving fixed
income securities will be with the issuer or an underwriter or with major
dealers in such securities acting as principals. Such transactions are normally
on a net basis and generally do not involve payment of brokerage commissions.
However, the cost of securities purchased from an underwriter usually includes a
commission paid by the issuer to the underwriter. Purchases or sales from
dealers will normally reflect the spread between bid and ask prices.
In selecting firms to effect securities transactions, the primary
consideration of each Adviser shall be prompt execution at the most favorable
price. An Adviser will also consider such factors as the price of the securities
and the size and difficulty of execution of the order. If these objectives may
be met with more than one firm, the Adviser will also consider the availability
of statistical and investment data and economic facts and opinions helpful to
the Adviser. To the extent that receipt of these services for which the Adviser
or its affiliates might otherwise have paid, it would tend to reduce its
expenses.
Under Section 11(a) of the Securities Exchange Act of 1934, as amended, and
the rules adopted thereunder by the SEC, Lieber may be compensated for effecting
transactions in portfolio securities for a Fund on a national securities
exchange provided the conditions of the rules are met. Each Fund advised by
Evergreen Asset has entered into an agreement with Lieber authorizing Lieber to
retain compensation for brokerage services. In accordance with such agreement,
it is contemplated that Lieber, a member of the New York and American Stock
Exchanges, will, to the extent practicable, provide brokerage services to the
Fund with respect to substantially all securities transactions effected on the
New York and American Stock Exchanges. In such transactions, the Adviser will
seek the best execution at the most favorable price while paying a commission
rate no higher than that offered to other clients of Lieber or that which can be
reasonably expected to be offered by an unaffiliated broker-dealer having
comparable execution capability in a similar transaction. However, no Fund will
engage in transactions in which Lieber would be a principal. While no Fund
contemplates any ongoing arrangements with other brokerage firms, brokerage
business may be given from time to time to other firms. In addition, the
Trustees have adopted procedures pursuant to Rule 17e-1 under the 1940 Act to
ensure that all brokerage transactions with Lieber, as an affiliated
broker-dealer, are fair and reasonable.
Any profits from brokerage commissions accruing to Lieber as a result of
portfolio transactions for the Fund will accrue to FUNB and to its ultimate
parent, First Union. The Investment Advisory Agreements does not provide for a
reduction of the Adviser's fee with respect to any Fund by the amount of any
profits earned by Lieber from brokerage commissions generated by portfolio
transactions of the Fund.
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The following chart shows: (1) the brokerage commissions paid by Evergreen,
Growth and Income and Foundation for the period from January 24, 1996
(commencement of investment operations) through December 31, 1996; (2) the
amount and percentage thereof paid to Lieber; and (3) the percentage of the
total dollar amount of all portfolio transactions with respect to which
commission have been paid which were effected by Lieber:
Period Ended December 31, 1996
--------------------------------------------------------
Percent of
Total Dollar Amount Transactions
Brokerage and Percent Effected By
Commissions Paid to Lieber Lieber
----------- -------------- ------------
Evergreen
Growth and Income
Foundation
ADDITIONAL TAX INFORMATION
(See also "Sale and Redemption of Shares - Tax Status" in the Funds' Prospectus)
Each Fund other than Global Leaders, Small Company and Strategic Income has
qualified and intends to continue to qualify, and Global Leaders, Small Company
and Strategic Income intend to qualify as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
following such policy, each Fund expects to eliminate or reduce to a nominal
amount the federal income taxes to which it may be subject.
In order to qualify as a regulated investment company, each Fund must,
among other things, (1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of stock or securities, foreign currencies or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in stock, securities or currencies, (2)
derive less than 30% of its gross income from the sale or other disposition of
stock, securities, options, futures, forward contracts, and certain foreign
currencies (or options, futures, or forward contracts on foreign currencies)
held for less than three months, and (3) diversify its holdings so that at the
end of each quarter of its taxable year (i) at least 50% of the market value of
the Fund's assets is represented by cash or cash items, U.S. government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its assets
is invested in the securities of any one issuer (other than U.S. government
securities or the securities of other regulated investment companies) or of two
or more issuers that the Fund controls and that are engaged in the same,
similar, or related trades or businesses. These requirements may restrict the
degree to which a Fund may engage in short-term trading and limit the range of
the Fund's investments. If a Fund qualifies as a regulated investment company,
it will not be subject to federal income tax on the part of its income
distributed to shareholders, provided the Fund distributes during its taxable
year at least (a) 90% of its taxable net investment income (generally,
dividends, interest, certain other income, and the excess, if any, of net
short-term capital gain over net long-term loss), and (b) 90% of the excess of
(i) its tax-exempt interest income less (ii) certain deductions attributable to
that income. Each Fund intends to make sufficient distributions to shareholders
to meet this requirement. For a discussion of the tax consequences of variable
annuity or variable life insurance contracts ("variable insurance contracts"),
refer to the prospectus of the variable annuity or variable life insurance
contracts offered by the Participating Insurance Company. Variable annuity
contracts purchased through insurance company separate accounts provide for the
accumulation of all earnings from interest, dividends, and capital appreciation
without current federal
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income tax liability for the owner. Depending on the variable annuity contract,
distributions from the contract may be subject to ordinary income tax and, in
addition, on distributions before age 59-1/2, a 10% penalty tax. 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.
The Funds will not be subject to the 4% federal excise tax imposed on
registered investment companies that do not distribute all of their income and
gains each calendar year because such tax does not apply to a registered
investment company whose only shareholders are segregated asset accounts of
Participating Insurance Companies held in connection with the variable insurance
contracts.
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable insurance contracts held in the Funds. The Code
provides that a variable insurance contract shall not be treated as an annuity
contract or life insurance contract for the current or any prior period for
which the investments are not, in accordance with regulations prescribed by the
U.S. Treasury Department, adequately diversified. Disqualification of the
variable insurance contract as an annuity contract or life insurance contract
would result in immediate imposition of federal income tax on variable insurance
contract owners with respect to earnings allocable to the contract (including,
upon disqualification, accumulated earnings), while the liability would
generally arise prior to the receipt of payments under the contract. Section
817(h)(2) of the Code is a safe harbor provision which provides that variable
insurance contracts meet the diversification requirements if, as of the close of
each quarter, the underlying assets meet the diversification standards for a
regulated investment company and no more than 55% of the total assets consists
of cash, cash items, U.S. government securities and securities of other
regulated investment companies. The U.S. Treasury Department has issued
Regulations (Treas. Reg. 1.817-5), that establish diversification requirements
for the investment portfolios underlying variable insurance contracts. The
Regulations amplify the diversification requirements for variable annuity
contracts set forth in Section 817(h) of the Code and provide an alternative to
the safe harbor provision described above. Under the Regulations, an investment
portfolio will be deemed adequately diversified if: (1) no more than 55% of the
value of the total assets of the portfolio is represented by any one investment;
(2) no more than 70% of such value is represented by any two investments; (3) no
more than 80% of such value is represented by any three investments; and (4) no
more than 90% of such value is represented by any four investments. For purposes
of these Regulations all securities of the same issuer are treated as a single
investment. The Regulations provide that, in the case of a regulated investment
company whose shares are available to the public only through variable insurance
contracts which meet certain other requirements, the diversification tests are
applied by reference to the underlying assets owned by the regulated investment
company rather than by reference to the shares of the regulated investment
company owned under the annuity contract. Each Fund intends to meet the
requirements for application of the diversification tests on this look-through
basis. The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable insurance
contracts by Section 817(h) of the Code have been met, each United States
government agency or instrumentality shall be treated as a separate issuer.
Each Fund will be managed in such a manner as to comply with the
diversification requirements. It is possible that in order to comply with the
diversification requirements, less desirable investment decisions may be made
which would affect the investment performance of such Fund.
NET ASSET VALUE
The following information supplements that set forth in the Funds'
Prospectus under the Section entitled "Sale and Redemption of Shares".
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On each Fund business day on which a purchase or redemption order is
received by a Fund and trading in the types of securities in which a Fund
invests might materially affect the value of Fund shares, the per share net
asset value of each such Fund is computed in accordance with the Trust's
Declaration of Trust and By-Laws as of the next close of regular trading on the
New York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern time) by
dividing the value of the Fund's total assets, less its liabilities, by the
total number of its shares then outstanding. A Fund business day is any weekday,
exclusive of national holidays on which the Exchange is closed and Good Friday.
For each Fund, securities for which the primary market is on a domestic or
foreign exchange and over-the-counter securities admitted to trading on the
NASDAQ National List are valued at the last quoted sale or, if no sale, at the
mean of closing bid and asked prices and portfolio bonds are presently valued by
a recognized pricing service when such prices are believed to reflect the fair
value of the security. Over-the-counter securities not included in the NASDAQ
National List for which market quotations are readily available are valued at a
price quoted by one or more brokers. If accurate quotations are not available,
securities will be valued at fair value determined in good faith by the Board of
Trustees.
To the extent that any Fund invests in non-U.S. dollar denominated
securities, the value of all assets and liabilities will be translated into
United States dollars at the mean between the buying and selling rates of the
currency in which such a security is denominated against United States dollars
last quoted by any major bank. If such quotations are not available, the rate of
exchange will be determined in accordance with policies established by the Fund.
The Trustees will monitor, on an ongoing basis, a Fund's method of valuation.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York. In addition, European or Far Eastern
securities trading generally or in a particular country or countries may not
take place on all business days in New York. Furthermore, trading takes place in
various foreign markets on days which are not business days in New York and on
which the Fund's net asset value is not calculated. Such calculation does not
take place contemporaneously with the determination of the prices of the
majority of the portfolio securities used in such calculation. Events affecting
the values of portfolio securities that occur between the time their prices are
determined and the close of the Exchange will not be reflected in a Fund's
calculation of net asset value unless the Trustees deem that the particular
event would materially affect net asset value, in which case an adjustment will
be made. Securities transactions are accounted for on the trade date, the date
the order to buy or sell is executed. Dividend income and other distributions
are recorded on the ex-dividend date, except certain dividends and distributions
from foreign securities which are recorded as soon as the Fund is informed after
the ex-dividend date.
ADDITIONAL SALE AND REDEMPTION INFORMATION
Shares of the Trust are sold continuously to variable annuity and variable
life insurance accounts of Participating Insurance Companies and to qualified
pension and retirement plans. The Trust may suspend the right of redemption or
postpone the date of payment for shares during any period when (1) trading on
the Exchange is restricted by applicable rules and regulations of the SEC, (2)
the Exchange is closed for other than customary weekend and holiday closings,
(3) the SEC has by order permitted such suspension, or (4) an emergency exists
as determined by the SEC.
The Trust may redeem shares involuntarily if redemption appears appropriate
in light of the Trust's responsibilities under the 1940 Act.
GLASS STEAGALL ACT
The Glass-Steagall Act and other banking laws and regulations presently
prohibit banks or non-bank affiliates of member banks of the Federal Reserve
System from
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sponsoring, organizing or controlling or acting as the principal underwriter of
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares. Further, they prohibit banks from issuing,
underwriting, or distributing securities in general. Such laws and regulations
do not prohibit such a holding company or affiliate from acting as investment
adviser, administrator, transfer agent or custodian to such an investment
company or from purchasing shares of such a company as agent for and upon the
order of their customer. Each Adviser is subject to and in compliance with such
banking laws and regulations. Changes in federal statutes and regulations
relating to the permissible activities of banks, as well as further judicial or
administrative decisions or interpretations of such statutes and regulations,
could prevent the Advisers from continuing to perform such services for the
Trust. If the Advisers were prohibited from acting as investment advisers to the
Funds, it is expected that the Trustees would recommend to the shareholders that
they approve new investment advisers selected by the Trustees. It is not
expected that the shareholders would suffer any adverse financial consequences
(if another adviser with equivalent abilities to the Advisers is found) as a
result of any of these occurrences.
GENERAL INFORMATION ABOUT THE FUNDS
(See also "General Information" in the Funds' Prospectus)
Custodian and Transfer Agent
Cash and securities owned by the Funds of the Trust are held by State
Street Bank and Trust Company, Box 9021, Boston, Massachusetts 02205-9827
("State Street" or the "Custodian") pursuant to a Custodian Agreement with the
Trust (the "Custodian Agreement"), Under the Custodian Agreement, State Street
(1) maintains a separate account or accounts in the name of each Fund; (2) makes
receipts and disbursements of money on behalf of each Fund; (3) collects and
receives all income and other payments and distributions on account of the
Funds' portfolio securities; (4) responds to correspondence from security
brokers and others relating to its duties; and (5) makes periodic reports to the
Trustees concerning the Trust's operations. State Street may, at its own
expense, open and maintain a sub-custody account or accounts on behalf of the
Trust, provided that State Street shall remain liable for the performance of all
of its duties under the Custodian Agreement. Rules adopted under the 1940 Act
permit the Trust to maintain its securities and cash in the custody of certain
eligible banks and securities depositories. Boston Financial Data Services, Inc.
("BFDS"), One Heritage Drive, North Quincy, Massachusetts currently serves as
each Fund's transfer agent and dividend disbursing agent. It is anticipated that
commencing in May, 1997 Evergreen Keystone Service Company ("EKSC"), 200
Berkeley Street, Boston, Massachusetts 02116, a subsidiary of FUNB, will serve
as transfer agent and dividend disbursing agent for each Fund pursuant to a
transfer agency agreement with the Trust (the "Transfer Agency Agreement". Under
the Transfer Agency Agreement, EKSC has agreed (1) to issue and redeem shares of
the Trust; (2) to address and mail all communications by the Trust to its
shareholders, including reports to shareholders, dividend and distribution
notices, and proxy material for its meetings of shareholders; (3) to respond to
correspondence or inquiries by shareholders and others relating to its duties;
(4) to maintain shareholder accounts and certain sub-accounts; and (5) to make
periodic reports to the Trustees concerning the Trust's operations.
Currently, pursuant to a Sub-Transfer Agency and Service Agreement between
State Street and FUNB with respect to the Funds, each Fund will pay FUNB $1.75
per call for answering telephone inquiries from variable insurance contract
owners. The Sub-Transfer Agency and Service Agreement will terminate upon the
effectiveness of the Transfer Agency Agreement with EIRC.
Capitalization and Organization
The Trust is a Massachusetts business trust organized in 1994. The Trust is
governed by a board of trustees. References to the "Board of Trustees" or
"Trustees" in this Statement of Additional Information refer to the Trustees of
the Trust. Each Fund may
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issue an unlimited number of shares of beneficial interest with a $0.001 par
value. Shares of these Funds are fully paid, nonassessable and fully
transferable when issued and have no pre-emptive, conversion or exchange rights.
Fractional shares have proportionally the same rights, including voting rights,
as are provided for a full share.
Under the Trust's Declaration of Trust, each Trustee will continue in office
until the termination of the Trust or his or her earlier death, incapacity,
resignation or removal. Shareholders can remove a Trustee upon a vote of
two-thirds of the outstanding shares of beneficial interest of the Trust.
Vacancies will be filled by a majority of the remaining Trustees, subject to the
1940 Act. As a result, normally no annual or regular meetings of shareholders
will be held, unless otherwise required by the Declaration of Trust or the 1940
Act.
Shares have noncumulative voting rights, which means that the holders of
more than 50% of the shares voting for the election of Trustees can elect 100%
of the Trustees if they choose to do so and in such event the holders of the
remaining shares so voting will not be able to elect any Trustees. The Trustees
are authorized to reclassify and issue any unissued shares to any number of
additional series without shareholder approval. Accordingly, in the future, for
reasons such as the desire to establish one or more additional portfolios of the
Trust with different investment objectives, policies or restrictions, additional
series of shares may be created. Any issuance of shares of another series or
class would be governed by the 1940 Act and the law of the Commonwealth of
Massachusetts. If shares of another series of the Trust were issued in
connection with the creation of additional investment portfolios, each share of
the newly created portfolio would normally be entitled to one vote for all
purposes. Generally, shares of all portfolios would vote as a single series on
matters, such as the election of Trustees, that affected all portfolios in
substantially the same manner. As to matters affecting each portfolio
differently, such as approval of the Investment Advisory Agreement and changes
in investment policy, shares of each portfolio would vote separately.
In addition any Fund may, in the future, divide its shares into or create
additional classes of shares which represent an interest in the same investment
portfolio. Except for the different distribution related an other specific costs
borne by such classes, they will have the same voting and other rights described
for the existing classes of each Fund.
Procedures for calling a shareholders' meeting for the removal of the
Trustees of each Trust, similar to those set forth in Section 16(c) of the 1940
Act will be available to shareholders of each Fund. The rights of the holders of
shares of a series of the Trust may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the SEC permitting the issuance and sale of
multiple classes of shares representing interests in each Fund. In the event a
Fund were to issue additional classes of shares other than that described
herein, no further relief from the SEC would be required.
PERFORMANCE INFORMATION
From time to time a Fund may advertise its "total return." The Fund's
"total return" is its average annual compounded total return for recent one,
five, and ten-year periods (or the period since the Fund's inception). The
Fund's total return for such a period is computed by finding, through the use of
a formula prescribed by the SEC, the average annual compounded rate of return
over the period that would equate an assumed initial amount invested to the
value of such investment at the end of the period. For purposes of computing
total return, income dividends and capital gains distributions paid on shares of
the Fund are assumed to have been reinvested when paid. The information below
does not reflect charges and deductions which are or may be imposed under the
variable insurance contracts issued by Participating Insurance Companies. The
average annual compounded total return for the shares offered by Evergreen,
Growth and Income and Foundation
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for the period from inception (January 24, 1996) through (December 31, 1996) are
as follows: Evergreen %; Growth and Income %; and Foundation %.
Yield Calculations
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing the Fund's interest income (as defined in the SEC yield formula) for
a given 30-day period, net of expenses, by the average number of shares entitled
to receive distributions during the period, dividing this figure by the Fund's
net asset value per share at the end of the period and annualizing the result
(assuming compounding of income) in order to arrive at an annual percentage
rate. The formula for calculating yield is as follows:
YIELD = 2[(a-b+1)6-1]
cd
Where a = Interest earned during the period
b = Expenses accrued for the period (net of reimbursements) c = The
average daily number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds.
Gains and losses generally are excluded from the calculation. Income
calculated for purposes of determining a Fund's yield differs from income as
determined for other accounting purposes. Because of the different accounting
methods used, and because of the compounding assumed in yield calculations, the
yields quoted for a Fund may differ from the rate of distributions a Fund paid
over the same period, or the net investment income reported in a Fund's
financial statements.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in a Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is a
function of the kind and quality of the instruments in the Funds' investment
portfolios, portfolio maturity, operating expenses and market conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, [benchmark for
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Strategic Income] or any other commonly quoted index of common stock or fixed
income prices, which are unmanaged indices of selected common stock or fixed
income prices. A Fund's performance may also be compared to those of other
mutual funds having similar objectives. This comparative performance would be
expressed as a ranking prepared by Lipper Analytical Services, Inc. or similar
independent services monitoring mutual fund performance. A Fund's performance
will be calculated by assuming, to the extent applicable, reinvestment of all
capital gains distributions and income dividends paid. Any such comparisons may
be useful to investors who wish to compare a Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of future
results.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker or to
each Adviser at the address or telephone number shown on the front cover of this
Statement of Additional Information. This Statement of Additional Information
does 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.
Independent Accountants
KPMG Peat Marwick LLP, One Mellon Bank Center, Pittsburgh, Pennsylvania
15219, serves as the independent public accountants to the Trust.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036, is counsel to the Trust.
FINANCIAL STATEMENTS
The financial statements of Evergreen, Growth and Income and Foundation
appearing in their most current fiscal year Annual Report to shareholders and
the report thereon of KPMG Peat Marwick LLP are incorporated by reference in
this Statement of Additional Information. The Annual Report to Shareholders,
which contains the referenced statements, are available upon request and without
charge. The initial audited financial statements of Global Leaders, Small
Company and Strategic Income as of , 1997 and the reports thereon of KPMG Peat
Marwick LLP appearing thereon are included in this Statement of Additional
Information.
APPENDIX A - BOND, NOTE AND COMMERCIAL PAPER RATINGS
APPENDIX "A"
DESCRIPTION OF BOND RATINGS
Standard & Poor's Ratings Group. A Standard & Poor's corporate bond rating
is a current assessment of the credit worthiness of an obligor with respect to a
specific obligation. This assessment of credit worthiness may take into
consideration obligors such as guarantors, insurers or lessees. The debt rating
is not a recommendation to purchase, sell or hold a security, inasmuch as it
does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's
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does not perform any audit in connection with the ratings and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, unavailability of such information, or
for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
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1. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or their arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay interest and repay
any principal.
AA - Debt rated AA also qualifies as high quality debt obligations.
Capacity to pay interest and repay principal is very strong and in the majority
of instances they differ from AAA issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than is higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on a
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB - rating.
B - Debt rated B has greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC - Debt rated CCC has a currently indefinable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC - The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.
C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC - debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
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C1 - The rating C1 is reserved for income bonds on which no interest is
being paid.
D - Debt rated D is in payment default. It is used when interest payments
or principal payments are not made on a due date even if the applicable grace
period has not expired, unless Standard & Poor's believes that such payments
will be made during such grace periods; it will also be used upon a filing of a
bankruptcy petition if debt service payments are jeopardized.
Plus (+) or Minus (-) - To provide more detailed indications of credit
quality, the ratings from AA to CCC may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
NR - indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. Debt
obligations of issuers outside the United States and its territories are rated
on the same basis as domestic corporate issues. The ratings measure the credit
worthiness of the obligor but do not take into account currency exchange and
related uncertainties.
Bond Investment Quality Standards: Under present commercial bank
regulations issued by the Comptroller of the Currency, bonds rated in the top
four categories (AAA, AA, A, BBB, commonly known as "Investment Grade" ratings)
are generally regarded as eligible for bank investment. In addition, the Legal
Investment Laws of various states may impose certain rating or other standards
for obligations eligible for investment by savings banks, trust companies,
insurance companies and fiduciaries generally.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's rating symbols and their meanings follows:
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Some bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. NOTE: Bonds within the above
categories which possess the strongest investment attributes are designated by
the symbol "1" following the rating.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Duff & Phelps, Inc.: AAA-- highest credit quality, with negligible risk
factors; AA -- high credit quality, with strong protection factors and modest
risk, which may vary very slightly from time to time because of economic
conditions; A--average credit quality with adequate protection factors, but with
greater and more variable risk factors in periods of economic stress. The
indicators "+" and "-" to the AA and A categories indicate the relative position
of a credit within those rating categories.
Fitch Investors Service LLP.: AAA -- highest credit quality, with an
exceptionally strong ability to pay interest and repay principal; AA -- very
high credit quality, with very strong ability to pay interest and repay
principal; A -- high credit quality, considered strong as regards principal and
interest protection, but may be more vulnerable to adverse changes in economic
conditions and circumstances. The indicators "+" and "-" to the AA, A and BBB
categories indicate the relative position of credit within those rating
categories.
DESCRIPTION OF NOTE RATINGS
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment.
o Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
o Source of Payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note.) Note rating symbols
are as follows:
o SP-1 Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
o SP-2 Satisfactory capacity to pay principal and interest.
o SP-3 Speculative capacity to pay principal and interest.
Moody's Short-Term Loan Ratings - Moody's ratings for short-term
obligations will be designated Moody's Investment Grade (MIG). This distinction
is in recognition of the differences between short-term credit risk and
long-term risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of major importance in
bond risk are of lesser importance over the short run.
Rating symbols and their meanings follow:
o MIG 1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
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o MIG 2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
o MIG 3 - This designation denotes favorable quality. All security elements
are accounted for but this is lacking the undeniable strength of the preceding
grades. Liquidity and cash flow protection may be narrow and market access for
refinancing is likely to be less well established.
o MIG 4 - This designation denotes adequate quality. Protection commonly
regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.: Commercial paper rated "Prime" carries the
smallest degree of investment risk. The modifiers 1, 2, and 3 are used to denote
relative strength within this highest classification.
Standard & Poor's Ratings Group: "A" is the highest commercial paper rating
category utilized by Standard & Poor's Ratings Group which uses the numbers 1+,
1, 2 and 3 to denote relative strength within its "A" classification.
Duff & Phelps, Inc.: Duff 1 is the highest commercial paper rating category
utilized by Duff & Phelps which uses + or - to denote relative strength within
this classification. Duff 2 represents good certainty of timely payment, with
minimal risk factors. Duff 3 represents satisfactory protection factors, with
risk factors larger and subject to more variation.
Fitch Investors Service LLP: F-1+ -- denotes exceptionally strong credit
quality given to issues regarded as having strongest degree of assurance for
timely payment; F-1 -- very strong, with only slightly less degree of assurance
for timely payment than F-1+; F-2 -- good credit quality, carrying a
satisfactory degree of assurance for timely payment.
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PART C
OTHER INFORMATION
item 24. Financial Statement and Exhibits
(a)Financial Statements
Included in Part A of this Registration Statement
Financial Highlights for Evergreen VA Fund, Evergreen VA Growth and
Income Fund and Evergreen VA Foundation Fund for the fiscal period from March 1,
1996 (commencement of operations) through December 31, 1996 (to be filed by
amendment)
Included in Part B of this Registration Statement
The following audited Financial Statements for the Evergreen VA Fund,
Evergreen VA Growth and Income Fund and Evergreen VA Foundation Fund for the
year ended December 31, 1996 are incorporated into the Statement of Additional
Information of the Registrant by reference to the Registrant's Annual Report for
the year ended December 31, 1996:
Portfolio of Investments (to be filed by amendment)
Statement of Assets and Liabilities (to be filed by amendment)
Statement of Operations (to be filed by amendment)
Statement of Changes in Net Assets (to be filed by amendment)
Notes to Financial Statements (to be filed by amendment)
Report of Independent Auditors (to be filed by amendment)
Included in Part C of this Registration Statement
Consent of Independent Auditors (to be filed by amendment)
(b) Exhibits
(1) Registrant's Declaration of Trust Dated June 28, 1994*
(1.1) Amendment to Declaration of Trust Dated January 10, 1995**
(1.2) Amendment to Declaration of Trust Dated July 7, 1995**
(1.3) Certificates of Amendment and Designation+
(2) Registrant's Bylaws Dated June 28, 1994*
(3) None
(4) None
(5.1) Form of Investment Advisory Agreement to be between
Registrant and Evergreen Asset Management Corp.**
(5.1.1) Form of Investment Advisory Agreement to be between
Registrant and Evergreen Asset Management Corp. with
respect to Evergreen VA Global Leaders Fund+
(5.2) Sub-Investment Advisory Agreement between Evergreen Asset
Management Corp. and Lieber & Company.**
(5.3) Form of Investment Advisory Agreement to be between
Registrant and Keystone Investment Management Company
(6.1) Form of Fund Participation Agreement between Registrant and
Nationwide Life Insurance Company**
(6.2) Form of Fund Participation Agreement between Registrant and
Great American Reserve Insurance Company**
(7) None
(8) Form of Custodian Agreement**
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(9.1) Form of Transfer and Dividend Disbursing Agent Agreement
between Registrant and Boston Financial Data Services, Inc.**
(9.2) Form of Transfer and Dividend Disbursing Agent Agreement to be
between Registrant and Evergreen Keystone Service Company++
(9.3) Form of Administrative Services Agreement between
Registrant and Evergreen Asset Management Corp.**
(9.4) Form of Sub-Administrative Services Agreement between
Registrant and BISYS Fund Services+
(10) Opinion of James P. Wallin, Esq., counsel for Registrant
(11) Consent of KPMG Peat Marwick LLP, Independent Accountants++
(12) None
(13) None
(14) None
(15) None
(16) None
(17) Financial Data Schedule++
(19) Conformed copy of the Power of Attorney***
- ---------------
* Previously filed as an Exhibit to Registrant's Registration Statement
on Form N-1A filed on .
** Response is incorporated by reference to Registrant's Pre-Effective
Amendment No.3 to its Registration Statement filed on January 29, 1996.
*** Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 to its Registration Statement filed on August 19, 1996.
+ Exhibit has been filed electronically.
++ To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with Registrant
As of the effective date of this Post-Effective Amendment, Nationwide Life
Insurance Company's separate account No. 6 and Great American Reserve Insurance
Company's separate account held all of the outstanding shares of the Registrant.
Item 26. Number of Holders of Securities (as of November 30, 1996)
Evergreen VA Fund 2
Evergreen VA Growth and Income Fund 2
Evergreen VA Foundation Fund 2
Evergreen VA Global Leaders Fund 0
Evergreen VA Small Company Growth Fund 0
Evergreen VA Strategic Income Fund 0
Item 27. Indemnification
Limitation of Liability and Indemnification provisions for Trustees,
Shareholders, officers, employees and agents of Registrant are set forth in
Article V, Sections 5.1 through 5.3 of the Declaration of Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to any personal
liability whatsoever to any Person other than the Trust or its Shareholders, in
connection with Trust Property or the affairs of the
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Trust, save only that arising from bad faith, willful misfeasance, gross
negligence or reckless disregard for his duty to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee or agent, as such, of the Trust is made
a party to any suit or proceeding to enforce any such liability, he shall not,
on account thereof, be held to any personal liability. The Trust shall indemnity
and hold each Shareholder harmless from and against all claims and liabilities,
to which such Shareholder may become subject by reason of his being or having
been a Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under Section 5.1 of the
Declaration of Trust shall not exclude any other right to which such Shareholder
may be lawfully entitled, nor shall anything herein contained restrict the right
of the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
No Trustee, officer, employee or agent of the Trust shall be liable to
the Trust, its Shareholders, or to any Shareholder, Trustee, officer, employee
or agent thereof for any action or failure to act (including without limitation
the failure to compel in any way any former or acting Trustee to redress any
breach of trust) except for his own bad faith, willful misfeasance, gross
negligence or reckless disregard of his duties.
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is or has been a Trustee or officer of the Trust
shall be indemnified by the Trust against all liability and against all expenses
reasonably incurred or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof:
(ii) the words "claim," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or officer:
(i) against any liability to the Trust or the Shareholders by reason of
a final adjudication by the court or other body before which the proceeding was
brought that he engaged in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interest of the Trust:
(iii) in the event of a settlement or other disposition not involving a
final adjudication as provided in paragraphs (b) (i) or (b) (ii) resulting in a
payment by a Trustee or officer, unless there has been either a determination
that such Trustee or officer did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office by the court or other body approving the settlement or other
disposition or a reasonable determination. based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that he did not engage
in such conduct:
(A) by vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in office
act on the matter); or
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<PAGE>
(B) by written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Trustee or officer may now or hereafter be entitled, shall
continue as to a Person who has ceased to be such Trustee or officer and shall
inure to the benefit of the heirs, executors and administrators of such Person.
Nothing contained herein shall affect any rights to indemnification to which
personnel other than Trustees and officers may be entitled by contract or
otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding of the character described in paragraph (a) of Section 5.3 of
the Declaration of Trust shall be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by or on behalf of the
recipient to repay such amount if it is ultimately determined that he is not
entitled to indemnification under Section 5.3 of the Declaration of Trust,
provided that either:
(i) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the matter)
or an independent legal counsel in a written opinion, shall determine. based
upon a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient ultimately will be
found entitled to indemnification.
As used in Section 5.3 of the Declaration of Trust, a "Disinterested
Trustee" is one (i) who is not an "interested person" by any rule, regulation or
order of the Commission, and (ii) against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or had been pending. See Item 24(b)(1) (Exhibit 1)
above. whose terms and conditions as summarized herein are hereby incorporated
by reference.
Limitation of liability provisions for each Adviser are set forth in the
respective Investment Advisory Agreements. Each Adviser shall not be liable for
any instructions, action or failure to act, or for any loss sustained by reason
of the adoption of any investment policy or the purchase, sale or retention of
any security on the recommendation of the Adviser, whether or not such
recommendation shall have been based upon its own investigation and research
made by any other individual, firm or corporation, if such recommendation shall
have been made, and such other individual, firm or corporation shall have been
selected, with due care and in good faith; but nothing herein contained shall be
construed to protect the Adviser against any liability to the Trust or its
security holders by reason of willful misfeasance. bad faith or gross negligence
in the performance of its duties or by reason of its reckless disregard of its
obligations and duties under the Investment Advisory Agreement.
Registrant undertakes that it will comply with the indemnification
provisions of its Declaration of Trust, Investment Advisory Agreements, and any
other agreement to which the Registrant is a party containing indemnification
provisions in accordance with the provisions of Investment Company Act of 1940
Release No.11330, as modified from time to time.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the Registrant's Declaration of Trust,
Bylaws, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
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<PAGE>
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered. the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Item 28. Business or Other Connections of Investment Advisers
(a) For a description of the other business of the investment advisers, see
the section entitled "Management of the Funds-Investment Advisers" in Part A.
Evergreen Asset Management Corp., the investment adviser to the Evergreen
VA Fund, Evergreen VA Growth and Income Fund, Evergreen VA Foundation Fund and
Evergreen VA Global Leaders Fund, and Lieber and Company, the sub-adviser to
such Funds, also act as such to the Evergreen Trust, The Evergreen Total Return
Fund, The Evergreen Limited Market Fund, Inc., Evergreen Growth and Income Fund,
Evergreen Money Market Trust, The Evergreen American Retirement Trust, The
Evergreen Municipal Trust and Evergreen Equity Trust, all registered investment
companies. Stephen A. Lieber, Theodore J. Israel, Jr. and Nola Maddox Falcone,
officers of Evergreen Asset Management Corp. and Lieber and Company, were, prior
to June 30, 1994 officers and/or directors or trustees of other funds for which
Evergreen Asset Management Corp. acts as investment adviser. Evergreen Asset
Management Corp. and Lieber and Company are wholly-owned subsidiaries of First
Union National Bank Of North Carolina.
Keystone Investment Management Company, the investment adviser to the
Evergreen VA Small Company Growth Fund and Evergreen VA Strategic Income Funds,
has provided investment advisory and management services to investment companies
and private accounts since it was organized in 1932. Keystone Investment
Management Company is a wholly-owned subsidiary of First Union National Bank of
North Carolina. Keystone Investment Management Company currently acts as
investment adviser to
The principal executive officers of First Union National Bank of North
Carolina, parent of the Registrant's investment advisers and sub-adviser, and
the Directors of First Union National Bank of North Carolina, are set forth in
the following tables:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
BOARD OF DIRECTORS
Ben Mayo Boddie Raymond A. Bryan, Jr.
Chairman & CEO Chairman & CEO
Boddie-Noell Enterprises, Inc. T.A. Loving Company
P.O. Box 1908 P.O. Drawer 919
Rocky Mount, NC 27802 Goldsboro, NC 27530
John F.A.V. Cecil John W. Copeland
President President
Biltmore Dairy Farms, Inc. Ruddick Corporation
P.O. Box 5355 2000 Two First Union Center
Asheville, NC 28813 Charlotte, NC 28282
John Crosland, Jr. J. William Disher
Chairman of the Board Chairman & President
The Crosland Group, Inc. Lance Incorporated
135 Scaleybark Road P.O. Box 32368
Charlotte, NC 28209 Charlotte, NC 28232
Frank H. Dunn Malcolm E. Everett, III
Chairman and CEO President
First Union National Bank First Union National Bank
-5-
<PAGE>
of North Carolina of North Carolina
One First Union Center 310 S. Tryon Street
Charlotte, NC 28288-0006 Charlotte, NC 28288-0156
James F. Goodmon Shelton Gorelick
President & Chief President
Executive Officer SGIC, Inc.
Capitol Broadcasting 741 Kenilworth Ave., Suite 200
Company, Inc. Charlotte, NC 28204
2619 Western Blvd.
Raleigh, NC 27605
Charles L. Grace James E. S. Hynes
President Chairman
Cummins Atlantic, Inc. Hynes Sales Company, Inc.
P.O. Box 240729 P.O. Box 220948
Charlotte, NC 28224-0729 Charlotte, NC 28222
Daniel W. Mathis Earl N. Phillips, Jr.
Vice Chairman President
First Union National Bank First Factors Corporation
of North Carolina P.O. Box 2730
One First Union Center High Point, NC 27261
Charlotte, NC 28288-0009
J. Gregory Poole, Jr. John P. Rostan, III
Chairman & President Senior Vice President
Gregory Poole Equipment Company Waldensian Bakeries, Inc.
P.O. Box 469 P.O. Box 220
Raleigh, NC 27602 Valdese, NC 28690
Nelson Schwab, III Charles M. Shelton, Sr.
Chairman & CEO Chairman & CEO
Paramount Parks The Shelton Companies, Inc
8720 Red Oak Boulevard, Suite 315 3600 One First Union Center
Charlotte, NC 28217 Charlotte, NC 28202
George Shinn Harley F. Shuford, Jr.
Owner and Chairman President and CEO
Shinn Enterprises, Inc. Shuford Industries
One Hive Drive P.O. Box 608
Charlotte, NC 28217 Hickory, NC 28603
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
EXECUTIVE OFFICERS
James Maynor, President, First Union Mortgage Corporation; Austin
A. Adams, Executive Vice President; Howard L. Arthur, Senior Vice
President; Robert T. Atwood, Executive Vice President and Chief
Financial Officer; Marion A. Cowell, Jr., Executive Vice
President, Secretary and General Counsel; Edward E. Crutchfield,
Jr., Chairman, CEO, First Union Corporation; Frank H. Dunn, Jr.,
Chairman and CEO; Malcolm E. Everett, III, President; John R.
Georgius, President, First Union Corporation; James Hatch, Senior
Vice President and Corporate Controller; Don R. Johnson,
Executive Vice President; Mark Mahoney, Senior Vice President;
Barbara K. Massa, Senior Vice President; Daniel W. Mathis, Vice
Chairman; H. Burt Melton, Executive Vice President; Malcolm T.
Murray, Jr., Executive Vice President; Alvin T. Sale, Executive
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<PAGE>
Vice President; Louis A. Schmitt, Jr., Executive Vice President;
Ken Stancliff, Senior Vice President and Corporate Treasurer;
Richard K. Wagoner, Executive Vice President and General Fund
Officer.
All of the Executive Officers are located at the following
address: First Union National Bank of North Carolina, One First
Union Center, Charlotte, NC 28288.
Item 29. Principal Underwriter
Not applicable.
Item 30. Location of Accounts and Records
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant's Custodian, State
Street Bank and Trust Company, 2 Heritage Drive, North Quincy, Massachusetts
02171, the offices of Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577 or at the offices of Keystone Investment Management
Company, 200 Berkeley Street, Boston, Massachusetts 02116.
Item 31. Management Services
All management-related service contracts entered into by Registrant are
discussed in Parts A and B of this Registration Statement. Item 32. Undertakings
Registrant undertakes to furnish to each person to whom a prospectus is
delivered a copy of Registrant's latest annual report to shareholders upon
request and without charge.
Registrant undertakes to call a meeting of shareholders, at the request of
at least 10% of the Registrant's outstanding shares, for the purpose of voting
upon the question of removal of a trustee or trustees and to assist in
communications with other shareholders as required by Section 16(c) of the
Investment Company Act of 1940.
Registrant undertakes to file a post-effective amendment, using financial
statements for its Evergreen VA Global Leaders Fund, Evergreen VA Small Company
Growth Fund and Evergreen VA Strategic Income Fund, which financial statements
need not be certified, within four to six months from the commencement of
operations of each Fund.
A copy of the Agreement and Declaration of Trust for the Evergreen Variable
Trust is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this Registration Statement has
been executed on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the obligations of or
arising out of this Registration Statement are not binding upon any of the
Trustees, officers, or shareholders individually but are binding only upon the
assets and property of the Trust.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
has duly caused this Post-Effective Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York, on the 18th day of
December, 1996.
-7-
<PAGE>
EVERGREEN VARIABLE TRUST
/s/ John J. Pileggi
by-----------------------------
John J. Pileggi, President
by James P. Wallin
Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 2 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ----------- ----- ----
/s/John J. Pileggi
- ----------------------- President and December 18, 1996
John J. Pileggi Treasurer
by James P. Wallin
Attorney - In - Fact
/s/James S. Howell
- ----------------------- Trustee December 18, 1996
James S. Howell
by James P. Wallin
Attorney - In - Fact
/s/Russell A. Salton, III, M.D.
- ------------------------------- Trustee December 18, 1996
Russell A. Salton, III, M.D.
by James P. Wallin
Attorney - In - Fact
/s/Michael S. Scofield
- ----------------------- Trustee December 18, 1996
Michael S. Scofield
by James P. Wallin
Attorney - In - Fact
INDEX TO EXHIBITS
Exhibit
Number Description
1.3 Certificates of Designation for Evergreen, Growth and Income
and Foundation
1.3 Certificates of Designation for Global Leaders, Strategic Income
and Small Company
5.1.1 Forms of Advisory Agreement for Global Leaders,
5.3 Forms of Advisory Agreements for Strategic Income
and Small Company
9.4 Sub Administrator Agreement
-8-
<PAGE>
Other Exhibit:
-9-
<PAGE>
Evergreen Variable Trust
Certificate of Amendment
The undersigned, being the Secretary of the Evergreen Variable Trust
(hereinafter referred to as the "Trust"), a trust with transferable shares of
the type commonly called a Massachusetts business trust, DOES HEREBY CERTIFY
that, pursuant to the authority conferred upon the Trustees of the Trust by
Section 9.3 of the Agreement and Declaration of Trust, dated June 28, 1994, (as
so amended, referred to as the "Declaration of Trust"), and by the affirmative
vote through written consents of all of the Trustees the Declaration of Trust is
hereby amended as follows:
1. Effective November 1, 1995, ARTICLE VI, Section 6.1 of the
Declaration of Trust is hereby amended to read as follows:
Section 6.1 Beneficial Interest. The interest of the Trust shall by
divided into transferable units to be called Shares of Beneficial Interest,
without par value. The number of such Shares of Beneficial Interest authorized
hereunder is unlimited. Except as otherwise provided in this Section 6.1 and
Section 6.6 hereof, each Share shall represent an equal proportionate share in
the net assets of the Trust. Without limiting the authority of the Trustees set
forth herein to establish and designate any further Series or classes, there is
hereby established the following Series of Shares:
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Each Share of any Series or Class shall represent 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. Subject to the provisions of Section 6.6 hereof, the Trustees
may also authorize the creation of additional Series or Classes of Shares, the
proceeds of which may, if desired, be invested in separate, independently,
managed portfolios of securities. All Shares issued hereunder including without
limitation, Shares issued in connection with a dividend or distribution in
Shares or division of shares, shall be fully paid and nonassessable.
IN WITNESS WHEREOF, the undersigned has set his/her hand and seal this
1st day of November, 1995.
/s/Mark B. Koogler
-------------------
Secretary
ACKNOWLEDGMENT
STATE OF Ohio )
) ss.
COUNTY OF Franklin ) November 1, 1995
Then personally appeared the above-named David Simaitis, Secretary and
acknowledged the foregoing instrument to be his/her free act and deed.
Before me
/s/Randall W. May
--------------------------
Notary Public
Randall W. May, Attorney at Law
Notary Public, State of Ohio
My Commission Has No Expiration Date
Sec. 147.03 R.C.
Evergreen(sm) is a Service Mark of Evergreen Asset Management Corp.
Copyright 1995, Evergreen Asset Management Corp.
* * * * * * * * * * * * * * * *
Certificate of Designation
The undersigned, being the Secretary of EVERGREEN VARIABLE TRUST, a
trust with transferable shares under Massachusetts law (the "Trust"), DOES
HEREBY CERTIFY that, pursuant to the authority conferred upon the Trustees of
the Trust by Article III, Section 3.1 of the Agreement and Declaration of Trust,
dated June 28, 1994 (and as so amended, referred to as the "Declaration of
Trust"), and by action taken at the meeting of the Trustees of the Trust held on
August 1, 1996, a new series of the Trust, having one class of shares, to be
known as "EVERGREEN VA GLOBAL LEADERS FUND" is designated and established
effective as of August 21, 1996;
IN WITNESS WHEREOF, the undersigned has set her hand and seal this 20th
day of August, 1996.
/s/Joan V. Fiore
Joan V. Fiore
Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK ] ss
COUNTY OF NEW YORK ]
Then personally appeared the above-named and acknowledged the foregoing
instrument to be her free act and deed.
Before me
Notary Public
My commission expires:
<PAGE>
* * * * * * * * * * * * * * * *
Certificate of Designation
The undersigned, being the Secretary of EVERGREEN VARIABLE TRUST, a
trust with transferable shares under Massachusetts law (the "Trust"), DOES
HEREBY CERTIFY that, pursuant to the authority conferred upon the Trustees of
the Trust by Article III, Section 3.1 of the Agreement and Declaration of Trust,
dated June 28, 1994 (and as so amended, referred to as the "Declaration of
Trust"), and by action taken at the meeting of the Trustees of the Trust held on
November 8, 1996, a new series of the Trust, having one class of shares, to be
known as "EVERGREEN VA STRATEGIC INCOME FUND" is designated and established
effective as of December 17, 1996;
IN WITNESS WHEREOF, the undersigned has set her hand and seal this th day
of December, 1996.
/s/Joan V. Fiore
Joan V. Fiore
Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK ] ss
COUNTY OF NEW YORK ]
Then personally appeared the above-named Joan V. Fiore and acknowledged
the foregoing instrument to be her free act and deed.
Before me
Notary Public
My commission expires:
<PAGE>
* * * * * * * * * * * * * * * *
Certificate of Designation
The undersigned, being the Secretary of EVERGREEN VARIABLE TRUST, a
trust with transferable shares under Massachusetts law (the "Trust"), DOES
HEREBY CERTIFY that, pursuant to the authority conferred upon the Trustees of
the Trust by Article III, Section 3.1 of the Agreement and Declaration of Trust,
dated June 28, 1994 (and as so amended, referred to as the "Declaration of
Trust"), and by action taken at the meeting of the Trustees of the Trust held on
November 8, 1996, a new series of the Trust, having one class of shares, to be
known as "EVERGREEN VA SMALL COMPANY GROWTH FUND" is designated and established
effective as of December 17 , 1996;
IN WITNESS WHEREOF, the undersigned has set her hand and seal this th day
of December, 1996.
/s/Joan V. Fiore
Joan V. Fiore
Secretary
ACKNOWLEDGMENT
STATE OF NEW YORK ] ss
COUNTY OF NEW YORK ]
Then personally appeared the above-named Joan V. Fiore and acknowledged
the foregoing instrument to be her free act and deed.
Before me
Notary Public
My commission expires:
<PAGE>
<PAGE>
[Form of Investment Advisory Agreement]
February 28, 1996
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase N.Y. 10577
Ladies and Gentlemen:
The undersigned, The Evergreen Variable Trust (the "Trust") on behalf of
its series portfolios the Evergreen VA Global Leaders Fund (the "Fund"), is an
investment company which desires to employ its capital by investing and
reinvesting the same in securities in accordance with the limitations specified
in its Declaration of Trust and in its Prospectus as from time to time in
effect, copies of which have been, or will be, submitted to you, and in such
manner and to such extent as may from time to time be approved by the Trustees
of the Trust. Subject to the terms and conditions of this Agreement, the Trust
on behalf of the Fund, desires to employ Evergreen Asset Management Corp. (the
"Adviser") and the Adviser desires to be so employed, to supervise and assist in
the management of the business of the Fund. Accordingly, this will confirm our
agreement as follows:
1. The Adviser shall, on a continuous basis, furnish reports, statistical
and research services, and make investment decisions with respect to the Fund's
portfolio of investments. The Adviser shall use its best judgment in rendering
these services to the Fund, and the Fund agrees as an inducement to the Adviser
undertaking such services that the Adviser shall not be liable for any mistake
of judgment or in any other event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect the Adviser against any
liability to the Fund or to the shareholders of the Fund to which it would
otherwise be subject by reason of wilful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties hereunder or by reason of
the Adviser's reckless disregard of its obligations and duties hereunder.
2. The Adviser agrees that it will not make short sales of the Fund's
shares of beneficial interest.
<PAGE>
3. The Adviser agrees that in any case where an officer or director of the
Adviser is also an officer or director of another corporation, and the purchase
or sale of securities issued by such other corporation is under consideration,
such officer or director shall abstain from participation in any decision made
on behalf of the Fund to purchase or sell any securities issued by such other
corporation.
4. Each Fund will pay the costs of all of its expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining its
registration under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933, as amended, and maintaining any registrations or
qualifications under the securities laws of the states in which the Fund's
shares are registered or qualified for sale, subsequent registrations and
qualifications share certificates, mailing, brokerage, issue and transfer taxes
on sales of the Fund's portfolio securities, custodian and stock transfer
charges, printing, legal and auditing expenses, expenses of shareholders'
meetings, and reports to shareholders.
5. In consideration of the Adviser performing its obligations hereunder,
each Fund will pay to the Adviser an advisory fee, payable monthly, at an annual
rate as follows: of 0.95% of the average daily net assets of the Fund.
6. The Trust understands that the Adviser acts as investment adviser to
other investment companies, and that affiliates of the Adviser act as investment
advisers to individuals, partnerships, corporations, pension funds and other
entities, and the Trust confirms that it has no objection to the Adviser or its
affiliates so acting.
7. This Agreement shall be in effect for a period of two years from the
date hereof. This Agreement shall continue in effect from year to year
thereafter, provided it is approved, at least annually, in the manner required
by the Act. The Act requires that, with respect to each Fund, this Agreement and
any renewal thereof be approved by a vote of a majority of Trustees of the Trust
who are not parties thereto or interested persons (as defined in the Act) of any
such party, cast in person at a meeting duly called for the purpose of voting on
such approval, and by a vote of the Trustees of the Trust or a majority of the
outstanding voting securities of the Fund. A vote of a majority of the
outstanding voting securities of the Fund is defined in the Act to mean a vote
of the lesser of (i) more than 50% of the outstanding voting securities of the
Fund or (ii) 67% or more of the voting securities present at the meeting if more
than 50% of the outstanding voting securities are present or represented by
proxy.
<PAGE>
This Agreement may be terminated at any time, without payment of any
penalty, on sixty (60) days' prior written notice by a vote of a majority of a
Fund's outstanding voting securities, by a vote of a majority of the Trustees of
the Trust, or by the Adviser. This Agreement shall be automatically terminated
in the event of its assignment (as such term is defined in the Act).
8. This Agreement is made by the Trust, on behalf of each Fund, pursuant to
authority granted by the Trustees, and the obligations created hereby are not
binding on any of the Trustees or shareholders of the Fund individually, but
bind only the property of the Fund.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to the undersigned the enclosed copy hereof.
Very truly yours,
EVERGREEN VARIABLE TRUST
on behalf of
Evergreen VA Global Leaders Fund
By:
ACCEPTED:
EVERGREEN ASSET MANAGEMENT CORP.
By:
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
February 28, 1996
Lieber & Company
2500 Westchester Avenue
Purchase, New York 10577
Dear Sirs:
We have entered into an agreement with the Evergreen Variable Trust (the
"Trust"), an investment company organized as a series company, pursuant to which
we act as investment adviser to the Evergreen VA Fund, the Evergreen VA Growth
and Income Fund and the Evergreen VA Foundation Fund series of the Trust (each a
"Fund" and collectively the "Funds"). Accordingly, this will confirm our
agreement as follows:
1. You agree for the duration of this Agreement that you will provide us,
through your research personnel, furnish us with all such factual information
and investment recommendations and such other services as we shall reasonably
request. We shall expect of you, and you shall give us the benefit of, your best
judgement and efforts in rendering these services to us, and we agree as an
inducement to your undertaking such services that you shall not be liable for
any mistake of judgment or in any other event whatsoever, except for lack of
good faith, provided that nothing herein shall be deemed to protect you against
any liability to each Fund or to the shareholders of each Fund to which you
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties hereunder or by reason of your
reckless disregard of your obligations and duties hereunder.
2. We agree to reimburse you on the basis of your direct and indirect
costs of performing the services set forth in paragraph 1 above. Indirect costs
shall be allocated on a basis mutually satisfactory to you and us.
3. As used in this Agreement, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the meanings given to
them by Sections 2(a)(4) and 2(a)(42), respectively, of the Investment Company
Act of 1940, as amended (the "Act").
This Agreement shall be automatically terminated in the event of its
assignment (as such term is defined in the Act), or upon termination of the
above-mentioned agreement between the Trust and the undersigned.
This Agreement may be terminated at any time, with respect to each Fund,
without payment of any penalty, (a) by the Trustees of the Trust or by vote of a
majority of a Fund's outstanding voting securities, or by the undersigned, on
sixty (60) days'
<PAGE>
written notice addressed to you at your principal place of business; and (b) by
you, without payment of any penalty, on sixty (60) days' written notice
addressed to the Trust at the Trust's principal place of business.
This Agreement shall be in effect until June 30, 1998. This Agreement shall
continue in effect from year to year thereafter with respect to each Fund, so
long as such continuance is specifically approved at least annually by a vote of
a majority of Trustees who are not interested persons (as such term is defined
in the Act) of any party to this Agreement, voting in person at a meeting duly
called for the purpose of voting on such approval, and by a vote of the Trustees
of the Trust or a majority of the outstanding voting securities of a Fund. A
vote of a majority of the outstanding voting securities of a Fund is defined in
the Act to mean a vote of the lesser of (i) more than 50% of the outstanding
voting securities of the Fund or (ii) 67% or more of the voting securities
present at the meeting if more than 50% of the outstanding voting securities are
present or represented by proxy.
You agree to advise us of any change in your partnership within a
reasonable time after such a change.
4. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you.
5. It is expected that you will provide brokerage services to the Fund.
Accordingly, you agree to comply with Section 11(a)(1) of the Securities
Exchange Act of 1934 and any rules prescribed by the Securities and Exchange
Commission thereunder, as amended from time to time, with respect to brokerage
transactions effected and/or executed by you on behalf of the Fund. In addition,
you shall furnish at least annually to us a statement setting forth the total
amount of all compensation retained by you in connection with effecting and/or
executing transactions for the account during the period covered by the
statement, as required by Section 11(a)(1).
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart hereof and return the same to us.
Very truly yours,
Evergreen Asset Management Corp.
By:_________________
The foregoing Agreement is
hereby accepted as of the
date first above written
LIEBER & COMPANY
By:_________________
<PAGE>
<PAGE>
[Form of Investment Advisory Agreement]
February 28, 1996
Keystone Investment Management Company
200 Berkeley Street
Boston, Massachusetts
Ladies and Gentlemen:
The undersigned, The Evergreen Variable Trust (the "Trust") on behalf of
its series portfolios the Evergreen VA Strategic Income Fund and the Evergreen
VA Small Company Growth Fund (each a "Fund" and collectively the "Funds"), is an
investment company which desires to employ its capital by investing and
reinvesting the same in securities in accordance with the limitations specified
in its Declaration of Trust and in its Prospectus as from time to time in
effect, copies of which have been, or will be, submitted to you, and in such
manner and to such extent as may from time to time be approved by the Trustees
of the Trust. Subject to the terms and conditions of this Agreement, the Trust
on behalf of the Fund, desires to employ Keystone Investment Management Company
(the "Adviser") and the Adviser desires to be so employed, to supervise and
assist in the management of the business of the Fund. Accordingly, this will
confirm our agreement as follows:
1. The Adviser shall, on a continuous basis, furnish reports, statistical
and research services, and make investment decisions with respect to the Fund's
portfolio of investments. The Adviser shall use its best judgment in rendering
these services to the Fund, and the Fund agrees as an inducement to the Adviser
undertaking such services that the Adviser shall not be liable for any mistake
of judgment or in any other event whatsoever, except for lack of good faith,
provided that nothing herein shall be deemed to protect the Adviser against any
liability to the Fund or to the shareholders of the Fund to which it would
otherwise be subject by reason of wilful misfeasance, bad faith or gross
negligence in the performance of the Adviser's duties hereunder or by reason of
the Adviser's reckless disregard of its obligations and duties hereunder.
2. The Adviser agrees that it will not make short sales of the Fund's
shares of beneficial interest.
<PAGE>
3. The Adviser agrees that in any case where an officer or director of the
Adviser is also an officer or director of another corporation, and the purchase
or sale of securities issued by such other corporation is under consideration,
such officer or director shall abstain from participation in any decision made
on behalf of the Fund to purchase or sell any securities issued by such other
corporation.
4. Each Fund will pay the costs of all of its expenses and liabilities,
including expenses and liabilities incurred in connection with maintaining its
registration under the Investment Company Act of 1940 (the "Act") and the
Securities Act of 1933, as amended, and maintaining any registrations or
qualifications under the securities laws of the states in which the Fund's
shares are registered or qualified for sale, subsequent registrations and
qualifications share certificates, mailing, brokerage, issue and transfer taxes
on sales of the Fund's portfolio securities, custodian and stock transfer
charges, printing, legal and auditing expenses, expenses of shareholders'
meetings, and reports to shareholders.
5. In consideration of the Adviser performing its obligations hereunder,
each Fund will pay to the Adviser an advisory fee, payable monthly, at an annual
rate as follows:
The Adviser is entitled to receive a fee for its services as investment
adviser to EVERGREEN VA STRATEGIC INCOME FUND as follows: 2.0% of gross dividend
and interest income earned by the Fund during _________________ period plus
0.45% of average daily net assets up to $100,000,000; 0.40% of the next
$100,000,000 of average daily net assets; 0.35% of the next $100,000,000 of
average daily net assets; 0.30% of the next $100,000,000 of average daily net
assets; 0.25% of the next $100,000,000 of average daily net assets; and 0.20% of
average daily net assets over $500,000,000, computed as of the close of business
each business day and paid daily.
The Adviser is entitled to receive a fee for its services as investment
adviser to EVERGREEN VA SMALL COMPANY GROWTH FUND as follows: 0.65% of average
daily net assets up to $100,000,000; 0.60% of the next $100,000,000 of average
daily net assets; 0.55% of the next $100,000,000 of average daily net assets;
0.50% of the next $100,000,000 of average daily net assets; 0.45% of the next
$100,000,000 of average daily net assets; 0.40% of the next $500,000,000 of
average daily net assets; 0.35% of the next $500,000,000 of average daily net
assets; and 0.30% of average daily net assets over $1,500,000,000, computed as
of the close of business each business day and paid daily.
6. The Trust understands that the Adviser acts as investment adviser to
other investment companies, and that affiliates of the Adviser act as investment
advisers to individuals, partnerships, corporations, pension funds and other
entities, and the Trust confirms that it has no objection to the Adviser or its
affiliates so acting.
7. This Agreement shall be in effect for a period of two years from the
date hereof. This Agreement shall continue in effect from year to year
thereafter, provided it is approved, at least annually, in the manner required
by the Act. The Act requires that, with respect to each Fund, this Agreement and
any renewal thereof be approved by a vote of a majority of Trustees of the Trust
who are not parties thereto or interested persons (as defined in the Act) of any
such party, cast in person at a meeting duly called for the purpose of voting on
such approval, and by a vote of the Trustees of the Trust or a majority of the
outstanding voting securities of the Fund. A vote of a majority of the
outstanding voting securities of the Fund is defined in the Act to mean a vote
of the lesser of (i) more than 50% of the outstanding voting securities of the
Fund or (ii) 67% or more of the voting securities present at the meeting if more
than 50% of the outstanding voting securities are present or represented by
proxy.
<PAGE>
This Agreement may be terminated at any time, without payment of any
penalty, on sixty (60) days' prior written notice by a vote of a majority of a
Fund's outstanding voting securities, by a vote of a majority of the Trustees of
the Trust, or by the Adviser. This Agreement shall be automatically terminated
in the event of its assignment (as such term is defined in the Act).
8. This Agreement is made by the Trust, on behalf of each Fund, pursuant to
authority granted by the Trustees, and the obligations created hereby are not
binding on any of the Trustees or shareholders of the Fund individually, but
bind only the property of the Fund.
If the foregoing is in accordance with your understanding, please so
indicate by signing and returning to the undersigned the enclosed copy hereof.
Very truly yours,
EVERGREEN VARIABLE TRUST
on behalf of
Evergreen VA Fund, the Evergreen VA Growth and Income
Fund and the Evergreen VA Foundation Fund
By:
ACCEPTED:
EVERGREEN ASSET MANAGEMENT CORP.
By:
SUB-ADMINISTRATOR AGREEMENT
This Sub-Administrator Agreement is made as of this 1st day of
January, 1997 between Evergreen Asset Management Corp., a New York corporation
(herein called "EAMC"), and BISYS Fund Services Limited Partnership DBA as BISYS
Fund Services, an Ohio Limited Partnership (herein called "BISYS").
WHEREAS, EAMC has been appointed as investment adviser or
administrator to certain open-end management investment companies, or to one or
more separate investment series thereof, listed on Schedule A, as the same may
be amended from time to time to reflect additions or deletions of such companies
or series, which are registered under the Investment Company Act of 1940 (the
"Funds");
WHEREAS, in its capacity as investment adviser or
administrator to the Funds, EAMC has the obligation to provide, or engage others
to provide, certain administrative services to the Funds; and
WHEREAS, EAMC desires to retain BISYS as Sub-Administrator to
the Funds for the purpose of providing the Funds with personnel to act as
officers of the Funds and to provide certain administrative services in addition
to those provided by EAMC ("Sub-Administrative Services"), and BISYS is willing
to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Sub-Administrator. EAMC hereby appoints BISYS as
Sub-Administrator for the Funds on the terms and conditions set forth in this
Agreement and BISYS hereby accepts such appointment and agrees to perform the
services and duties set forth in Section 2 of this Agreement in consideration of
the compensation provided for in Section 4 hereof.
2. Services and Duties. As Sub-Administrator, and subject to the supervision and
control of EAMC and the Trustees or Directors of the Funds, BISYS will hereafter
provide facilities, equipment and personnel to carry out the following
Sub-Administrative services to assist in the operation of the business and
affairs of the Funds:
(a) provide individuals reasonably acceptable to the Funds for
nomination, appointment or election as officers of the Funds and who
will be responsible for the management of certain of each Fund's
affairs as determined from time to time by the Trustees or Directors of
the Funds;
(b) review filings with the Securities and Exchange Commission and
state securities authorities that have been prepared on behalf of the
Funds by the administrator and take such actions as may be reasonably
requested by the administrator to effect such filings;
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1
<PAGE>
(c) verify, authorize and transmit to the custodian, transfer agent and
dividend disbursing agent of each Fund all necessary instructions for
the disbursement of cash, issuance of shares, tender and receipt of
portfolio securities, payment of expenses and payment of dividends; and
(d) advise the Trustees or Directors of the Funds on matters
concerning the Funds and their affairs.
BISYS may, in addition, agree in writing to perform additional
Sub-Administrative Services for the Funds. Sub-Administrative Services shall not
include investment advisory services or any duties, functions, or services to be
performed for the Funds by their distributor, custodian or transfer agent
pursuant to their agreements with the Funds.
3. Expenses. BISYS shall be responsible for expenses incurred in providing
office space, equipment and personnel as may be necessary or convenient to
provide the Sub-Administrative Services to the Funds. EAMC and/or the Funds
shall be responsible for all other expenses incurred by BISYS on behalf of the
Funds pursuant to this Agreement at the direction of EAMC, including without
limitation postage and courier expenses, printing expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, insurance
premiums, fees payable to Trustees or Directors who are not BISYS employees, and
trade association dues.
4. Compensation. For the Sub-Administrative Services provided, EAMC hereby
agrees to pay and BISYS hereby agrees to accept as full compensation for its
services rendered hereunder a sub-administrative fee, calculated daily and
payable monthly at an annual rate based on the aggregate average daily net
assets of the Funds, or separate series thereof, set forth on Schedule A and
determined in accordance with the table below.
Aggregate Daily Net Assets of Funds For
Which KIMCO, Evergreen Asset Management
Sub-Administrative Corp., First Union National Bank of North
Fee as a % of Carolina or any Affiliates Thereof Serve as
Average Annual Investment Adviser or Administrator And For
Daily Net Assets Which BISYS Serves as Sub-Administrator
.0100% on the first $7 billion
.0075% on the next $3 billion
.0050% on the next $15 billion
.0040% on assets in excess of $25 billion
5. Indemnification and Limitation of Liability of BISYS. The duties of BISYS
shall be limited to those expressly set forth herein or later agreed to in
writing by BISYS, and no implied duties are assumed by or may be asserted
against BISYS hereunder. BISYS shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any act or omission in carrying
out its duties hereunder, except a loss resulting from willful misfeasance, bad
faith or negligence in the
D:\JPW\LIEBER\AGREMENT\SUBADMIN\SUBADM1.EAM
2
<PAGE>
performance of its duties, or by reason of reckless disregard of its obligations
and duties hereunder, except as may otherwise be provided under provisions of
applicable law which cannot be waived or modified hereby. (As used in this
Section, the term "BISYS" shall include partners, officers, employees and other
agents of BISYS as well as BISYS itself)
So long as BISYS acts in good faith and with due diligence and without
negligence, EAMC shall indemnify BISYS and hold it harmless from any and all
actions, suits and claims, and from any and all losses, damages, costs, charges,
reasonable counsel fees and disbursements, payments, expenses and liabilities
(including reasonable investigation expenses) arising directly or indirectly out
of BISYS' actions taken or nonactions with respect to the performance of
services hereunder. The indemnity and defense provisions set forth herein shall
survive the termination of this Agreement for a period of three years.
The rights hereunder shall include the right to reasonable advances of
defense expenses in the event of any pending or threatened litigation with
respect to which indemnification hereunder may ultimately be merited. In order
that the indemnification provision contained herein shall apply, however, it is
understood that if in any case EAMC maybe asked to indemnify or hold BISYS
harmless, EAMC shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood that BISYS
will use all reasonable care to identify and notify EAMC promptly concerning any
situation which presents or appears likely to present the probability of such a
claim for indemnification against EAMC.
EAMC shall be entitled to participate at its own expense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity provision. If EAMC elects to assume the defense of any such
claim, the defense shall be conducted by counsel chosen by EAMC and satisfactory
to BISYS, whose approval shall not be unreasonably withheld. In the event that
EAMC elects to assume the defense of any suit and retain counsel, BISYS shall
bear the fees and expenses of any additional counsel retained by it. If EAMC
does not elect to assume the defense of a suit, it will reimburse BISYS for the
reasonable fees and expenses of any counsel retained by BISYS.
BISYS may apply to EAMC at any time for instructions and may consult
counsel for EAMC or its own counsel and with accountants and other experts with
respect to any matter arising in connection with BISYS' duties, and BISYS shall
not be liable or accountable for any action taken or omitted by it in good faith
in accordance with such instruction or with the opinion of such counsel,
accountants or other experts.
Any person, even though also an officer, director, partner, employee or
agent of BISYS, who may be or become an officer, trustee, employee or agent of
the Funds, shall be deemed, when rendering services to a Fund or acting on any
business of a Fund (other than services or business in connection with the
duties of BISYS hereunder) to be rendering such services to or acting solely for
the Fund and not as an officer, director, partner, employee or agent or one
under the control or direction of BISYS even though paid by BISYS.
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<PAGE>
6. Duration and Termination.
(a) The initial term of this Agreement (the "Initial Term") shall
commence on the date this Agreement is executed by both parties, shall continue
until April 30, 1998, and shall continue in effect for a Fund from year to year
thereafter, provided it is approved, at least annually, by a vote of a majority
of Directors/Trustees of the Funds, including a majority of the disinterested
Directors/Trustees. In the event of' any breach of this Agreement by either
party, the non-breaching party shall notify the breaching party in writing of
such breach and upon receipt of such notice, the breaching party shall have 45
days to remedy the breach except in the case of a breach resulting from fraud or
other acts which materially and adversely affects the operations or financial
position of the Funds. In the event any material breach is not remedied within
such time period, the nonbreaching party may immediately terminate this
Agreement.
Notwithstanding the foregoing, after such termination for so long as
BISYS, with the written consent of EAMC, in fact continues to perform any one or
more of the services contemplated by this Agreement or any schedule or exhibit
hereto, the provisions of this Agreement, including without limitation the
provisions dealing with indemnification, shall continue in full force and
effect. Compensation due BISYS and unpaid by EAMC upon such termination shall be
immediately due and payable upon and notwithstanding such termination. BISYS
shall be entitled to collect from EAMC, in addition to the compensation
described herein, all costs reasonably incurred in connection with BISYS's
activities in effecting such termination, including without limitation, the
delivery to the Funds and/or their designees of each Fund's property, records,
instruments and documents, or any copies thereof. To the extent that BISYS may
retain in its possession copies of any Fund documents or records subsequent to
such termination which copies had not been requested by or on behalf of a Fund
in connection with the termination process described above, BISYS will provide
such Fund with reasonable access to such copies; provided, however, that, in
exchange therefor, EAMC shall reimburse BISYS for all costs reasonably incurred
in connection therewith.
(b) Subject to (c) below, this Agreement may be terminated at any time,
without payment of any penalty, on sixty (60) day's prior written notice by
KIMCO, or by BISYS and, with respect to one or more of the Funds a vote of a
majority of such Fund's or Funds' Directors/Trustees.
(c) If, during the first six months this Agreement is in effect it is
terminated for a Fund or Funds in accordance with (b) above, for any reason
other than a material breach of this Agreement, the merger of a Fund or Funds
for which KIMCO, Evergreen Asset Management Corp., First Union National Bank of
North Carolina or any affiliates thereof act as investment adviser, or any other
event that leads to the termination of the existence of a Fund or Funds, and
BISYS is replaced as sub-administrator, then EAMC shall make a one-time cash
payment to BISYS equal to the unpaid balance due BISYS for the first six-months
this Agreement in effect, assuming for purposes of calculation of the payment
that the asset level of each Fund on the date BISYS is replaced will remain
constant for the balance of such term. Once this Agreement has been in effect
for more than six months from the commencement date, this paragraph (c) shall be
null, void and of no further effect.
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<PAGE>
7. Amendment. No provision of this Agreement may be changed, waived, discharged
or terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
8. Notices. Notices of any kind to be given to EAMC hereunder by BISYS shall be
in writing and shall be duly given if delivered to EAMC at the following
address: Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577, ATT: Legal Department. Notices of any kind to be given to BISYS
hereunder by EAMC or the Funds shall be in writing and shall be duly given if
delivered to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219 Attention: George
O. Martinez, Senior Vice President.
9. Limitation of Liability. BISYS is hereby expressly put on notice of the
limitations of liability as set forth in the Declarations of Trust of the Funds
that are Massachusetts business trusts or series thereof and agrees that the
obligations pursuant to this Agreement of a particular Fund be limited solely to
the assets of that particular Fund, and BISYS 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 any Fund, or any of them.
10. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. Subject to the provisions of Section 5 hereof, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and shall be governed by New York law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
above written.
EVERGREEN ASSET MANAGEMENT CORP.
By________________________________________
Its:________________________________________
Attest:_________________
BISYS FUND SERVICES LIMITED PARTNERSHIP
By________________________________________
BISYS FUND SERVICES, INC., its General Partner
Attest:________________________
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<PAGE>
SCHEDULE A
Evergreen Trust on behalf of:
Evergreen Fund
The Evergreen Aggressive Growth Fund
The Evergreen Total Return Fund
The Evergreen Limited Market Fund, Inc.
Evergreen Growth and Income Fund
Evergreen Money Market Trust on behalf of:
Evergreen Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Treasury Money Market Fund
The Evergreen American Retirement Trust on behalf of:
Evergreen American Retirement Fund
Evergreen Small Cap Equity Income Fund
The Evergreen Municipal Trust on behalf of:
Evergreen Short-Intermediate Municipal Fund
Evergreen Short-Intermediate Municipal Fund-CA
Evergreen Tax Exempt Money Market Fund
Evergreen Florida High Income Municipal Bond Fund
Evergreen Institutional Tax-Exempt Money Market Fund
Evergreen Equity Trust on behalf of:
Evergreen Global Real Estate Equity Fund
Evergreen U.S. Real Estate Equity Fund
Evergreen Global Leaders Fund
Evergreen Foundation Trust on behalf of:
Evergreen Foundation Fund
Evergreen Tax Strategic Foundation Fund
Evergreen Investment Trust on behalf of:
Evergreen Emerging Markets Growth Fund
Evergreen International Equity Fund
Evergreen Balanced Fund
Evergreen Value Fund
Evergreen Utility Fund
Evergreen Short-Intermediate Bond Fund
Evergreen Florida Municipal Bond Fund
Evergreen Georgia Municipal Bond Fund
Evergreen North Carolina Municipal Bond Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Treasury Money Market Fund
Evergreen U.S. Government Fund
Evergreen Variable Trust on behalf of:
Evergreen VA Foundation Fund
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Strategic Income Fund
Evergreen VA Small Company Growth Fund
Evergreen VA Global Leaders Fund
Evergreen Tax Free Trust on behalf of:
Evergreen New Jersey Tax-Free Income Fund
Evergreen Pennsylvania Tax-Exempt Money Market Fund
Evergreen Lexicon Fund on behalf of:
Evergreen Fixed Income Fund
Evergreen Short-Intermediate U.S. Government Securities Fund
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<PAGE>
