<PAGE>
EVERGREEN VA FUNDS
1996 ANNUAL REPORT
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Growth and Income Fund
<PAGE>
EVERGREEN VA FUND
A Report From Your
Portfolio Manager
Stephen A. Lieber
Since its inception on March 1, 1996, Evergreen VA Fund provided a
14.9%* total return through December 31. This compares with the total return of
13.1% for the Russell 2000 Index**, which serves as a useful benchmark for
smaller company investment. (Please see page 3 for additional performance
information.) The Fund's performance leaders in 1996 were a diverse group of
companies, both in business and in size. Of the top ten performing holdings in
the Fund, which increased from 36.5% to 131.9% during the period under review,
four were in technology businesses. The single largest contributor was Intel
Corp., with an actual as-weighted return of 131.9% on the entire position, while
more specialized technology companies Harman International Industries, Inc.,
Andrew Corp. and Cisco Systems, Inc., had actual as-weighted returns of 56.7%,
53.0% and 36.5%, respectively, on their entire positions. The top sector
performances were real estate, business equipment & services, electrical
equipment & services, and finance & insurance.
The basic undervaluation of many of the Fund's holdings and purchases
was demonstrated by announced merger and acquisition activity during the fiscal
year for FlightSafety International, Inc. and Leslie's Poolmart. One of the
Fund's original holdings, Baybanks, Inc., was purchased after the acquisition
announcement by Bank of Boston Corp. These shares were tendered to Bank of
Boston for a 10.3% gain after a five-month holding. This trend has continued
into 1997, with a $40 acquisition bid received by American Medical Response,
Inc., only days after our initial purchase at $28.19 in late December and for
Kysor Industrial Corp., with a $43 bid for an investment begun by the Fund in
September 1996, at an average cost of $30.64.
The primary activity of the Fund since its inception has been to invest
in undervalued growth equities during periods of negative market volatility or
disregard of fundamental growth potentials for specific companies. Twelve of the
twenty best performing purchases for the fiscal year were purchased at the
inception of the Fund. These purchases were: Intel Corp., +127.5% through
year-end; Jones Apparel Group, Inc., +78.2%; Harman International Industries,
Inc. +41.7%; Heartland Express Inc., +38.9%; Cisco Systems, Inc., +36.8%;
Leggett & Platt, Inc., +36.7%; Aspect Telecommunications Corp., +36.2%; Andrew
Corp., +36.1%; American Business Information, Inc., +34.9%; AMBAC Inc., +34.5%;
Avnet, Inc., +32.4%; and Countrywide Credit Industries Inc., +30.6%. The
heaviest purchasing was done in technology issues.
Evidence at year-end 1996, and in the first weeks of January of 1997,
suggests a broadened investment interest in smaller companies with unique
product or service dynamics enhancing their profit opportunities. Performance
leadership in the Fund has lately been in technology-based issues such as Atmel
Corp., Input/Output, Inc. and Andrew Corp. This illustrates what, we believe, is
a significant shift toward a broadening search for undervaluation of businesses
with quality franchises, and potential candidates for the acquisition by large
companies. With a portfolio of 93 issues, mostly small to medium-sized companies
(with 20% of the portfolio in larger capitalization entrepreneurial growth
companies), we believe the Fund is well positioned for this potential.
Additionally, major holdings in leading regional banks, innovative
pharmaceutical leaders, and key technology companies, provide further growth
potential. Three of the portfolio's positions were sold for gains during the
fiscal year: Lennar Corp. for a 15.4% gain in two months; Herman Miller, Inc.,
for a 23.0% gain in five months; and Rouse Co. for a 25.3% gain in three months.
A portion of the Heilig-Meyers Co. position was sold for a 23.0% gain in three
months.
Figures represent past performance which is no guarantee of future results.
*Performance figures include reinvestment of income dividend and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
**An unmanaged reinvested index of selected securities
<PAGE>
EVERGREEN VA FUND
A Report From Your
Portfolio Manager (continued)
Outlook
The Fund's strategies for the new fiscal year continue to focus on the
search for excellent entrepreneurial management in securities we believe to be
undervalued with growth opportunities. Notwithstanding a possible slowing of the
economy, we believe there are an ample number of companies meeting these
growth-oriented qualifications. Strong products and services which create new
demand is, in our view, going to be the main focus of the investment search in a
less ebullient economy. Liquidity is likely to remain high due to the lower
interest rates and the restraints being imposed on a budget-conscious business
and governmental community. Liquidity for investment should also remain high so
long as low inflation rates and modest growth continues to characterize the
economy. We anticipate a period when corporations are likely to be generating
enough free cash to add to the demand for equities through buybacks, which may
well offset the supply through new issues. In this environment, the dynamic
leaders in a broad variety of segments of industries and sectors of the economy
will stand out as beacons to attract investors who find an otherwise uninspiring
trend of corporate profits. Our aim is to hold and buy the profits leaders,
especially when we consider them comparatively undervalued.
We appreciate the broadening investor interest in the Evergreen VA Fund
during the past fiscal year, and welcome the many new shareholders who have
joined it.
<PAGE>
EVERGREEN VA FUND
Results to Date
Performance of $10,000 invested in the Evergreen VA Fund
The graph below compares a $10,000 investment in the Evergreen VA Fund with a
similar investment in the Russell 2000 Index and the NASDAQ OTC Index
("Indexes").
Evergreen Russell NASDAQ
VA Fund 2000 Index OTC Index
03/01/96* $10,000 $10,000 $10,000
03/31/96 $9,960 $10,204 $10,012
04/30/96 $10,380 $10,750 $10,822
05/31/96 $10,810 $11,173 $11,302
06/30/96 $10,590 $10,714 $10,771
07/31/96 $10,020 $9,779 $9,822
08/31/96 $10,380 $10,347 $10,376
09/30/96 $10,850 $10,752 $11,152
10/31/96 $10,870 $10,586 $11,103
11/30/96 $11,460 $11,022 $11,750
12/31/96 $11,486 $11,311 $11,735
* Commencement of operations.
Past performance is not predictive of future performance results. Mutual Funds
are not obligations of, or guaranteed by, any bank and are not federally
insured.
For the purposes of the graph and accompanying table, it has been assumed that
all recurring fees (including the investment advisory fee) were deducted and all
dividends and distributions were reinvested.
The Indexes are unmanaged and include the reinvestment of income, but do not
reflect the payment of transaction costs and advisory fees associated with an
investment in the Fund.
<PAGE>
EVERGREEN VA FUND
Statement of Investments
December 31, 1996
Shares Value
COMMON STOCKS-90.8%
Banks - 7.1%
440 Bank of Boston Corp. $28,270
4,000 Comerica, Inc. 209,500
3,000 First of America Bank Corp. 180,375
6,000 First Palm Beach Bancorp, Inc. 141,750
4,000 Hibernia Corp. Cl. A 53,000
6,000 Seacoast Banking Corp. of
Florida Cl. A 156,375
-------------
769,270
-------------
Building, Construction &
Furnishings - 7.0%
13,250 Cavalier Homes, Inc. 152,375
12,500 Clayton Homes, Inc. 168,750
2,000 Kaufman & Broad Home Corp. 25,750
3,000 * M/I Schottenstein Homes, Inc. 33,000
10,000 * Morgan Products, Ltd. 73,750
10,000 * Toll Brothers, Inc. 195,000
4,500 * US Home Corp. 117,000
-------------
765,625
-------------
Business Equipment &
Services - 2.9%
1,000 * Cisco Systems, Inc. 63,625
6,000 * Input/Output, Inc. 111,000
3,000 * Metromail Corp. 54,750
3,000 * Verifone, Inc. 88,704
-------------
318,079
------------
Chemical & Agricultural
Products - 1.4%
1,000 Schulman (A.), Inc. 24,500
2,000 Sigma-Aldrich Corp. 124,875
------------
149,375
------------
Communication Systems &
Services - 2.9%
500 * Aspect Telecommunications Corp. 31,750
2,000 * Coherent, Inc. 84,500
5,000 * InterCel, Inc. 61,250
3,000 * Inter-Tel, Inc. 57,000
2,000 Sprint Corp. 79,750
-------------
314,250
-------------
Shares Value
Consumer Products Services -
5.4%
2,000 *American Business Information,
Inc. $44,500
2,700 *CUC International, Inc. 64,125
1,000 Gucci Group 63,875
10,000 Heilig-Meyers Co. 162,500
5,000 K2, Inc. 137,500
3,000 Toro Co. (The) 109,500
------------
582,000
------------
Diversified Companies - 1.0%
5,000 Furon Co. 106,250
------------
Electrical Equipment &
Electronics - 16.6%
1,500 *ADFlex Solutions, Inc. 15,375
2,000 AMP, Inc. 76,750
6,750 *Analytical Surveys, Inc. 66,656
1,750 *Andrew Corp. 92,859
4,000 *Atmel Corp. 132,500
3,000 Avnet, Inc. 174,750
3,200 Baldor Electric Co. 78,800
3,000 Fair Issac & Co., Inc. 117,375
3,100 Harman International
Industries,Inc. 172,438
3,000 Hewlett-Packard Co. 150,750
1,500 Intel Corp. 196,406
1,000 Intel Corp.warrants-expiring
3/14/98 92,250
1,200 *Microsoft Corp. 99,150
5,000 Park Electrochemical Corp. 113,750
4,000 Robbins & Myers, Inc. 100,000
4,000 *Sun Microsystems, Inc. 102,750
2,000 *Trimble Navigation, Ltd. 23,000
------------
1,805,559
------------
Finance & Insurance - 5.8%
1,500 AMBAC, Inc. 99,563
4,000 Countrywide Credit Industries, 114,500
Inc.
1,000 Federal National Mortgage Assn. 37,250
4,000 *Leasing Solutions, Inc. 103,000
2,000 Merrill Lynch & Co., Inc. 163,000
1,500 MGIC Investment Corp. 114,000
-----------
631,313
-----------
Shares Value
COMMON STOCKS - continued
Healthcare Products &
Services - 13.1%
5,000 * American Medical Response, Inc. $162,500
3,000 Arrow International, Inc. 86,250
5,000 Beckman Instruments, Inc. 191,875
2,850 Columbia / HCA Healthcare Corp. 116,137
2,000 Johnson & Johnson 99,500
2,000 Lilly (Eli) & Co. 146,000
2,000 * Living Centers of America, Inc. 55,500
1,000 McKesson Corp. 56,000
1,000 Merck & Co., Inc. 79,250
2,000 Pfizer, Inc. 165,750
2,000 * St. Jude Medical, Inc. 85,250
6,000 Stryker Corp. 179,250
-------------
1,423,262
-------------
Industrial Specialty Products
& Services - 14.7%
2,000 AptarGroup, Inc. 70,500
500 * Broderbund Software, Inc. 14,875
3,000 Dover Corp. 150,750
6,000 Fisher Scientific
International, Inc. 282,750
2,000 FlightSafety Int'l, Inc. 100,000
1,200 Kaydon Corp. 56,550
5,500 Kysor Industrial Corp. 179,437
2,000 Leggett & Platt, Inc. 69,250
1,000 Nacco Industries, Inc. Cl. A 53,500
4,625 * Paxar Corp. 79,781
4,250 Snap-on, Inc. 151,406
6,000 Spartech Corp. 66,750
4,000 Teleflex, Inc. 208,500
2,900 * UCAR International, Inc. 109,113
-------------
1,593,162
-------------
Publishing, Broadcasting &
Entertainment - 2.0%
5,200 A. H. Belo Corp. 181,350
1,500 * Evergreen Media Corp. Cl. A 37,500
-------------
218,850
-------------
Shares Value
Real Estate - 4.0%
500 *Alexander's, Inc. $39,563
5,000 Evans Withycombe Residential, Inc. 105,000
3,000 *HFS, Inc. 179,250
2,000 Starwood Lodging Trust 110,250
------------
434,063
------------
Retailing & Wholesale - 3.1%
6,000 *Cole National Corp. 157,500
1,200 *Jones Apparel Group, Inc. 44,850
5,000 *Leslie's Poolmart 64,375
2,000 Lowe's Cos., Inc. 71,000
------------
337,725
------------
Thrift Institutions - 1.3%
8,800 York Financial Corp. 143,000
------------
Transportation - 2.5%
3,000 *Heartland Express, Inc. 73,125
9,000 Southwest Airlines Co. 199,125
------------
272,250
-----------
Total Common Stocks
(cost $8,947,937) 9,864,033
------------
Principal
Amount
SHORT-TERM INVESTMENTS - 11.0%
Government Agency Notes & Bonds - 11.0%
Federal Home Loan Mortgage Corp.
$800,000 5.60%, 1/7/97 799,254
400,000 5.43%, 1/21/97 398,793
-----------
Total Short-Term Investments
(cost $1,198,047) 1,198,047
-----------
Total Investments - 101.8%
(cost $10,145,984) 11,062,080
Other Assets and
Liabilities - net - (1.8%) (199,614)
-----------
Net Assets - 100% $10,862,466
------------
* Non-income producing securities.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FUND
Statement of Assets and Liabilities
December 31, 1996
Assets:
Investments at value (identified cost $10,145,984).............. $11,062,080
Cash....................................................... 35,239
Unamortized organization expenses.......................... 18,035
Dividends receivable....................................... 9,099
Prepaid expenses............................................ 8,240
-----------
Total assets......................................... 11,132,693
-----------
Liabilities:
Payable for investment securities purchased................. 230,680
Accrued expenses............................................. 39,547
-----------
Total liabilities........................................ 270,227
-----------
Net assets....................................................... $10,862,466
===========
Net assets consist of:
Paid-in capital............................................. $ 9,931,411
Distributions in excess of net investment income........... (1,372)
Undistributed net realized gain on investments........... 16,331
Net unrealized appreciation of investments.................. 916,096
-----------
Net assets.............................................. $10,862,466
===========
Calculation of net asset value per share:
Based on 952,206shares of beneficial interest outstanding
(unlimited shares authorized of $.0001 par value) ............. $11.41
======
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FUND
Statement of Operations
March 1, 1996* through December 31, 1996
Investment income:
Dividends (net of foreign withholding taxes $45)......... $ 47,970
Interest................................................ 46,702
------------
Total investment income .............................. 94,672
Expenses:
Advisory fee......................................... $ 48,143
Administrative personnel and service fees................. 2,372
Custodian fee..................................... 31,844
Professional fees........................................ 17,999
Transfer agent expense.................................... 6,872
Reports and notices to shareholders....................... 6,000
Amortization of organization expenses...................... 3,632
Trustee fees and expenses................................ 1,499
Miscellaneous..................................... 1,998
--------
Total expenses........................................ 120,359
Less: Fee waivers and expense reimbursements.......... (69,684)
--------
Net expenses................................................... 50,675
--------
Net investment income........................................ 43,997
--------
Net realized and unrealized gain on investments:
Net realized gain on investments transactions................... 42,797
Net unrealized appreciation of investments................... 916,096
---------
Net gain on investments............................................ 958,893
----------
Net increase in net assets resulting from operations............ $1,002,890
==========
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FUND
Statement of Changes in Net Assets
March 1, 1996* through December 31, 1996
Increase (decrease) in net assets:
Operations:
Net investment income...................................... $ 43,997
Net realized gain on investments transactions.......... 42,797
Net unrealized appreciation of investments............. 916,096
------------
Net increase in net assets resulting from operations. 1,002,890
-----------
Distributions to shareholders:
From net investment income............................. (43,997)
In excess of net investment income..................... (1,372)
From net realized gain on investments transactions..... (26,466)
-------------
Total distributions to shareholders.................. (71,835)
-------------
Fund share transactions:
Proceeds from shares sold................................... 10,637,851
Proceeds from reinvestment of distributions................ 71,835
Payments from shares redeemed.............................. (811,608)
-------------
Net increase resulting from Fund share transactions...... 9,898,078
-------------
Net increase in net assets............................. 10,829,133
Net assets:
Beginning of period........................................... 33,333
------------
End of period (including distributions in excess of
net investment income of $1,372).......................... $10,862,466
Shares of Beneficial Interest:
Shares sold................................................. 1,018,981
Issued on reinvestment of distributions.................. 6,296
Shares redeemed.............................................. (76,404)
-------------
Total net increase resulting from Fund share transactions..... 948,873
=============
* Commencement of operations.
See accompanying notes to financial statements
<PAGE>
EVERGREEN VA FUND
Financial Highlights
March 1, 1996* through December 31, 1996
Per Share Data :
Net asset value, beginning of period........................ $10.00
Income from investment operations:
Net investment income............................................. .05
Net realized and unrealized gain on investments............ 1.44
-------
Total income from investment operations........................... 1.49
-------
Less distributions to shareholders from:
Netinvestment income........................................... (.05)
Net realized gain on investments.................................. (.03)
--------
Total distributions....................................... (.08)
--------
Net asset value, end of period...........................................$11.41
======
Total Return+...................................................... 14.9%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)......................... $10,862
Ratios to average net assets:
Expenses.................................................................1.00%#
Net investment income............................................... .87%#
Portfolio turnover rate.................................................. 6%
Average commission rate paid per share............................... $0.0661
* Commencement of operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized.
# Annualized and net of expense waivers and reimbursements. If the Fund had
borne all expenses that were assumed or waived by the investment adviser, the
annualized ratios of expenses and net investment loss to average net assets
would have been the following:
March 1, 1996*
through
December 31,
1996
Expenses................................................ 2.38%
Net investment loss..................................... (.51%)
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FOUNDATION FUND
A Report From Your
Portfolio Manager
Stephen A. Lieber
Since its inception on March 1, 1996, Evergreen VA Foundation Fund
provided a 15.3% total return through December 31. Nineteen-ninety six was a
challenging year to start this Fund, with a substantial decline in the United
States government bond market leading your management to make minimal initial
bond commitments, followed by further purchases on bond market weakness. Profits
were achieved on all bond commitments by year-end.
Inflation fears led to a rising so-called "inflation premium" in the
bond market, bringing the sharp decline through May. These fears were stimulated
by the publication of statistics showing a rising trend of employment. While our
forecasts and analysis of current trends did not suggest that inflation would
increase - which proved correct in full-year statistics - nonetheless, we
recognized that in the prevailing environment, we could best seek returns by
allocating to a higher proportion of stocks in the portfolio. By year-end, the
asset allocation was 73.2% in equities, 21.6% in intermediate and long-term
bonds, and 5.2% in short-term investments and cash equivalents, as compared with
the allocation at the Fund's first month-end of 38.8% in equities, 7.6% in
long-term bonds, and 53.6% in short-term cash equivalents. While striving to
maintain a low-risk and comparatively high-yield portfolio of the highest
quality bonds as a risk-averse core for the Fund's investments, the Fund also
seeks to provide capital appreciation primarily through common stocks.
Our strategy for the use of cash equivalents was to treat these funds
as a reserve to buy common stocks in periods of market volatility, sector or
company weakness. They allowed for a quick and sizable response to the
appearance of what your management considered to be bargain buying
opportunities. There were several opportunities for such purchases during the
year. During the major decline in the summer, dynamic growth companies were
added to the portfolio on an undervalued basis. Sizable returns were achieved by
year-end in purchases such as: Apartment Investment & Management Co. +51.1%;
Applied Power, Inc., +39.9%; and Medtronic, Inc., +35.5%. During the tax-loss
selling period at year-end, we had further opportunities to purchase growth
stocks on a value basis. Among these new positions were Frontier Corp. and
CarrAmerica Realty Corp.
The strategy of buying growth stocks on a value basis provided
substantial appreciation since the inception of the Fund. The Fund's top ten
holdings in terms of performance in the portfolio included Apartment Investment
& Management Co. , Applied Power, Inc., and Medtronic Inc., mentioned above,
Intel Corp., +126.9%; Microsoft Corp., +75.7%; Harman International Industries,
Inc., +50.8%; Leggett & Platt, Inc., +47.6%; Raymond James Financial, Inc.,
+40.3%; Conrail, Inc., +34.6%; and Cisco Systems, Inc., +34.1%.
The bottom ten performers for the fiscal year declined between 7.0% and
30.8%. Seven of these ten have reversed their 1996 declines subsequent to the
fiscal year-end.
An important factor in both realized and unrealized gains for the
fiscal year was corporate mergers and acquisitions, even though the Fund is only
ten months old. Typically, the Evergreen Funds, which are focused on the
purchase of growth on an undervalued basis, find that a significant percentage
of holdings are subsequently acquired by other corporations. The results of this
Fund in 1996 followed the pattern. Six of the Fund's 76 holdings received
acquisition bids during the year. Two of the acquisitions were completed, with
gains of 32.4% in the case of First Colony Corp., which was acquired by General
Electric Co.,
Figures represent past performance which is no guarantee of future results.
*Performance figures include reinvestment of income dividend and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
<PAGE>
EVERGREEN VA FOUNDATION FUND
A Report From Your
Portfolio Manager (continued)
and 10.4% in U. S. HealthCare, Inc., one of the original holdings of the
Fund, which was sold after the acquisition announcement byAetna, Inc. The Fund's
position in PHH Corp., was sold after the acquisition announcement by HFS, Inc.
for a 70.3% gain. We then purchased additional shares during tax-loss selling at
year-end. Baybanks, Inc. was also purchased for the Fund at its inception, but
after the acquisition announcement by BankBoston Corp. The Fund received the
Bank of Boston Corp. shares at a gain of 14.1% over the cost of the Baybanks,
Inc. shares, and we continue to hold them in the portfolio. The pending
acquisitions as of year-end are FlightSafety International, Inc., Conrail, Inc.,
and Standard Federal Bancorporation, Inc.
Several gains were taken during the fiscal year as well. These ranged
from 31.5% in the shares of Monsanto Co. after a three-month holding period, to
13.9% in shares of Tupperware Corp., after a two-month period, to 11.6% in
Bankers Trust New York Corp. after a six-month period, to 10.1% in a partial
sale of Merrill Lynch & Co., Inc., after a three-month period.
While seeking companies whose undervaluation may be eventually realized
through acquisition, we also concentrate research and stock selection on
companies which are in the process of a corporate restructuring which will
unlock values. One such holding purchased during the year in this category was
the shares of E. I. Du Pont de Nemours & Co., Inc. We see its potential not
merely as unlocking values, but also as transitioning the company into
concentrating on its growth potential. This is consistent with our whole
"value-timing" strategy of seeking undervalued growth opportunities. Entering
the new year, we see the Fund as positioned for an environment of moderate
economic growth with inflation held in check. The best investment returns are
likely to come from companies with outstanding new products or services, the
ability to generate new markets, or to reveal underlying, but hitherto obscured
growth trends. We believe such equities should outperform the market. Our fixed
income commitment will continue to be subject to adjustment, as business trends
and underlying economic pressures materialize. We anticipate that this will be a
year of much more governmental effort to achieve a long-term budget solution,
which should further deflate investor inflationary expectations. The economy
should continue to have limited price rises due to heightened international
competition, as a consequence of the increase of the dollar versus other
currencies, and of the spread of industrial capacity worldwide. Corporations
will, we believe, continue to show voracious appetites for buying other
companies to supplement their own growth potential, while utilizing the excess
cash generated in the strong economy of the last few years to buy back their
shares and, thus, provide enhanced earnings power for continuing shareholders.
This is an environment which, we believe, will prove favorable for the present
positioning of the Fund.
Our research and portfolio management group, and our entire staff,
appreciate the confidence shown in us by the many new shareholders who have
joined the Fund in this our inaugural year.
<PAGE>
EVERGREEN VA FOUNDATION FUND
Results to Date
Performance of $10,000 invested in the Evergreen VA Foundation Fund
The graph below compares a $10,000 investment in the Evergreen VA Foundation
Fund with a similar investment in the S&P 500 Index and the Lipper Balanced
Funds Average.
Evergreen VA Lipper Balanced S&P
Foundation Fund Funds Average 500 Index
03/01/96* $10,000 $10,000 $10,000
03/31/96 $9,830 $10,038 $10,096
04/30/96 $9,890 $10,104 $10,245
05/31/96 $10,030 $10,207 $10,510
06/30/96 $10,070 $10,241 $10,550
07/31/96 $9,770 $9,978 $10,083
08/31/96 $10,000 $10,135 $10,296
09/30/96 $10,470 $10,510 $10,876
10/31/96 $10,800 $10,733 $11,176
11/30/96 $11,650 $11,233 $12,021
12/31/96 $11,528 $11,095 $11,783
* Commencement of operations.
Past performance is not predictive of future performance results. Mutual
Funds are not obligations of, or guaranteed by, any bank and are not federally
insured.
For the purposes of the graph and accompanying table, it has been assumed that
all recurring fees (including the investment advisory fee) were deducted and all
dividends and distributions were reinvested.
The S&P 500 Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
<PAGE>
EVERGREEN VA FOUNDATION FUND
Statement of Investments
December 31, 1996
Shares Value
COMMON STOCKS - 73.2%
Banks - 5.8%
1,320 Bank of Boston Corp. $84,810
3,000 Comerica, Inc. 157,125
3,000 First of America Bank Corp. 180,375
8,000 Seacoast Banking Corp. of
Florida Cl. A 208,500
5,000 Standard Federal Bank 284,375
--------------
915,185
--------------
Building, Construction &
Furnishings - 3.4%
3,000 Armstrong World Industries, Inc 208,500
7,000 Continental Homes Holding Corp. 148,750
16,700 * Pacific Greystone Corp. 183,700
--------------
540,950
--------------
Business Equipment &
Services - 2.2%
2,000 * Cisco Systems, Inc. 127,250
1,500 International Business
Machines Corp. 226,500
--------------
353,750
--------------
Chemical & Agricultural
Products - 4.9%
3,000 Du Pont (E.I.) de Nemours 283,125
7,000 Morton International, Inc. 285,250
8,500 Schulman (A.), Inc. 208,250
--------------
776,625
--------------
Communication Systems &
Services - .5%
2,000 Sprint Corp. 79,750
--------------
Consumer Products &
Services - 2.6%
2,300 Goodyear Tire & Rubber Co.(The) 118,162
4,000 International Flavors &
Fragrances, Inc. 180,000
1,000 Procter & Gamble Co. (The) 107,500
--------------
405,662
--------------
Diversified Companies - 4.3%
10,000 Frontier Corp. 226,250
1,200 General Electric Co. 118,650
2,000 Minnesota Mining & Mortgage Co. 165,750
3,000 PPG Industries, Inc. 168,375
--------------
679,025
--------------
Shares Value
Electrical Equipment &
Electronics - 10.4%
4,000 AMP, Inc. $153,500
4,000 Avnet, Inc. 233,000
4,300 Harman International
Industries,Inc. 239,188
7,000 Hewlett-Packard Co. 351,750
3,000 Intel Corp. 392,812
2,000 * Microsoft Corp. 165,250
4,000 * Sun Microsystems, Inc. 102,750
-------------
1,638,250
-------------
Energy - .7%
600 Consolidated Natural Gas Co. 33,150
800 Exxon Corp. 78,400
-------------
111,550
-------------
Finance & Insurance - 11.9%
2,800 Allstate Corp. (The) 162,050
2,000 American International Group, Inc. 216,500
3,000 Beneficial Corp. 190,125
4,000 Countrywide Credit Industries, Inc. 114,500
7,200 Federal National Mortgage Assn. 268,200
2,300 Marsh & McLennan Co., Inc. 239,200
1,500 Merrill Lynch & Co., Inc. 122,250
2,000 MGIC Investment Corp. 152,000
5,000 NAC RE Corp. 169,375
5,000 Raymond James Financial, Inc. 150,625
2,000 Torchmark Corp. 101,000
-------------
1,885,825
-------------
Healthcare Products &
Services - 6.5%
2,000 Abbott Laboratories 101,500
2,000 American Home Products Corp. 117,250
4,050 Columbia/HCA Healthcare Corp. 165,037
2,400 Johnson & Johnson 119,400
3,000 Lilly (Eli) & Co. 219,000
3,000 * Living Centers of America, Inc. 83,250
2,000 Medtronic, Inc. 136,000
1,100 Merck & Co., Inc. 87,175
-------------
1,028,612
-------------
Shares Value
COMMON STOCKS - continued
Industrial Specialty Products
& Services - 6.2%
3,000 Applied Power, Inc. $118,875
3,000 Corning, Inc. 138,750
3,500 FlightSafety Int'l, Inc. 175,000
3,000 Leggett & Platt, Inc. 103,875
3,000 PHH Corp. 129,000
5,000 Snap-On, Inc. 178,125
3,000 Timken Co. (The) 137,625
--------------
981,250
--------------
Machinery - Diversified - .8%
3,000 Deere & Co. 121,875
--------------
Publishing, Broadcasting &
Entertainment - .2%
300 Disney Walt Co. (The) 20,888
400 Time Warner, Inc. 15,000
--------------
35,888
--------------
Real Estate - 8.1%
7,000 Apartment Investment &
Management Co. 197,750
7,000 Capstead Mortgage Corp. 168,000
5,000 CarrAmerica Realty Corp. 146,250
2,000 Columbus Realty Trust 45,500
6,000 Crescent Real Estate Equities,Inc. 316,500
10,000 Crown American Realty Trust 75,000
2,000 Evans Withycombe Residential,Inc. 42,000
4,000 Horizon Group, Inc. 79,500
3,000 Marriott International, Inc. 165,750
1,900 Oasis Residential, Inc. 43,225
-------------
1,279,475
-------------
Retailing & Wholesale - 2.6%
4,000 Lowe's Cos., Inc. 142,000
4,000 Mercantile Stores Co., Inc. 197,500
2,000 Walgreen Co. 80,000
--------------
419,500
--------------
Shares Value
Thrift Institutions - .8%
2,000 Golden West Financial Corp. $126,250
-------------
Transportation - 1.3%
2,000 Conrail, Inc. 199,250
-------------
Total Common Stocks
(cost $10,218,877) 11,578,672
-------------
Principal
Amount
U.S.GOVERNMENT
& AGENCY OBLIGATIONS - 21.6%
Treasury Notes & Bonds - 21.6%
U.S. Treasury Bonds
$1,000,000 7.125%, 2/15/23 1,043,750
2,000,000 6.25%, 8/15/23 1,875,000
500,000 U.S. Treasury Note
6.50%, 8/15/05 503,594
-------------
Total U.S. Government &
Agency Obligations
(cost $3,339,328) 3,422,344
-------------
SHORT-TERM INVESTMENTS - 11.7%
Bonds - 11.7%
1,250,000 Federal Home Loan Bank
5.40%, 1/28/97 1,244,937
600,000 Federal Home Loan Mortgage Corp.
5.50%, 1/6/97 599,542
-------------
Total Short-Term Investments -
(cost $1,844,479) 1,844,479
-------------
Total Investments - 106.5%
(cost $15,402,684) 16,845,495
Other Assets and
Liabilities - net - (6.5%) (1,033,211)
-------------
Net Assets - 100% $15,812,284
-------------
* Non-income producing securities.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FOUNDATION FUND
Statement of Assets and Liabilities
December 31, 1996
Assets:
Investments at value (identified cost $15,402,684)....... $16,845,495
Dividends and interest receivable........................... 98,777
Unamortized organization expenses........................... 18,035
Prepaid expenses................................. 8,568
------------
Total assets............................................ 16,970,875
------------
Liabilities:
Due to custodian bank ................................... 441,182
Payable for investment securities purchased............. 676,323
Accrued expenses.............................................. 41,086
------------
Total liabilities...................................... 1,158,591
------------
Net assets..................................................... $15,812,284
============
Net assets consist of:
Paid-in capital......................................... $14,146,223
Distributions in excess of net investment income......... (2,920)
Undistributed net realized gain on investments........... 226,170
Net unrealized appreciation of investments................. 1,442,811
-------------
Net assets............................................. $15,812,284
===========
Calculation of net asset value per share:
Based on 1,398,348 shares of beneficial interest outstanding
(unlimited shares authorized of $.0001 par value) ............ $11.31
======
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FOUNDATION FUND
Statement of Operations
March 1, 1996* through December 31, 1996
Investment income:
Dividends ............................................ $ 115,470
Interest.................................................... 187,036
------------
Total investment income ...................................... 302,506
Expenses:
Advisory fee........................................ $ 67,460
Administrative personnel and service fees........... 3,818
Custodian fee....................................... 31,172
Professional fees................................... 17,999
Transfer agent expense............................... 6,872
Reports and notices to shareholders................. 6,000
Amortization of organization expenses............... 3,632
Trustee fees and expenses........................ 1,499
Miscellaneous....................................... 1,999
--------
Total expenses..................................... 140,451
Less: Fee waivers and expense reimbursements........ (58,681)
Net expenses...................................................... 81,770
-----------
Net investment income............................................... 220,736
-----------
Net realized and unrealized gain on investments:
Net realized gain on investments transactions......... 304,381
Net unrealized appreciation of investments........... 1,442,811
----------
Net gain on investments.................................... 1,747,192
----------
Net increase in net assets resulting from operations....... $1,967,928
==========
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FOUNDATION FUND
Statement of Changes in Net Assets
March 1, 1996* through December 31, 1996
Increase (decrease) in net assets:
Operations:
Net investment income........................................ $ 220,736
Net realized gain on investments transactions............ 304,381
Net unrealized appreciation of investments............... 1,442,811
----------
Net increase in net assets resulting from operations... 1,967,928
-----------
Distributions to shareholders:
From netinvestment income...................................... (220,736)
In excess of net investment income....................... (2,920)
From net realized gain on investments transactions....... (78,211)
--------------
Total distributions to shareholders...................... (301,867)
-------------
Fund share transactions:
Proceeds from shares sold........................................ 14,456,301
Proceeds from reinvestment of distributions.............. 301,867
Payments from shares redeemed............................ (645,278)
-------------
Net increase resulting from Fund share transactions.... 14,112,890
------------
Net increase in net assets................................ 15,778,951
Net assets:
Beginning of period.......................................... 33,333
-----------
End of period (including distribution in excess of net
investment ncome of $1,372)..................................$15,812,284
===========
Shares of Beneficial Interest:
Shares sold.................................................. 1,429,795
Issued on reinvestment of distributions...................... 26,433
Shares redeemed............................................. (61,213)
------------
Total net increase resulting from Fund share transactions.......... 1,395,015
============
* Commencement of operations.
See accompanying notes to financial statements
<PAGE>
EVERGREEN VA FOUNDATION FUND
Financial Highlights
March 1, 1996* through December 31, 1996
Per Share Data :
Net asset value, beginning of period................................. $10.00
Income from investment operations:
Net investment income............................................... .16
Net realized and unrealized gain on investments......... 1.37
-------
Total income from investment operations.......................... 1.53
-------
Less distributions to shareholders from:
Net investment income................................................ (.16)
Net realized gain on investments................................ (.06)
-------
Total distributions...................................... (.22)
--------
Net asset value, end of period...........................................$11.31
======
Total Return+............................................................ 15.3%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)............... $15,812
Ratios to average net assets:
Expenses.................................................................1.00%#
Net investment income...............................................2.70%#
Portfolio turnover rate.....................................................12%
Average commission rate paid per share.......................... $0.0675
* Commencement of operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. # Annualized and net of expense waivers and
reimbursements. If the Fund had borne all expenses that were assumed or waived
by the investment adviser, the annualized ratios of expenses and net investment
income to average net assets would have been the following:
March 1, 1996*
through
December 31,
1996
Expenses......................................................1.72%
Net investment income ........................................1.98%
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
A Report From Your
Portfolio Manager
Edmund Nicklin, Jr.
The first ten months of operation for the Evergreen VA Growth and
Income Fund were successful. At the Fund's inception on March 1, 1996,
undervalued companies with a catalyst present to close the valuation were
identified and purchased for the Fund. Implementation of this strategy reduced
the cash position to approximately 18% by fiscal year-end on December 31.
Performance of the Fund during this start-up phase can be judged satisfactory
despite the retarding impact of the large cash position and the preference by
equity investors for larger capitalization issues rather than the small or
mid-capitalization companies that form the bulk of the portfolio. For the
ten-month period ended December 31, 1996, the Evergreen VA Growth and Income
Fund provided a total return of 19%. During this period, the corresponding
result for S&P 500 Reinvested Index** was a total return of 17.8%, while the S&P
MidCap 400 Reinvested Index** provided a return of 12.7%.
Portfolio Highlights
Economic growth in 1996 was marked by its lack of consistency. The
strong first half which was characterized by rapid job growth and low
unemployment produced an inflation scare in July, that included a one-month
correction in the stock market. Evidence of economic slowing during the third
quarter allowed the equity markets to recover from the July lows and advance
through year-end. After the July correction, many smaller and mid-capitalization
issues did not recover their losses and lagged behind larger capitalization
issues as measured by the S&P 500. Indeed, five companies - International
Business Machines Corp., Intel Corp., Microsoft Corp., Coca-Cola Co., and
General Electric Co., - accounted for nearly one quarter of the price gain for
the S&P 500 in 1996. Despite the narrowness of the equity market advance for the
full year, the weighting of the Fund in mid-capitalization issues and the
dampening impact of cash during this start-up phase, opportunistic stock
selections prevailed.
The best performing industry for the Fund during 1996 was energy.
Forcenergy, Inc., Oryx Energy Company and Atwood Oceanics, Inc., with gains of
203%, 86%, and 64% respectively, were among the five largest gainers in the
Fund. Forcenergy Inc., a small independent exploration company, produced its
exceptional stock price gain by dramatically increasing its reserves through
exploratory drilling successes on acquired properties in the Gulf of Mexico.
Oryx Energy benefited from higher oil and natural gas prices along with
sufficient exploration successes to replace production during 1996. Atwood
Oceanics, an operator of semi-submersible drilling rigs, was able to
substantially raise day rates for its equipment as a result of increased
exploration activity for hydrocarbons worldwide.
The Fund also benefited from the acquisition of three portfolio
companies during its first ten months of operation. Landmark Graphics, a
supplier of software and consulting services for seismic evaluations to the oil
and gas industry, was acquired by the Halliburton Co. EZ Communications, Inc.,
agreed to be acquired by American Radio as part of the rapid consolidation among
radio broadcasters in the aftermath of the passage of the Telecommunications Act
of 1996. Liberty Bancorp agreed to an acquisition by BancOne Corp. at year-end
as part of the consolidation that has been underway in the U.S. banking industry
since the mid-1980s. Unfortunately, not all undervalued companies experience the
elimination of a valuation discount as quickly as these three. Three portfolio
holdings - Wackenhut Corp. Class B, Sensormatic Electronics Corp. and Katz Media
Group, Inc., were available at year-end 1996 at an additional discount exceeding
25%.
Figures represent past performance which is no guarantee of future results.
*Performance figures include reinvestment of income dividend and capital gain
distributions. Investment return and principal value will fluctuate. Investors'
shares, when redeemed, may be worth more or less than their original cost.
**The S&P 500 Reinvested Index is an unmanaged index of common stocks in
industry, transportation, finance, and public utilities, denoting general market
performance as monitored by Standard & Poor's Corp. The S&P MidCap 400
Reinvested Index is an unmanaged reinvested index. An investment can not be made
in an index.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
A Report From Your
Portfolio Manager (continued)
Economic Outlook
As noted earlier, the economy in 1996 exhibited a pronounced quarterly
ebb and flow. The economy accelerated from its lackluster growth in late 1995
before real Gross Domestic Product growth slowed in the third quarter and
re-accelerated in the fourth to a rate economists now estimate may approach 4%.
Short-term interest rates remained stable for the remainder of 1996 after the
Federal Open Market Committee easing in February. The 30-year Treasury bond
yield started 1996 at 6%, rose 125 basis points by June, and then reacted to
evidence of economic slowing in the third quarter to finish the year at 6.6%.
The primary concern for the domestic financial markets as 1997 begins is
economic growth above the Federal Reserve's target of 2.5%. Growth above this
level for an extended period would reduce current low unemployment to critical
levels thereby creating the potential for wage increases that exceed
productivity growth. Given the importance of wage increases to inflation
statistics, if this were to occur it would undoubtedly cause long-term interest
rates to rise and eventually cause the Federal Reserve to raise short-term
interest rates in an effort to retain the gains won against inflation in the
preceding decade. The increase in long-term and short-term interest rates would
negatively impact the equity markets.
Currently, the usual early indicators of inflation are not signaling
its imminent arrival. The price of gold declined through 1996 even though energy
costs have risen substantially. The various non-energy commodity indexes also
exhibit no sign of impending inflation. The preferred scenario for 1997 for
investors would be a continuation of the economic performance achieved in 1996
which would provide interest rate stability. Fiscal policy restraint is likely
in 1997 which would provide additional support for the bond market. Voters in
the November 1996, elections expressed a preference for divided Federal
government to force ideological balance and a desire for cooperation between the
legislative and executive branches. A compromise that reduces the growth of
Medicare spending would rein in one of the fastest growing entitlement programs
in the Federal budget, setting the stage for a broader compromise on balancing
the Federal budget within the next few years increasing fiscal restraint. Such
action would help to stabilize or even decrease interest rates.
Interest rate stability plus earnings growth provide the basis for the
equity markets to move forward in 1997. However, the upside for the S&P 500
seems limited. Operating earnings for the Index increased approximately 6%
during 1996. It seems unlikely that earnings growth for the S&P 500 in 1997 will
exceed 1996 growth given recent U.S. dollar appreciation and the age of the
economic recovery suggesting modest upside for the Index in 1997. Even with
stable interest rates supporting equity values and individual security selection
focused upon relatively undervalued medium and smaller capitalization issues,
the time-tested portfolio strategy used by the Evergreen Growth and Income Fund
will be important for performance of the Evergreen VA Growth and Income Fund in
1997.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Results to Date
Performance of $10,000 invested in the Evergreen VA Growth and Income Fund
The graph below compares a $10,000 investment in the Evergreen VA Growth and
Income Fund with a similar investment in the S&P 500 Index and the Lipper Growth
and Income Funds Average.
Evergreen VA Lipper Growth
Growth and & Income S&P
Income Fund Funds Average 500
03/01/96* $10,000 $10,000 $10,000
03/31/96 $10,250 $10,127 $10,096
04/30/96 $10,510 $10,282 $10,245
05/31/96 $10,620 $10,432 $10,510
06/30/96 $10,710 $10,388 $10,550
07/31/96 $10,250 $9,964 $10,083
08/31/96 $10,650 $10,264 $10,296
09/30/96 $11,150 $10,723 $10,876
10/31/96 $11,170 $10,967 $11,176
11/30/96 $11,939 $11,673 $12,021
12/31/96 $11,899 $11,560 $11,783
* Commencement of operations.
Past performance is not predictive of future performance results. Mutual
Funds are not obligations of, or guaranteed by, any bank and are not federally
insured.
For the purposes of the graph and accompanying table, it has been assumed that
all recurring fees (including the investment advisory fee) were deducted and all
dividends and distributions were reinvested.
The S&P 500 Index is unmanaged and includes the reinvestment of income, but does
not reflect the payment of transaction costs and advisory fees associated with
an investment in the Fund.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Statement of Investments
December 31, 1996
Shares Value
COMMON STOCKS - 82.8%
Banks - 2.5%
5,100 Liberty Bancorp, Inc. $253,725
3,100 Susquehanna Bancshares, Inc. 107,338
-------------
361,063
-------------
Building, Construction &
Furnishings - 1.4%
14,000 *Furniture Brands International, Inc. 196,000
-------------
Business Equipment &
Services - 16.9%
5,000 Air Express International Corp. 161,250
5,000 *Compuware Corp. 250,625
15,000 Harper Group, Inc. (The) 356,250
16,500 *Metromail Corp. 301,125
15,000 Pittston Brink's Group 405,000
14,000 Pittston Burlington Group 280,000
15,000 *Platinum Technology 204,375
6,000 *Policy Management Systems Corp. 276,750
6,000 Sensormatic Electronics Corp. 100,500
7,000 Wackenhut Corp. (The) Cl. B 106,750
-------------
2,442,625
-------------
Chemical & Agricultural
Products - 4.6%
1,300 Air Products & Chemicals, Inc. 89,862
10,000 Engelhard Corp. 191,250
6,000 Grace (W.R.) & Co. 310,500
1,000 Pioneer Hi-Bred International, Inc. 70,000
-------------
661,612
-------------
Communication Systems &
Services - .7%
4,000 *AirTouch Communications 101,000
-------------
Consumer Products &
Services - 1.7%
1,000 CPC International, Inc. 77,500
1,500 Philip Morris Cos., Inc. 168,938
-------------
246,438
-------------
Shares Value
Diversified Companies - 2.2%
5,500 Morton International, Inc. $224,125
4,000 ITT Industries, Inc. 98,000
-------------
322,125
-------------
Electrical Equipment &
Services - 2.5%
10,000 AVX Corp. 215,000
5,000 *Unitrode Corp. 146,875
-------------
361,875
-------------
Energy - 9.6%
2,000 *Atwood Oceanics, Inc. 127,000
7,000 *Forcenergy, Inc. 253,750
1,722 Halliburton Co. 103,751
500 Kerr-McGee Corp. 36,000
10,000 *Oryx Energy Co. 247,500
15,500 *Santa Fe Energy Resources, Inc. 215,062
20,000 Southwestern Energy Co. 302,500
3,000 Williams Cos., Inc. (The) 112,500
-------------
1,398,063
-------------
Finance & Insurance - 1.4%
1,500 Federal Home Loan Mortgage 165,188
Corp.
1,000 Federal National Mortgage
Association 37,250
-------------
202,438
-------------
Forest Products - 1.5%
10,000 Deltic Timber Corp. 216,250
-------------
Healthcare Products &
Services - 10.6%
1,000 Abbott Laboratories 50,750
500 *Amgen, Inc. 27,187
5,000 *Health Systems International,Inc. 123,750
8,500 *Lincare Holdings, Inc. 348,500
7,500 *Living Centers of America,Inc. 208,125
5,000 Manor Care, Inc. 135,000
2,000 McKesson Corp. 112,000
500 Schering-Plough Corp. 32,375
5,000 *Vencor, Inc. 158,125
800 Warner-Lambert Co. 60,000
10,000 West Co., Inc. (The) 282,500
-------------
1,538,312
-------------
Shares Value
COMMON STOCKS - continued
Industrial Specialty Products
Services - 7.7%
6,500 Borg-Warner Automotive, Inc. $250,250
4,500 Ingersoll Rand Co. 200,250
3,000 *Lone Star Industries, Inc. 110,625
14,000 *Strattec Security Corp. 255,500
7,000 Sundstrand Corp. 297,500
-------------
1,114,125
-------------
Leisure & Tourism - 2.2%
5,000 *Choice Hotels International, 88,125
Inc.
10,000 Gaylord Entertainment Co. Cl. A 228,750
-------------
316,875
-------------
Publishing, Broadcasting &
Entertainment - 9.7%
8,500 *EZ Communications, Inc. Cl. A 311,312
11,500 *Jacor Communications, Inc. 314,812
5,000 *Katz Media Group, Inc. 56,250
7,000 *Lin Television Corp. 295,750
4,500 TCA Cable TV, Inc. 135,563
5,500 Time Warner, Inc. 206,250
2,800 *Young Broadcasting Inc. Cl. A 81,900
-------------
1,401,837
------------
Retailing & Wholesale - .3%
2,000 *Carson Pirie Scott & Co. 50,500
-------------
Thrift Institutions - 2.2%
1,000 Washington Mutual, Inc. 43,313
7,500 Webster Financial Corp. 275,625
-------------
318,938
-------------
Transportation - 3.4%
1,000 Burlington Northern Santa Fe 86,375
4,500 Kansas City Southern Industries,
Inc. 202,500
3,500 Union Pacific Corp. 210,437
-------------
499,312
-------------
Shares Value
Utilities - Electric - 1.7%
9,000 TNP Enterprises, Inc. $246,375
-------------
Total Common Stocks
(cost $10,571,972) 11,995,763
-------------
PREFERRED STOCKS - 0.0% (a)
Healthcare Products &
Services - 0.0%
3,500 *Fresenius National Med Care,
Inc. Cl. D (cost $736) 455
-------------
Principal
Amount
SHORT-TERM INVESTMENTS- 17.8%
Government Agency Notes &
Bonds - 17.0%
Federal Farm Credit Bank
$150,000 5.40%, 1/21/97 149,550
150,000 5.41%, 2/3/97 149,256
Federal Home Loan Mortgage
Corp.
340,000 5.34%, 1/14/97 339,344
290,000 5.39%, 1/30/97 288,741
1,650,000 Federal National Mortgage
Association, 5.31%, 1/17/97 1,646,106
-------------
Total Short-Term Investments
(cost $2,572,997) 2,572,997
-------------
Total Investments - 100.6%
(cost $13,145,705) 14,569,215
Other Assets and
Liabilities - net (.6%) (85,368)
-------------
Net Assets -100% $14,483,847
-------------
* Non-income producing securities.
(a) Less than one tenth of one percent.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Statement of Assets and Liabilities
December 31, 1996
Assets:
Investments at value (identified cost $13,145,705)........... $14,569,215
Cash......................................................... 241,807
Dividends receivable......................................... 7,112
Unamortized organization expenses.............................. 18,035
Prepaid expenses............................................ 8,242
------------
Total assets................................................ 14,844,411
----------
Liabilities:
Payable for investment securities purchased................ 320,098
Accrued expenses........................................... 40,466
-----------
Total liabilities......................................... 360,564
-----------
Net assets......................................................... $14,483,847
===========
Net assets consist of:
Paid-in capital............................................ $13,062,522
Distributions in excess of net investment income................ (2,154)
Distributions in excess of net realized gain on investments... (31)
Net unrealized appreciation of investments...................... 1,423,510
-----------
Net assets...................................................$14,483,847
===========
Calculation of net asset value per share:
Based on 1,224,433shares of beneficial interest outstanding
(unlimited shares authorized of $.0001 par value) ................. $11.83
======
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Statement of Operations
March 1, 1996* through December 31, 1996
Investment income:
Dividends ............................................... $ 52,268
Interest................................................... 77,593
------------
Total investment income ............................. 129,861
Expenses:
Advisory fee.......................................... $ 61,749
Administrative personnel and service fees....... 3,039
Custodian fee.......................................... 30,343
Professional fees...................................... 17,999
Transfer agent expense................................ 6,872
Reports and notices to shareholders............. 6,000
Amortization of organization expenses........... 3,632
Trustee fees and expenses........................... 1,499
Miscellaneous.......................................... 1,999
--------
Total expenses...................................... 133,132
Less: Fee waivers and expense reimbursements.... (68,133)
Net expenses............................................. 64,999
----------
Net investment income....................................... 64,862
----------
Net realized and unrealized gain on investments:
Net realized gain on investments transactions................ 16,894
Net unrealized appreciation of investments................. 1,423,510
-----------
Net gain on investments.......................................... 1,440,404
------------
Net increase in net assets resulting from operations............. $1,505,266
==========
* Commencement of operations.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Statement of Changes in Net Assets
March 1, 1996* through December 31, 1996
Increase (decrease) in net assets:
Operations:
Net investment income.......................................... $64,862
Net realized gain on investments transactions.................. 16,894
Net unrealized appreciation of investments..................... 1,423,510
----------
Net increase in net assets resulting from operations........ 1,505,266
-----------
Distributions to shareholders:
From net investment income.................................... (64,756)
In excess of net investment income.............................. (2,154)
From net realized gain on investment transactions.............. (17,000)
In excess of net realized gain on investment transactions...... (31)
-----------
Total distributions to shareholders........................ (83,941)
------------
Fund share transactions:
Proceeds from shares sold.................................... 13,455,462
Proceeds from reinvestment of distributions.................... 83,941
Payments from shares redeemed.................................. (510,215)
-----------
Net increase resulting from Fund share transactions.......... 13,029,188
-----------
Net increase in net assets................................. 14,450,513
Net assets:
Beginning of period.......................................... 33,334
------------
End of period (including distributions in excess of net
investment income of $2,154)................................. 14,483,847
Shares of Beneficial Interest:
Shares sold......................................................1,260,584
Issued on reinvestment of distributions........................ 7,071
Shares redeemed............................................. (46,555)
------------
Total net increase resulting from Fund share transactions......... 1,221,100
============
* Commencement of operations.
See accompanying notes to financial statements
<PAGE>
EVERGREEN VA GROWTH AND INCOME FUND
Financial Highlights
March 1, 1996* through December 31, 1996
Per Share Data :
Net asset value, beginning of period........................... $10.00
Income from investment operations:
Net investment income.................................................. .06
Net realized and unrealized gain on investments.......... 1.84
-------
Total income from investment operations........................... 1.90
-------
Less distributions to shareholders from:
Net investment income................................................(.06)
Net realized gain on investments................................. (.01)
--------
Total distributions......................................... (.07)
--------
Net asset value, end of period...........................................$11.83
======
Total Return+.......................................................... 19.0%
Ratios & Supplemental Data:
Net assets, end of period (000's omitted)............................. $14,484
Ratios to average net assets:
Expenses............................................................. 1.00%#
Net investment income................................................1.00%#
Portfolio turnover rate.......................................................2%
Average commission rate paid per share............................... $0.0579
* Commencement of operations.
+ Total return is calculated on net asset value per share for the periods
indicated and is not annualized. # Annualized and net of expense waivers and
reimbursements. If the Fund had borne all expenses that were assumed or waived
by the investment adviser, the annualized ratios of expenses and net investment
loss to average net assets would have been the following:
March 1, 1996*
through
December 31,
1996
Expenses...........................................2.05%
Net investment loss............................... (.05%)
See accompanying notes to financial statements.
<PAGE>
EVERGREEN VA FUNDS
Notes to Financial Statements
December 31, 1996
Note 1 - Organization and Nature of Operations
Evergreen Variable Trust (the "Trust") is a newly organized Massachusetts
business trust with three separate investment series, Evergreen VA Fund
("Evergreen"), Evergreen VA Foundation Fund ("Foundation") and Evergreen VA
Growth and Income ("Growth and Income"), collectively known as the "Funds". The
Trust is registered under the Investment Company Act of 1940, as amended (the
"Act"), as an open-ended, diversified management company. Shares of each Fund
may only be purchased by insurance companies for the purpose of funding variable
annuity contracts or variable life insurance policies.
Evergreen's investment objective is to seek 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. Foundation's
investment objectives, in order of priority, are reasonable income, conservation
of capital and capital appreciation. Growth and Income's investment objective is
to achieve a return composed of capital appreciation and current income by
investing in the securities of companies which are undervalued in the
marketplace.
Note 2 - Significant Accounting Policies
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. These policies are in
conformity with generally accepted accounting principles.
Security Valuations - Investments in securities traded on a national securities
exchange or included on the NASDAQ National Market System ("NMS") are valued at
the last reported sale price. Securities traded on an exchange or NMS for which
there has been no sale and other securities traded in the over-the-counter
market are valued at the mean between the last reported bid and asked price.
Unlisted securities for which market quotations are not readily available are
valued at a price quoted by one or more brokers. Debt securities (other than
short-term obligations) are valued on the basis of valuations provided by a
pricing service. Securities for which market quotations are not readily
available are valued at their respective fair value as determined in good faith
under procedures established by the Funds' Trustees. Short-term investments
purchased with a remaining maturity of 60 days or less are valued at amortized
cost, which approximates market value.
Security Transactions - Security transactions are accounted for on the date
purchased or sold. Net realized gains or losses are determined on the identified
cost basis.
Investment Income and Expenses - Dividend income is recorded on the ex-dividend
date. Interest income and expenses are accrued daily.
<PAGE>
EVERGREEN VA FUNDS
Notes to Financial Statements
Note 2 - Significant Accounting Policies (continued)
Dividends to Shareholders - Dividends from net investment income and net
realized capital gains on investments, if any, will be distributed at least
annually. Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from the amounts available for
distribution under generally accepted accounting principles. To the extent these
differences are permanent in nature, such amounts are reclassified within the
components of net assets. As of December 31, 1996, Growth and Income had a
reclassification to increase distribution in excess of net investment income by
$106 and increase distribution in excess of net realized gains on investments by
$106.
Income Taxes - It is each Fund's policy to meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its taxable net income and net realized capital gains to
its shareholders. Accordingly, no provisions for Federal income or excise taxes
are necessary. To the extent that realized capital gains can be offset by
capital loss carryforwards, it is each Fund's policy not to distribute such
gains. Capital losses incurred after October 31 within a fund's fiscal ear are
deemed to arise on the first business day of the following fiscal year for tax
purposes. Growth and Income has incurred and will elect to defer such capital
losses of $31.
Unamortized Organization Expenses - Costs related to each Fund's organization
have been deferred and are being amortized over a period of benefit not to
exceed 60 months from the date each Fund commenced operations.
Use of Estimates - The preparation of the financial statements is in accordance
with generally accepted accounting principles which requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
Note 3 - Investment Advisory and Administration Agreements
Each Fund has entered into an investment advisory agreement with Evergreen Asset
Management Corp. ("Evergreen Asset"), a wholly owned subsidiary of First Union,
pursuant to which Evergreen Asset will manage each Fund's investments. In
consideration of Evergreen Asset performing its obligations, Evergreen and
Growth and Income will pay to Evergreen Asset an investment advisory fee accrued
daily and payable monthly, at an annual rate of .95 of 1% of its average daily
net assets. Foundation will pay an investment advisory fee of .825 of 1% of its
average daily net assets.
Evergreen Asset has voluntarily agreed to reimburse the Funds to the extent that
the Fund's operating expenses (including the investment advisory fee and
amortization of organizational expenses but excluding interest, taxes, brokerage
commissions and extraordinary expenses) exceed 1.00% of its average daily net
assets. Evergreen Asset waived advisory fees of $47,843, $49,436 and $54,339 for
the ten-month period ended December 31, 1996, and reimbursed other expenses of
$21,841, $9,245 and $13,794 pursuant to this agreement for Evergreen,
Foundation, and Growth and Income, respectively.
<PAGE>
EVERGREEN VA FUNDS
Notes to Financial Statements
Note 3 - Investment Advisory and Administration Agreements (continued)
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
the Funds and also provides brokerage services with respect to substantially all
security transactions executed on the New York or American Stock Exchanges. For
transactions executed during the ten-month period ended December 31, 1996,
Evergreen, Foundation and Growth and Income incurred brokerage commissions of
$16,882, $17,682 and $17,389, respectively, with Lieber & Company. Lieber &
Company is reimbursed by Evergreen Asset, at no additional expense to the Funds,
for its cost of providing investment advisory services.
Each Fund has entered into an administrative services agreement with Evergreen
Asset to provide administrative services and to supervise each Fund's daily
business affairs. Each Fund paid Evergreen Asset an administration fee accrued
daily and payable monthly, at a rate based on the average daily net assets of
all the Funds administered by Evergreen Asset for which either Evergreen Asset
or First Union serves as investment adviser. The fee was 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. At December 31, 1996, net assets for which Evergreen Asset was the
administrator for which either Evergreen Asset or First Union was the investment
adviser totaled approximately $17 billion.
Furman Selz LLC served as sub-administrator and paid the cost of compensation of
the officers of the Funds through December 31, 1996. Each Fund paid Furman Selz
a fee based on the average daily net assets of all the Funds administered by
Evergreen Asset for which either Evergreen Asset or First Union served as
investment adviser. The fee was calculated daily and payable monthly at the
following annual rates: .010% on the first $7 billion, .0075% on the next $3
billion, .005% on the next $15 billion and .004% on assets in excess of $25
billion.
Effective January 1, 1997, BISYS Group, Inc. acquired Furman Selz' Mutual Fund
unit and accordingly, BISYS Fund Services became sub-administrator. The
administration fee structure has remained unchanged.
Note 4 - Investment Transactions
The cost of purchases and proceeds from sales of investments, excluding
short-term securities, for the ten-month period ended December 31, 1996 was as
follows:
Purchases Sales
Evergreen $9,196,185 $291,135
Foundation $14,366,598 $986,670
Growth and Income $10,650,581 $94,821
<PAGE>
EVERGREEN VA FUNDS
Notes to Financial Statements
Note 4 - Investment Transactions (continued)
On December 31, 1996, the composition of unrealized appreciation and
depreciation of investment securities based on the aggregate cost of investments
for federal tax purposes was as follows:
Net Appreciation/ Federal Tax
Appreciation Depreciation (Depreciation) Cost
Evergreen $1,215,634 $299,538 $916,096 $10,145,984
Foundation $1,591,091 $148,280 $1,442,811 $15,402,684
Growth and Income $1,582,693 $159,183 $1,423,510 $13,145,705
Note 5 - Financing Agreement
Effective July 3, 1996, a financing agreement was put in place between all of
the Evergreen Funds and their Custodian, State Street Bank and Trust Company
("State Street" ). Under this agreement, State Street provided an unsecured line
of credit facility, in the aggregate amount of $100 million ($50 million
committed and $50 million uncommitted), to be accessed by the Funds for
temporary or emergency purposes only and is subject to each participating Fund's
borrowing restrictions. Effective October 31, 1996, a new financing agreement
was put in place between all of the Evergreen Funds and State Street, Societe
Generale and ABN AMRO Bank N.V. (collectively the "Banks"). Under this
agreement, the Banks provide an unsecured credit facility in the aggregate
amount of $225 million ($112.5 million committed and $112.5 million uncommitted)
allocated evenly between the Banks. Borrowings under these facilities bear
interest at .75% per annum above the Federal Funds rate. A commitment fee of
.10% per annum will be incurred on the unused portion of the committed facility
which would be allocated to all participating funds. State Street acts as agent
for the Banks, and as agent is entitled to a fee of $15,000 which is allocated
to all of the Evergreen Funds. The Funds had no borrowings under the financing
agreements during the ten-month period ended December 31,1996.
Note 6 - Deferred Trustees' Fees
Each Trustee may defer any or all compensation related to performance of duties
as a Trustee of the Funds. Each Trustee's deferred balances are allocated to
deferral accounts which are included in the accrued expenses for each Fund. The
investment performance of the deferral accounts are based on the investment
performance of certain Evergreen Funds. Any gains earned or losses incurred in
the deferral accounts are reported in each Fund's Trustees' fees and expenses.
Trustees will be paid either in one lump sum or in quarterly installments for up
to ten years at their election, not earlier than either the year in which the
Trustee ceases to be a member of the Board of Trustees or January 1, 2000. As of
December 31,1996, the value of the Trustees deferral accounts was $2,255, $3,001
and $2,492 for Evergreen, Foundation and Growth and Income, respectively.
<PAGE>
Independent Auditors' Report
THE TRUSTEES AND SHAREHOLDERS OF
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Growth and Income Fund:
We have audited the statements of assets and liabilities, including the
statements of investments for Evergreen VA Fund, Evergreen VA Foundation Fund
and Evergreen VA Growth and Income Fund, respectively, as of December 31,1996,
and the related statements of operations and changes in net assets, and the
financial highlights for the period from March 1, 1996 (commencement of
operations) through December 31,1996. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1996, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen VA Fund, Evergreen VA Foundation Fund and Evergreen VA Growth and
Income Fund as of December 31, 1996, and the results of their operations,
changes in their net assets and their financial highlights for the period March
1, 1996 (commencement of operations) through December 31, 1996, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
February 19, 1997
<PAGE>
TRUSTEES AND OFFICERS
Trustees:
James S. Howell
Russell A. Salton, III M.D.
Michael S. Scofield
Officers:
John J. Pileggi, President and Treasurer
George O. Martinez, Secretary
Sheryl Hirschfeld, Assistant Secretary
Stephen W. St. Clair, Assistant Secretary
FEDERAL INCOME TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
For corporate taxpayers 53.58%, 62.02% and 21.85% of the ordinary income
distributions paid during the fiscal year ended December 31, 1996, by Evergreen,
Growth and Income and Foundation, respectively, qualified for corporate
dividends received deduction.
