1933 Act No. 33-83100
1940 Act No. 811-8716
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 9 [X]
EVERGREEN VARIABLE ANNUITY TRUST
(As successor to certain series of Evergreen Variable Trust)
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] 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)
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Fund
series thereof under the Securities Act of 1933 and the notification of
registration and Registration Statement of such trust under the Investment
Company Act of 1940.
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Growth and
Income Fund series thereof under the Securities Act of 1933 and the notification
of registration and Registration Statement of such trust under the Investment
Company Act of 1940.
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Foundation
Fund series thereof under the Securities Act of 1933 and the notification of
registration and Registration Statement of such trust under the Investment
Company Act of 1940.
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Global
Leaders Fund series thereof under the Securities Act of 1933 and the
notification of registration and Registration Statement of such trust under the
Investment Company Act of 1940.
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Stategic
Income Fund series thereof under the Securities Act of 1933 and the notification
of registration and Registration Statement of such trust under the Investment
Company Act of 1940.
Pursuant to Rule 414 under the Securities Act of 1933, by this amendment to
Registration Statement No. 33-83100/811-8716 on Form N-1A of Evergreen Variable
Annuity Trust, a Massachusetts business trust, the Registrant hereby adopts the
Registration Statement of such trust with respect to the Evergreen VA Aggressive
Growth Fund series thereof under the Securities Act of 1933 and the notification
of registration and Registration Statement of such trust under the Investment
Company Act of 1940.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
CONTENTS OF
REGISTRATION STATEMENT
This Registration Statement No. 33-83100/811-8716 consists of the following
pages, items of information and documents:
The Facing Sheet
The Contents Page
The Cross-Reference Sheet
PART A
------
Prospectus for Evergreen VA Fund, Evergreen VA Foundation Fund, Evergreen VA
Growth and Income Fund, Evergreen VA Agressive Growth Fund, Evergreen VA
Strategic Income Fund, Evergreen VA Small Cap Equity Income Fund is contained
herein.
PART B
------
Statement of Additional Information Evergreen VA Fund, Evergreen VA Foundation
Fund, Evergreen VA Growth and Income Fund, Evergreen VA Agressive Growth Fund,
Evergreen VA Strategic Income Fund, Evergreen VA Small Cap Equity Income Fund is
contained herein.
PART C
------
Financial Statements
Exhibits
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
CROSS REFERENCE SHEET
(as required by Rule 481(a))
N-1A Item No.
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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 6. Capital Stock and Other Securities Dividends, Distributions and Taxes; General Information
Item 7. Purchase of Securities Being Offered Sale and Redemption of Shares; Participating Insurance Companies
Item 8. Redemption or Repurchase Sale and Redemption of Shares; Participating Insurance Companies
Item 9. Pending Legal Proceedings Not Applicable
Part B Location in Statement of Additional Information
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 General Information; Fundamental Policies; Investment Guidelines
Item 14. Management of the Fund Management of the Trust
Item 15. Control Persons and Principal Management of the Trust
Holders of Securities
Item 16. Investment Advisory and Other Services Investment Advisers; Additional Sale and Redemption Information
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Additional Sale and Redemption Information
Item 19. Purchase, Redemption and Pricing of Additional Sale and Redemption Information; Net Asset Value
Securities Being Offered
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Additional Sale and Redemption Information
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>
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.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART A
PROSPECTUS
<PAGE>
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PROSPECTUS May 1, 1998
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[Evergreen Logo Appears Here]
EVERGREEN VARIABLE ANNUITY TRUST
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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 Aggressive Growth Fund
Evergreen VA Small Cap Equity Income Fund
The Evergreen Variable Annuity Trust (the "Trust") is designed to provide
investors with a selection of investment alternatives which seek to provide
capital growth, income and diversification through its seven investment series
(the "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 separate accounts funding variable annuity and variable life insurance
contracts issued by life insurance companies. The address of the Trust is 200
Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Trust dated May 1, 1998 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
<PAGE>
TABLE OF CONTENTS
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OVERVIEW OF THE FUNDS 2
FINANCIAL HIGHLIGHTS 3
DESCRIPTION OF THE FUNDS 7
Investment Objectives and Policies 7
Investment Practices and Restrictions 12
MANAGEMENT OF THE FUNDS 20
Investment Advisers 20
Administrator 21
Portfolio Managers 21
Sub-Adviser 21
SALE AND REDEMPTION OF SHARES 22
Participating Insurance Companies 22
Purchases 22
Redemptions 22
Dividends 23
Tax Status 23
Effect of Banking Laws 23
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GENERAL INFORMATION 24
Custodian, and Transfer and
Dividend Paying Agent 24
Expenses of the Trust 24
Shareholder Rights 24
Description of Shares 24
Performance 25
General 26
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OVERVIEW OF THE FUNDS
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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 Growth and
Income Fund, Evergreen VA Foundation Fund, Evergreen VA Global Leaders Fund and
Evergreen VA Small Cap Equity Income 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 ("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 Capital Management Group of FUNB serves as investment adviser to
Evergreen VA Aggressive Growth Fund. The investment adviser to the Evergreen VA
Strategic Income 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.
2
Evergreen VA Aggressive Growth Fund seeks long-term capital appreciation
by investing primarily in common stocks of emerging growth companies and in
larger, more well established companies, all of which are viewed by the Fund's
investment adviser as having above average appreciation potential.
Evergreen VA Small Cap Equity Income Fund seeks to achieve a return
consisting of current income and capital appreciation in the value of its
shares. The Fund invests in common and preferred stocks, securities convertible
into or exchangeable for common stocks and fixed income securities. In
attempting to achieve its objective, the Fund invests primarily in companies
with total market capitalizations of less than $500 million.
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FINANCIAL HIGHLIGHTS
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The tables on the following pages present, for Evergreen VA Fund,
Evergreen VA Foundation Fund, Evergreen VA Growth and Income Fund, Evergreen VA
Global Leaders Fund, Evergreen VA Strategic Income Fund and Evergreen VA
Aggressive Growth Fund financial highlights for a share outstanding throughout
each period presented. The information in the tables has been audited by KPMG
Peat Marwick LLP. The report of KPMG Peat Marwick LLP with respect to the Funds
is incorporated by reference in the Funds' Statement of Additional Information.
The following information for each Fund should be read in conjunction with the
financial statements and related notes which are incorporated by reference in
the Fund's Statement of Additional Information.
The offering of shares of the Evergreen VA Small Cap Equity Income Fund is
expected to commence on or about the date of this Prospectus. Accordingly, no
comparable data is available for shares of this Fund.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
Evergreen VA Fund
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<CAPTION>
Year Ended
December 31,
---------------------------
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1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period ............................. $ 11.41 $ 10.00
--------- --------
Income from investment operations:
Net investment income ........................................... 0.06 0.05
Net realized and unrealized gain on investments ................. 4.15 1.44
--------- --------
Total from investment operations ................................. 4.21 1.49
--------- --------
Less distributions from:
Net investment income ........................................... ( 0.05) ( 0.05)
Net realized gain on investments ................................ ( 0.68) ( 0.03)
--------- --------
Total distributions .............................................. ( 0.73) ( 0.08)
--------- --------
Net asset value, end of period ................................... $ 14.89 $ 11.41
========= ========
Total Return ..................................................... 37.16 % 14.90 %
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses .................................................. 1.01 % 1.00 %+
Total expenses, excluding indirectly paid expenses .............. 1.00 % 1.00 %+
Total expenses, excluding fee waivers and/or reimbursements ..... 1.31 % 2.38 %+
Net investment income ........................................... 0.42 % 0.87 %+
Portfolio turnover rate .......................................... 32% 6%
Average commission rate paid per share ........................... $ 0.0576 $ 0.0661
Net assets end of period (thousands) ............................. $ 21,600 $ 10,862
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** Calculated using average shares outstanding throughout the period.
3
<PAGE>
Evergreen VA Foundation Fund
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Year Ended
December 31,
------------------------------
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1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period .............................. $ 11.31 $ 10.00
---------- ----------
Income from investment operations:
Net investment income ............................................ 0.26 0.16
Net realized and unrealized gain on investments .................. 2.86 1.37
---------- ----------
Total from investment operations .................................. 3.12 1.53
---------- ----------
Less distributions from:
Net investment income ............................................ (0.24) (0.16)
Distributions in excess of net investment income ................. 0.00(a) 0.00
Net realized gain on investments ................................. (0.65) (0.06)
---------- ----------
Total distributions ............................................... (0.89) (0.22)
---------- ----------
Net asset value, end of period .................................... $ 13.54 $ 11.31
========== ==========
Total Return ...................................................... 27.80% 15.30%
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses ................................................... 1.01% 1.00%+
Total expenses, excluding indirectly paid expenses ............... 1.00% 1.00%+
Total expenses, excluding fee waivers and/or reimbursements ...... 1.10% 1.72%+
Net investment income ............................................ 2.15% 2.70%+
Portfolio turnover rate ........................................... 26% 12%
Average commission rate paid per share ............................ $ 0.0675 $ 0.0675
Net assets end of period (thousands) .............................. $ 31,840 $ 15,812
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
(a) Amount is less than 1/2 of one cent per share.
** Calculated using average shares outstanding throughout the period.
4
<PAGE>
Evergreen VA Growth and Income Fund
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<CAPTION>
Year Ended
December 31,
---------------------------
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1997** 1996*
----- ----
Per Share Data:
Net asset value, beginning of period ............................. $ 11.83 $ 10.00
--------- --------
Income from investment operations:
Net investment income ........................................... 0.08 0.06
Net realized and unrealized gain on investments ................. 4.01 1.84
--------- --------
Total from investment operations ................................. 4.09 1.90
--------- --------
Less distributions from:
Net investment income ........................................... ( 0.07) ( 0.06)
Net realized gain on investments ................................ ( 0.56) ( 0.01)
--------- --------
Total distributions .............................................. ( 0.63) ( 0.07)
--------- --------
Net asset value, end of period ................................... $ 15.29 $ 11.83
========= ========
Total Return ..................................................... 34.66 % 19.00 %
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses .................................................. 1.01 % 1.00 %+
Total expenses, excluding indirectly paid expenses .............. 1.00 % 1.00 %+
Total expenses, excluding fee waivers and/or reimbursements ..... 1.23 % 2.05 %+
Net investment income ........................................... 0.59 % 1.00 %+
Portfolio turnover rate .......................................... 18% 2%
Average commission rate paid per share ........................... $ 0.0600 $ 0.0579
Net assets end of period (thousands) ............................. $ 31,088 $ 14,484
</TABLE>
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+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** Calculated using average shares outstanding throughout the period.
5
<PAGE>
<TABLE>
<CAPTION>
Period Ended December 31, 1997*
--------------------------------------------------
<S> <C> <C> <C>
Global Aggressive Strategic
Leaders Fund Growth Fund Income Fund
---------------- ----------------- ---------------
Per Share Data:
Net asset value, beginning of period .................................... $ 10.00 $ 10.00 $ 10.00
-------- ------------ -------
Income from investment operations:
Net investment income (loss)** ......................................... 0.11 ( 0.06) 0.32
Net realized and unrealized gain on investments and foreign currency
related transactions .................................................. 0.77 1.16 0.21
-------- ------------ -------
Total from investment operations ........................................ 0.88 1.10 0.53
-------- ------------ -------
Less distributions from:
Net investment income .................................................. ( 0.06) 0 ( 0.31)
Net realized gain on investments ....................................... ( 0.03) 0 ( 0.02)
-------- ------------ -------
Total distributions ..................................................... ( 0.09) 0 ( 0.33)
-------- ------------ -------
Net asset value, end of period .......................................... $ 10.79 $ 11.10 $ 10.20
======== ============ =======
Total Return ............................................................ 8.80% 11.00% 5.28%
Ratios and Supplemental Data:
Ratios to average net assets:
Total expenses ......................................................... 1.05%+ 1.06 %+ 1.02%+
Total expenses, excluding indirectly paid expenses ..................... 1.00%+ 1.00 %+ 1.00%+
Total expenses, excluding fee waivers and/or reimbursements ............ 2.89%+ 3.02 %+ 2.67%+
Net investment income (loss) ........................................... 1.15%+ (0.74)%+ 5.34%+
Portfolio turnover rate ................................................. 11% 39% 119%
Average commission rate paid per share .................................. $0.0331 $ 0.0569 N/A
Net assets end of period (thousands) .................................... $ 2,899 $ 1,868 $2,204
</TABLE>
- --------
+ Annualized.
* For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
** Calculated using average shares outstanding throughout the period.
6
<PAGE>
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DESCRIPTION OF THE FUNDS
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INVESTMENT OBJECTIVES AND POLICIES
Each Fund's investment objective is nonfundamental and can be changed
without shareholder approval. Shareholders would be given notice prior to the
implementation of any such change. In addition to the investment policies
detailed below, each Fund may employ certain additional investment strategies
which are discussed in "Investment Practices and Restrictions" and may be
subject to certain risks discussed under "Special Risk Considerations." There
can be no assurance that a Fund's investment objective will be achieved.
Evergreen VA Fund
The Evergreen VA Fund seeks to achieve its investment objective of capital
appreciation principally through investments in common stock and securities
convertible into or exchangeable for common stock of companies which are
little-known, relatively small or represent special situations which, in the
opinion of the Fund's investment adviser, offer potential for capital
appreciation. A "little-known" company means one whose business is limited to a
regional market or whose securities are closely held with only a small
proportion traded publicly. A "relatively small" company means one which has a
small share of the market for its products or services in comparison with other
companies in its field, or which provides goods or services for a limited
market. A "special situation" company is one which offers potential for capital
appreciation because of a recent or anticipated change in structure,
management, products or services. In addition to the securities described
above, the Fund may invest in securities of relatively well-known and large
companies with potential for capital appreciation. Investments may also be made
to a limited degree in non-convertible debt securities and preferred stocks
which offer an opportunity for capital appreciation. Short-term investments may
also be made if the Fund's investment adviser believes that such action will
benefit the Fund.
Evergreen VA Growth and Income Fund
The investment objective of the Evergreen VA Growth and Income Fund is to
seek to achieve a return composed of capital appreciation in the value of its
shares and current income.
The Fund seeks to achieve its investment objective by investing in the
securities of companies which are undervalued in the marketplace relative to
those companies' assets, breakup value, earnings or potential earnings growth.
These companies are often found among those which have had a record of
financial success but are currently in disfavor in the marketplace for reasons
the Fund's investment adviser perceives as temporary or erroneous.
Such investments when successfully timed are expected to be the means for
achieving the Fund's investment objective. This inherently contrarian approach
may require greater reliance upon the analytical and research capabilities of
the Fund's investment adviser than an investment in certain other equity funds.
Consequently, an investment in the Fund may involve more risk than an
investment in other equity funds.
The Fund will use the "value timing" approach as a process for purchasing
securities when events indicate that fundamental investment values are being
ignored in the marketplace. Fundamental investment value is based on one or
more of the following: assets -- tangible and intangible (examples of the
latter include brand names or licenses); capitalization of earnings; cash flow
or potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities. If the
securities in which the Fund invests never reach their perceived potential or
the valuation of such securities in the marketplace does not in fact reflect
significant undervaluation, there may be little or no appreciation or a
depreciation in the value of such securities.
The Fund will invest primarily in common stocks and securities convertible
into or exchangeable for common stock. It is anticipated that the Fund's
investments in these securities will contribute to the Fund's return primarily
through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation
but the
7
<PAGE>
current income component of return will be a more significant factor in their
selection. However, the Fund will invest in nonconvertible preferred stock and
debt securities only if the anticipated capital appreciation plus income from
such investments is equivalent to that anticipated from investments in equity
or equity-related securities. The Fund may invest up to 5% of its total assets
in debt securities which are rated below investment grade, commonly known as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. The Fund may invest up to 25% of its assets in foreign
securities. See "Special Risk Considerations."
Evergreen VA Foundation Fund
The investment objectives of the Evergreen VA Foundation Fund, in order of
priority, are to seek to provide reasonable income, conservation of capital and
capital appreciation. The Fund seeks to achieve these objectives by investing
in a combination of common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks, corporate and U.S. Government debt
obligations, and short-term debt instruments, such as commercial paper. The
Fund's common stock investments will include those which (at the time of
purchase) pay dividends and in the view of the Fund's investment adviser have
potential for capital enhancement. The Fund may also invest up to 25% of its
assets in foreign securities. See "Special Risk Considerations."
The Fund may make investments in securities regardless of whether or not
such securities are traded on a national securities exchange. Securities not
traded on a national securities exchange are generally traded on a "net" basis
with dealers acting as principals for their own accounts without stated
commissions, although the price of the securities usually includes profits to
the dealers. While the Fund's investment adviser generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available. Also the market for such securities may
not be as liquid as those traded on a national securities exchange.
While income will be a factor in the selection of equity securities, the
Fund's investment adviser will attempt to identify securities that offer
potential for long term capital appreciation, but that do not exhibit any
speculative characteristics. The Fund will not make equity investments with a
view toward realizing short-term gains. The value of portfolio securities and
their yields are expected to fluctuate over time because of varying general
economic and market conditions. Accordingly, there can be no assurance that the
Fund's investment objectives will be achieved.
The Fund's asset allocation will vary from time to time in accordance with
changing economic and market conditions, including: inflation rates; business
cycle trends; business regulations; and tax law impacts on the investment
markets. The composition of its portfolio will be largely unrestricted and
subject to the discretion of the Fund's investment adviser. Under normal
circumstances, the Fund anticipates that at least 25% of its net assets will
consist of fixed income securities. The balance will be invested in equity
securities (including securities convertible into equity securities).
In selecting fixed income securities for the Fund's portfolio, emphasis
will be placed on issues expected to fluctuate little in value other than as a
result of changes in prevailing interest rates. The market value of the debt
obligations in the Fund's portfolio can be expected to vary inversely to
changes in prevailing interest rates. The Fund may at times emphasize the
generation of interest income by investing in high-yielding debt securities,
with short, medium or long-term maturities. While fixed income investments will
generally be made for the purpose of generating interest income, investments in
medium to long-term debt securities (i.e., those with maturities from five to
ten years and those with maturities over ten years, respectively) may be made
with a view to realizing capital appreciation when the Fund's investment
adviser believes changes in interest rates will lead to an increase in the
value of such securities. The fixed income portion of the Fund's portfolio may
include:
1. Marketable obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities, including issues of the United
States Treasury, such as bills, certificates of indebtedness, notes and bonds,
and issues of agencies and instrumentalities established under the authority of
an act of Congress. Some of these securities are supported by the full faith
and credit of the United States Government, and others are supported only by
the credit of the agency or instrumentality. Agencies or instrumentalities
whose securities are supported by the full faith and credit of the United
States include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration and Government National Mortgage Association. Agencies
or instrumentalities whose securities are supported only by the credit of
8
<PAGE>
the agency or instrumentality include the Interamerican Development Bank and
the International Bank for Reconstruction and Development. These obligations
are supported by appropriated but unpaid commitments of their member countries.
There are no assurances that the commitments will be fulfilled in the future.
2. Corporate obligations rated no lower than A by Moody's Investors
Service, Inc. ("Moody's") or A-2 by Standard & Poor's Ratings Group ("S&P").
3. Obligations of banks or banking institutions having total assets of
more than $2 billion which are members of the Federal Deposit Insurance
Corporation.
4. Commercial paper of high quality (rated no lower than A-2 by S&P or
Prime-2 by Moody's or, if not rated, issued by companies which have an
outstanding long-term debt issue rated AAA or AA by S&P or Aaa or Aa by
Moody's).
Certain obligations may be entitled to the benefit of standby letters of
credit or similar commitments issued by banks and, in such instances, the
Fund's investment adviser will take into account the obligation of the bank in
assessing the quality of such security. For a description of the ratings set
forth above, see the Statement of Additional Information.
Evergreen VA Global Leaders Fund
The investment objective of the Evergreen VA Global Leaders Fund is to
seek to provide long-term capital growth. The Fund 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 and the
United Kingdom.
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 fewer 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
9
<PAGE>
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. 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 the 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
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<PAGE>
foreign banks and foreign branches of U.S. banks; and (4) obligations of U.S.
corporations that at the date of 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 Aggressive Growth Fund
The investment objective of the Evergreen VA Aggressive Growth Fund is to
seek to achieve long-term capital appreciation by investing primarily in common
stocks of emerging growth companies and larger, more well established
companies, all of which are viewed by the Fund's investment adviser as having
above-average appreciation potential. Under normal circumstances, the Fund
intends to invest at least 65% of its net assets in common stocks or securities
convertible into common stocks. The Fund's investment adviser considers an
emerging growth company to be one which is still in the developmental stage,
yet has demonstrated, or is expected to achieve, growth of earnings over
various major business cycles. Important qualities of any emerging growth
company include sound management and a good product with growing market
opportunities. To the extent that its assets are not invested in common stocks
or securities convertible into common stocks, the Fund also may invest its
assets in, or enter into repurchase agreements with banks or broker-dealers
with respect to, investment grade corporate bonds, U.S. Government securities,
commercial paper and certificates of deposit of domestic banks.
Consistent with its investment objective, the Fund also may invest in
equity securities of seasoned, established companies which its investment
adviser believes have above-average appreciation potential similar to that of
companies in the developmental stage. This may be due, for example, to
management change, new technology, new product or service developments, changes
in demand, or other factors. Investments in stocks of emerging growth companies
may involve special risks. Securities of lesser-known, relatively small and
special situation companies tend to be speculative and volatile. Therefore, the
current net asset value of the Fund's shares may vary significantly.
Accordingly, the Fund should not be considered suitable for investors who are
unable or unwilling to assume the risks of loss inherent in such a program, nor
should investment in the Fund be considered a balanced or complete investment
program.
Evergreen VA Small Cap Equity Income Fund
The investment objective of Evergreen VA Small Cap Equity Income Fund is
to seek to achieve a return consisting of current income and capital
appreciation in the value of its shares. The emphasis on current income and
capital appreciation will be relatively equal although, over time, changes in
market conditions and the level of interest rates may cause the Fund to vary
its emphasis between these two elements in its search for the optimum return
for its shareholders. The Fund seeks to achieve its investment objective
through investments in common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks and fixed income securities. Under
normal circumstances, the Fund will invest at least 65% of its total assets in
equity securities (including convertible debt securities) of companies that, at
the time of purchase, have "total market capitalization" -- present market
value per share multiplied by the total number of shares outstanding -- of less
than $1 billion. The Fund may invest up to 35% of its total assets in equity
securities of companies that at the time of purchase have a total market
capitalization of $1 billion or more, and in excess of that percentage during
temporary defensive periods.
To the extent that the Fund seeks capital appreciation, it expects that
its investments will provide growth over the long-term. Investments, however,
may be made on occasion for the purpose of short-term capital appreciation if
the Fund believes that such investments will benefit its shareholders.
Purchasing securities for short-term trading is subject to certain rules and
involves additional brokerage expenses. The Fund may make investments in
securities regardless of whether or not such securities are traded on a
national securities exchange and may invest up to 5% of its total assets in
foreign securities. The value of portfolio securities and their yields are
expected to fluctuate over time because of varying general economic
and market conditions.
The Fund's portfolio will vary over time depending upon the economic
outlook and market conditions. The composition of its portfolio will be subject
to the discretion of the Fund's investment adviser. Ordinarily, the Fund
anticipates that most of its portfolio will consist of equity securities and
convertible debt securities. A significant portion of the equity investments,
however, will be income producing. If in the judgment of the Fund's investment
adviser a defensive position is appropriate, the Fund may take a defensive
position and invest without limit in debt securities or government securities
or hold its assets in cash or cash equivalents. The quality standards for debt
securities include: obligations of banks and commercial paper rated no lower
than P-2 by Moody's Investor's Service ("Moody's"),
11
<PAGE>
A-2 by Standard and Poor's Ratings Service ("S&P") or securities having a
comparable rating from another nationally recognized statistical rating
organization ("SRO"); and non-convertible debt securities rated no lower than
Baa by Moody's) or BBB by S&P. Securities rated Baa or BBB may have speculative
characteristics. Changes in economic conditions are more likely to weaken the
capacity of the issuers of such bonds to make the interest and principal
payments than would be the case with higher rated bonds. However, like higher
rated bonds, these securities may be considered investment grade. For a
description of such ratings see the Statement of Additional Information.
INVESTMENT PRACTICES AND RESTRICTIONS
In addition to making the investments described above, each of the Funds
(except as stated herein) may invest in cash and cash equivalents and
short-term debt securities, write covered put and call options, purchase put
and call options, engage in transactions in futures contracts and related
options, engage in forward foreign currency exchange transactions, enter into
repurchase agreements, lend portfolio securities, enter into transactions on a
"when issued" or delayed settlement basis, enter into forward commitments,
invest in the securities of other investment companies and borrow funds under
certain limited circumstances. These investment strategies and instruments
referred to above and the risks related to them are discussed below and certain
of these strategies and instruments are described in more detail in the
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 Funds'
investment advisers, market conditions warrant a temporary defensive investment
strategy.
Portfolio Turnover and Brokerage. It is anticipated that the annual portfolio
- --------------------------------
turnover rate for Evergreen VA Fund, Evergreen VA Growth and Income Fund,
Evergreen VA Strategic Income Fund, Evergreen VA Aggressive Growth Fund,
Evergreen VA Global Leaders Fund and Evergreen VA Small Cap Equity 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.
Borrowing. Each Fund may borrow money to the extent permitted by applicable
- ---------
law. This includes borrowings from banks as a temporary measure for
extraordinary or emergency purposes. The proceeds from borrowings may be used
to facilitate redemption requests which might otherwise require the untimely
disposition of portfolio securities. The Funds will not engage in leveraging.
The specific limits and other terms applicable to borrowing by each Fund are
set forth in the 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, 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
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<PAGE>
not subject to the aforementioned 15% limit. The inability of a Fund to dispose
of illiquid or not readily marketable investments readily or at a reasonable
price could impair the Fund's ability to raise cash for redemptions or other
purposes. The liquidity of securities purchased by a Fund which are eligible
for resale be monitored by each Fund's investment adviser, on an ongoing basis,
subject to the oversight of the Trustees. In the event that such a security is
deemed to be no longer liquid, a Fund's holdings will be reviewed to determine
what action, if any, is required to ensure that the retention of such security
does not result in a Fund having more than 15% of its assets invested in
illiquid or not readily marketable securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
- ---------------------
member banks of the Federal Reserve System, including a Fund's custodian or
primary dealers in U.S. Government securities. A repurchase agreement is an
arrangement pursuant to which a buyer purchases a security and simultaneously
agrees to resell it to the vendor at a price that results in an agreed-upon
market rate of return which is effective for the period of time (which is
normally one to seven days, but may be longer) the buyer's money is invested in
the security. The arrangement results in a fixed rate of return that is not
subject to market fluctuations during the holding period. A Fund requires
continued maintenance of collateral with its custodian in an amount at least
equal to the repurchase price (including accrued interest). In the event a
vendor defaults on its repurchase obligation, a Fund might suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If the vendor becomes the subject of bankruptcy proceedings,
a Fund might be delayed in selling the collateral. Each Fund's investment
adviser will review and continually monitor the creditworthiness of each
institution with which a Fund enters into a repurchase agreement to evaluate
these risks.
Reverse Repurchase Agreements. Each Fund may borrow money by entering into a
- -----------------------------
"reverse repurchase agreement" by which it agrees to sell portfolio securities
to financial institutions such as banks and broker-dealers and to repurchase
them at a mutually agreed upon date and price, for temporary or emergency
purposes. At the time a Fund enters into a reverse repurchase agreement, it
will place in a segregated custodial account cash, U.S. Government securities
or liquid high grade debt obligations having a value at least equal to the
repurchase price (including accrued interest) and will subsequently monitor the
account to ensure that such equivalent value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Fund may decline below the repurchase price of those securities.
When-Issued Securities. Each Fund may purchase securities on a when-issued
- ----------------------
basis. In the event securities are purchased on a "when-issued" basis (i.e.,
for delivery beyond the normal settlement date at a stated price and yield), a
Fund generally would not pay for such securities or start earning interest on
them until they are received. However, when a Fund purchases securities on a
when-issued basis, it assumes the risks of ownership at the time of purchase,
not at the time of receipt. Failure of the issuer to deliver a security
purchased on a when-issued basis may result in the Fund incurring a loss or
missing an opportunity to make an alternative investment. Commitments to
purchase when-issued securities will not exceed 25% of a Fund's total assets. A
Fund will maintain cash or liquid high grade debt obligations in a segregated
account with its custodian in an amount equal to such commitments. No Fund will
purchase when-issued securities for speculative purposes, but only in
furtherance of its investment objectives. Evergreen VA Strategic Income Fund
currently does not intend to invest more than 5% of its total assets in
when-issued transactions.
Securities of Other Investment Companies. Each Fund may invest in the
- ----------------------------------------
securities of other open-end investment companies that have investment
objectives and policies similar to its own or which are, in the opinion of each
Fund's investment adviser, suitable short-term investment vehicles. Each Fund's
investment adviser will waive its investment advisory fee on assets invested by
a Fund in securities of other open-end investment companies. Any investment by
a Fund in the securities of other investment companies will be subject to the
limitations on such investments contained in the Investment Company Act of
1940, as amended ("1940 Act").
American and European Depositary Receipts. All Funds except Evergreen VA Fund
- -----------------------------------------
may purchase foreign securities in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") or other securities convertible into securities of corporations in
which the Funds are permitted to invest pursuant to their respective investment
objectives and policies. These securities may not necessarily be denominated in
the same currency into which they may be converted. ADRs are receipts typically
issued by a
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United States bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are receipts issued in Europe
by banks or depositories which evidence a similar ownership arrangement.
Generally, ADRs, in registered form, are designed for use in United States
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
Forward Commitments. Each Fund may make contracts to purchase securities for a
- -------------------
fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount sufficient
to meet the purchase price, or if it enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, which risk is
in addition to the risk of decline in value of the Fund's other assets. Where
such purchases are made through dealers, the Fund relies on the dealer to
consummate the sale. The dealer's failure to do so may result in the loss to
the Fund of an advantageous yield or price.
Hedging Techniques
In addition to making investments directly in securities, the Funds may
write covered put and call options and hedge their investments by purchasing
options and engaging in transactions in futures contracts and related options.
The investment adviser to the Evergreen VA Fund, Evergreen VA Growth and Income
Fund and Evergreen VA Foundation Fund does not currently intend to write
covered put options, purchase options or engage in transactions in futures
contracts and related options, but may do so in the future. The Funds may
engage in foreign currency exchange transactions to protect against changes in
future exchange rates.
Writing Options. Each Fund may write covered call and put options on certain
- ---------------
portfolio securities in an attempt to earn income and realize a higher return
on their portfolios. A call option gives the purchaser of the option the right
to buy a security from the writer at the exercise price at any time during the
option period. An option may not be written if, afterwards, securities
comprising more than 5% of the market value of a Fund's equity securities would
be subject to call options. A Fund realizes income from the premium paid to it
in exchange for writing the call option. Once it has written a call option on a
portfolio security and until the expiration of such option, a Fund forgoes the
opportunity to profit from increases in the market price of such security in
excess of the exercise price of the call option. Should the price of the
security on which a call has been written decline, a Fund bears the risk of
loss, which would be offset to the extent the Fund has received premium income.
A Fund will only write "covered" options traded on recognized securities
exchanges. An option will be deemed covered when a Fund either owns the
security (or securities convertible into such security) on which the option has
been written in an amount sufficient to satisfy the obligations arising under a
call option; or (ii) in the case of call and put options, the Fund's custodian
maintains cash or high-grade liquid debt securities belonging to the Fund in an
amount not less that the amount needed to satisfy the Fund's obligations with
respect to options written on securities it does not own. A "closing purchase
transaction" may be entered into with respect to a call option written by a
Fund for the purpose of closing its position. The Fund will realize a profit
(or loss) from such transaction if the cost of such transaction is less (or
more) than the premium received from the writing of the option. Because
increases in the market price of a call option will generally reflect increases
in the market price of the underlying security, any loss resulting from the
repurchase of a call option may be offset in whole or in part by unrealized
appreciation of the underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. Each Fund may purchase put
- ---------------------------------------------
options to protect its portfolio holdings in an underlying security against a
decline in market value. This protection is provided during the life of the put
option since the Fund, as holder of the put, is able to sell the underlying
security at the exercise price regardless of any decline in the underlying
security's market price. For the purchase of a put option to be profitable, the
market price of the underlying security must decline sufficiently below the
exercise price to cover the premium and transaction costs. By using put options
in this manner, any profit which the Fund might otherwise have realized on the
underlying security will be reduced by the premium paid for the put option and
by transaction costs.
A Fund may also purchase a call option to hedge against an increase in
price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market
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<PAGE>
price. For the purchase of a call option to be profitable, the market price of
the underlying security must rise sufficiently above the exercise price to
cover the premium and transaction costs. By using call options in this manner,
any profit which the Fund might have realized had it bought the underlying
security at the time it purchased the call option will be reduced by the
premium paid for the call option and by transaction costs.
Futures, Options and Other Derivative Instruments. In addition to writing
- -------------------------------------------------
covered call and put options, a Fund may purchase and sell various financial
instruments ("Derivative Instruments") such as financial futures contracts
(including interest rate, index and foreign currency futures contracts),
options (such as options on securities, indices, foreign currencies and futures
contracts), forward currency contracts and interest rate, equity index and
currency swaps, caps, collars and floors. The index Derivative Instruments the
Fund may use may be based on indices of U.S. or foreign equity or debt
securities. These Derivative Instruments may be used, for example, to preserve
a return or spread, to lock in unrealized market value gains or losses, to
facilitate or substitute for the sale or purchase of securities, to manage the
duration of securities, to alter the exposure of a particular investment or
portion of the Fund's portfolio to fluctuations in interest rates or currency
rates, to uncap a capped security or to convert a fixed rate security into a
variable rate security or a variable rate security into a fixed rate security.
A Fund's ability to use these instruments may be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use any
of these strategies, and there can be no assurance that any strategy that is
used will succeed. See the Statement of Additional Information for more
information regarding these instruments and the risks relating thereto.
Risks of Derivative Instruments. The use of Derivative Instruments, including
- -------------------------------
written put and call options, involves special risks, including: (1) the lack
of, or imperfect, correlation between price movements of the Fund's current or
proposed portfolio investments that are the subject of the transactions as well
as price movements of the Derivative Instruments involved in the transaction;
(2) possible lack of a liquid secondary market for any particular Derivative
Instrument at a particular time; (3) the need for additional portfolio
management skills and techniques; (4) losses due to unanticipated market price
movements; (5) the fact that, while such strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in portfolio investments; (6) incorrect
forecasts by a Fund's investment adviser concerning interest or currency
exchange rates or direction of price fluctuations of the investment that is the
subject of the transaction, which may result in the strategy being ineffective;
(7) loss of premiums paid by the Fund on options it purchases; and (8) the
possible inability of the Fund to purchase or sell a portfolio security at a
time when it would otherwise be favorable for it to do so, or the need to sell
a portfolio security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with such
transactions and the possible inability of the Fund to close out or liquidate
its positions.
A Fund's investment adviser may use Derivative Instruments, including
written put and call options, for hedging purposes (i.e. by paying a premium or
foregoing the opportunity for profit in return for protection against downturns
in markets generally or the prices of individual securities or currencies) and
also may use Derivative Instruments to try to enhance the return
characteristics of a Fund's portfolio of investments (i.e. by receiving
premiums in connection with the writing of options and thereby accepting the
risk of downturns in markets generally or the prices of individual securities
or currencies or by paying premiums with the hope that the underlying
Derivative Instruments will appreciate). The use of Derivative Instruments for
hedging purposes or to enhance a Fund's return characteristics can increase
investment risk. If a Fund's investment adviser judges market conditions
incorrectly or employs a strategy that does not correlate well with the Fund's
investments, these techniques could result in a loss, regardless of whether the
intent was to reduce risk or increase return. These techniques may increase the
volatility of a Fund and may involve a small investment of cash relative to the
magnitude of the risk assumed, resulting in leverage. In addition, these
techniques could result in a loss if the counterparty to the transaction does
not perform as promised or if there is not a liquid secondary market to close
out a position that the Fund has entered into. Options and futures transactions
may increase portfolio turnover rates, which would result in greater commission
expenses and transaction costs.
Foreign Currency Transactions. The Funds may enter into foreign currency
- -----------------------------
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts ("forward contracts"). A Fund may also enter into forward foreign
currency exchange contracts to protect Fund assets denominated in a foreign
currency
15
<PAGE>
against adverse changes in foreign currency exchange rates or exchange control
regulations. Such changes could unfavorably affect the value of Fund assets
which are denominated in foreign currencies, such as foreign securities or
funds deposited in foreign banks, as measured in U.S. dollars. The use of
forward contracts for hedging purposes may limit any potential gain that might
result from a relative increase in the value of such currencies and might, in
certain cases, result in losses to the Fund.
Forward Foreign Currency Exchange Contracts. A forward contract is an
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obligation to purchase or sell an amount of a particular currency at a specific
price and on a future date agreed upon by the parties. Generally, no commission
charges or deposits are involved. At the time a Fund enters into a forward
contract, Fund assets with a value equal to the Fund's obligation under the
forward contract are segregated and are maintained until the contract has been
settled. The Funds will not enter into a forward contract with a term of more
than one year. In addition to forward contracts entered into for hedging
purposes, the Funds will generally enter into a forward contract to provide the
proper currency to settle a securities transaction at the time the transaction
occurs ("trade date"). The period between trade date and settlement date will
vary between 24 hours and 60 days, depending upon local custom.
As described above, a Fund may enter into forward contracts in primarily
two circumstances. First, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to "lock
in" the U.S. dollar price of the security. By entering into a forward contract
for the purchase or sale, for a fixed amount of dollars, of the amount of
foreign currency involved in the underlying security transaction, the Fund will
be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date the security is purchased or sold
and the date on which payment is made or received.
Second, when a Fund's investment adviser believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, the
Fund may enter into a forward contract to sell, for a fixed amount of dollars,
the amount of foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. The precise
matching of the forward contract amount and the value of such securities
denominated in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward
contract is entered into and the date it matures. The Funds do not intend to
enter into such forward contracts under this second circumstance on a regular
or continuous basis.
In the second circumstance, a Fund's custodian will segregate cash or
liquid high-grade debt securities belonging to the Fund in an amount not less
than the value of the assets committed to forward foreign currency contracts
entered into under such transactions. If the value of the securities segregated
declines, additional cash or debt securities will be added on a daily basis
(i.e. marked to market) so that the segregated amount will not be less than the
amount of the Fund's commitments with respect to such contracts.
Hedging/Cross Hedging. A cross hedge is accomplished by entering into a forward
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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.
Options on Foreign Currencies. Evergreen VA Global Leaders Fund, Evergreen VA
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Strategic Income Fund, Evergreen VA Aggressive Growth Fund and Evergreen VA
Small Cap Equity Income Fund may 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
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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
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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 Federal Home Loan Mortgage
Corporation ("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 government 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.
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, automobile
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.
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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
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Income Fund and Evergreen VA Foundation Fund may invest from time to time, and
Evergreen VA Aggressive Growth Fund and Evergreen VA Small Cap Equity Income
Fund will invest in securities of little-known, relatively small and special
situation companies. Investments in such companies tend to be speculative and
volatile. A lack of management depth in such companies could increase the risks
associated with the loss of key personnel. Also, the material and financial
resources of such companies may be limited, with the consequence that funds or
external financing necessary for growth may be unavailable. Such companies may
also be involved in the development or marketing of new products or services
for which there are no established markets. If projected markets do not
materialize or only regional markets develop, such companies may be adversely
affected or be subject to the consequences of local events. Moreover, such
companies may be insignificant factors in their industries and may become
subject to intense competition from larger companies. Securities of small and
special situation companies in which the Funds invest will frequently be traded
only in the over-the-counter market or on regional stock exchanges and will
often be closely held. Securities of this type may have limited liquidity and
be subject to wide price fluctuations. As a result of the risk factors
described above, the net asset value of each Fund's shares can be expected to
vary significantly.
Investment in Foreign Securities. Investing in non-U.S. securities involves
- --------------------------------
additional risks not normally associated with domestic investments. In an
attempt to reduce some of these risks, each Fund except Evergreen VA Fund may
diversify its investments broadly among foreign countries which may include
both developed and developing countries. 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. 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
18
<PAGE>
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 costs, including
brokerage charges and custodian charges associated with holding foreign
securities, may be higher; (9) the settlement period for foreign securities,
which are sometimes longer than those for securities of U.S. issuers, may
affect portfolio liquidity. These different settlement practices may cause
missed purchasing opportunities and/or loss of interest on money market and
debt investments; (10) foreign securities held by a Fund may be traded on days
that the Fund does not value its portfolio securities, such as Saturdays and
customary business holidays and, accordingly, the Fund's net asset value may be
significantly affected on days when shareholders do not have access to the
Fund; and (11) political and social instability, expropriation, and political
or financial changes which adversely affect investment in some countries.
Investments Related to Real Estate. The Funds may invest without limit in
- ----------------------------------
investments related to real estate, including real estate investment trusts
("REITS"). Risks associated with investment in securities of companies in the
real estate industry include: declines in the value of real estate, risks
related to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, changes in
zoning laws, casualty or condemnation losses, variations in rental income,
changes in neighborhood values, the appeal of properties to tenants and
increases in interest rates. In addition, equity real estate investment trusts
may be affected by changes in the value of the underlying property owned by the
trusts, while mortgage real estate investment trusts may be affected by the
quality of credit extended. Equity and mortgage real estate investment trusts
are dependent upon management skills, may not be diversified and are subject to
the risks of financing projects. Such trusts are also subject to heavy cash
flow dependency, defaults by borrowers, self liquidation and the possibility of
failing to qualify for tax-free pass-through of income under the Internal
Revenue Code of 1986, as amended (the "Code") and to maintain exemption from
the Investment Company Act of 1940, as amended (the "1940 Act"). In the event
an issuer of debt securities collateralized by real estate defaulted, it is
conceivable that a Fund could end up holding the underlying real estate.
Lower-Rated Securities. Evergreen VA Growth and Income Fund and Evergreen VA
- ----------------------
Strategic Income Fund may invest a portion of their assets in securities rated
below Baa by Moody's or BBB by S&P (commonly known as "junk bonds").
Lower-rated and comparable unrated securities (collectively referred to in
this section as "lower-rated securities") will likely have some quality and
protective characteristics that, in the judgment of the rating organization,
are out-weighed by large uncertainties or major risk exposures to adverse
conditions; and are predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal in accordance with the terms of
the obligation.
While the market values of lower-rated securities tend to react less to
fluctuations in interest rate levels than the market values of higher rated
securities, the market values of certain lower-rated securities also tend to be
more sensitive to individual corporate developments and changes in economic
conditions than higher-rated securities. In addition, lower-rated securities
generally present a higher degree of credit risk. Issuers of lower- rated
securities are often highly leveraged and may not have more traditional methods
of financing available to them so that their ability to service their debt
obligations during an economic downturn or during sustained periods of rising
interest rates may be impaired. The risk of loss due to default by such issuers
is significantly greater because lower-rated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. A
Fund may incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on its
portfolio holdings. The existence of limited markets for lower-rated securities
may diminish a Fund's ability to obtain accurate market quotations for purposes
of valuing such securities and calculating its net asset value. For additional
information about the possible risks of investing in junk bonds, see
"Investment Objectives and Policies -- Junk Bonds" in the Statement of
Additional Information.
Payment-In-Kind Bonds. 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 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
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<PAGE>
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 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 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.
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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, Evergreen VA Global Leaders Fund and Evergreen VA Small Cap
Equity Income 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. Keystone succeeded on December 11, 1996 to
the advisory business of a corporation with the same name, but under different
ownership, which has provided investment advisory and management services to
investment companies and private accounts since it was organized in 1932.
Keystone is an indirect, wholly-owned subsidiary of FUNB.
The Capital Management Group of FUNB ("CMG") serves as investment adviser
to Evergreen VA Aggressive Growth Fund.
First Union is headquartered in Charlotte, North Carolina, and had
approximately $140 billion in consolidated assets as of December 31, 1997.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States. CMG manages or
otherwise oversees the investment of over $45 billion in assets belonging to a
wide range of clients, including many of the Evergreen mutual funds.
Evergreen Asset, Keystone and CMG 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,
Evergreen VA Global Leaders Fund and Evergreen VA Small Cao Equity Income Fund
is entitled to receive from such Funds an annual fee equal to .95 of 1% of
average daily net assets thereof. For the most recent fiscal year Evergreen VA
Fund, Evergreen VA Growth and Income Fund and Evergreen VA Global Leaders Fund
paid .65%, .73% and .95% of their avergage daily net assets to Evergreen Asset.
As compensation for its services as investment adviser to Evergreen VA
Foundation Fund, Evergreen Asset is entitled to receive an annual fee equal to
.825 of 1% of average daily net assets of such Fund. For the most recent fiscal
year, Evergreen VA Foundation Fund paid .735% of its average daily net assets to
Evergreen Asset. These fees are higher than the rates paid by most other
investment companies, but are not higher than the fees paid by many funds with
similar investment objectives.
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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 each fiscal period; plus 0.50% of
the first $100 million of average daily net assets; 0.45% of the next $100
million; 0.40% of the next $100 million; 0.35% of the next $100 million; 0.30%
of the next $100 million; and 0.25% of amounts over $500 million computed as of
the close of business each business day and paid daily. For the most recent
fiscal year Keystone waived the investment advisory fee payable by Evergreen VA
Strategic Income Fund.
CMG manages investments and supervises the daily business affairs of
Evergreen VA Aggressive Growth Fund and, as compensation therefor, is entitled
to receive an annual fee equal to .60 of 1% of average daily net assets of the
Fund. For the most recent fiscal year, Evergreen VA Aggressive Growth Fund paid
to CMG .01% of its avegerage daily net assets.
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") also serves as administrator
to each Fund and is entitled to receive a fee based on the average daily net
assets of the Fund at a rate based on the total assets of the mutual funds
administered by EIS for which 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.
PORTFOLIO MANAGERS
The portfolio manager for Evergreen VA Fund and Evergreen VA Foundation
Fund is Stephen A. Lieber, who is Chairman and Co-Chief Executive Officer of
Evergreen Asset and has been associated with Evergreen Asset and its
predecessor since 1969. Mr. Lieber has served as the portfolio manager of
Evergreen Foundation Fund since its inception in 1990 and as the portfolio
manager of Evergreen Fund since its inception in 1970. The portfolio managers
for Evergreen VA Growth and Income Fund are Stephen A. Lieber (described above)
and Gary R. Buesser. Mr. Buesser joined Lieber & Company in 1996 as an analyst.
Previously, he was a portfolio manager/ analyst with Cowen Asset Management
and Shearson Lehman Brothers. 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 in 1995.
The portfolio manager for Evergreen VA Small Cap Equity Income Fund is
Nola Maddox Falcone, C.F.A., who is President and Co-Chief Executive Officer of
Evergreen Asset. Ms. Falcone has served as the principal manager of Evergreen
Income and Growth Fund and Evergreen Small Cap Equity Income Fund since 1985
and 1993, respectively.
Prescott B. Crocker is the portfolio manager of Evergreen VA Strategic
Income Fund. Mr. Crocker is a Senior Vice President, Senior Portfolio Manager
and Head of the High Yield Bond Team at Keystone. Mr. Crocker joined Keystone
in 1997. From 1993 until he joined Keystone, Mr. Crocker held various positions
at Boston Security Counsellors, including President and Chief Investment
Officer, and was Managing Director and Portfolio Manager at Northstar
Investment Management. Prior to 1993, Mr. Crocker held various fund management
positions at Colonial Group, Inc. Mr. Crocker has 25 years of experience in
fixed income investment management.
The portfolio manager for Evergreen VA Aggressive Growth Fund is Harold J.
Ireland, Jr., a Vice President of CMG who has been associated with CMG since
1995. Prior to that, Mr. Ireland was a Vice President of Palm Beach Capital
Management, Inc. and served as portfolio manager of Evergreen Aggressive Growth
Fund and such Fund's predecessor, ABT Emerging Growth Fund, since 1985.
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, Evergreen VA Global Leaders Fund and Evergreen VA
Small Cap Equity Income 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 Fund's portfolio. Lieber & Company will be reimbursed
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by Evergreen Asset in connection with the rendering of services on the basis of
the direct and indirect costs of performing such services. There is no
additional charge to the Funds for the services provided by Lieber & Company.
It is contemplated that Lieber & Company will, to the extent practicable,
effect substantially all of the portfolio transactions for these Funds on the
New York and American Stock Exchanges. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company is an indirect,
wholly-owned, subsidiary of First Union.
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SALE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PARTICIPATING INSURANCE COMPANIES
The Funds were organized to serve as investment vehicles for separate
accounts funding variable annuity ("VA") and variable life insurance ("VLI")
contracts issued by certain life insurance companies ("Participating Insurance
Companies"). The Trust does not currently foresee any disadvantages to the
holders of VA and VLI contracts arising from the fact that the interests of
holders of VA and VLI contracts may differ due to the difference of tax
treatment and other considerations.
Nevertheless, the Trustees have 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.
PURCHASES
Shares of each Fund are sold at net asset value to the separate accounts of
Participating Insurance Companies. All investments in the Trust are credited to
the shareholder's account in the form of full or fractional shares of the
designated Fund (rounded to the nearest 1/1000 of a share). The Trust does not
issue share certificates. Initial and subsequent purchase payments allocated to
a specific Fund are subject to the limits described in the separate prospectuses
issued by the Participating Insurance Companies or in pension and retirement
plan documents.
How the Funds Value Their Shares. The net asset value of shares of a Fund is
- ---------------------------------
calculated by dividing the value of the amount of the Fund's net assets by the
number of outstanding shares. Shares are valued each day the New York Stock
Exchange (the "Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in a Fund are valued at their current
market value determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the Trustees
believe would accurately reflect fair value. Non-dollar denominated securities
will be valued as of the close of the Exchange at the closing price of such
securities in their principal trading markets.
REDEMPTION
The separate accounts of Participating Insurance Companies redeem shares to
make benefit or surrender payments under the terms of the VA or VLI contract.
Redemptions are processed on any day on which the Trust is open for business and
are effected at net asset value next determined after the redemption order, in
proper form, is received by the Trust or its agent. The net asset value per
share of each Fund is determined once daily, as of 4:00 p.m. Eastern time on
each business day the Exchange is open and on such other days as the Trustees
determine, and on any other day during which there is a sufficient degree of
trading in a Fund's portfolio securities that the net asset value of the Fund is
materially affected by changes in the value of portfolio securities.
The Trust may suspend the right of redemption only under the following
unusual circumstances: (1) when the Exchange is closed (other than weekends and
holidays) or trading is restricted; (2) when an emergency exists, making
disposal of portfolio securities or the valuation of net assets not reasonably
practicable; or (3) during any period when the Securities and Exchange
Commission ("SEC") has by order permitted a suspension of redemptions for the
protection of shareholders.
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DIVIDENDS
All dividends payable by a Fund are distributed at least annually to the
separate accounts of Participating Insurance Companies and will be
automatically reinvested in additional shares of such Fund. Dividends and other
distributions made by the Funds to such separate accounts are taxable, if at
all, to the Participating Insurance Companies; they are not currently taxable
to the VA or VLI owners.
TAX STATUS
Each Fund is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Funds. It is the intention of each
Fund to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and meet all other
requirements necessary for it to be relieved of federal income taxes on that
part of its net investment income and net capital gains distributed to its
shareholders. Each Fund intends to distribute all of its net investment income
and net capital gains to its shareholders.
For a discussion of the tax consequences of VA or VLI contracts, refer to
the prospectus of the VA or VLI contract offered by the Participating Insurance
Company. VA or VLI contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest, dividends,
and capital appreciation without current federal income tax liability to the
owner. Depending on the VA or VLI contract, distributions from the contract may
be subject to ordinary income tax and, in addition, a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution
attributable to income on the investment in the contract is subject to Federal
income tax. Investors should consult with competent tax advisers for a more
complete discussion of possible tax consequences in a particular situation.
Section 817(h) of the Code provides that investments of a separate account
underlying a VA or VLI contract (or the investments of a mutual fund, the
shares of which are owned by the VA or VLI separate account) must be
"adequately diversified" in order for the VA or VLI contract to be treated as
an annuity for tax purposes. The Treasury Department has issued regulations
prescribing these diversification requirements. Each Fund intends to comply
with these requirements. If a separate account underlying a VA or VLI contract
were not adequately diversified, the owner of such VA or VLI contract would be
immediately subject to tax on the earnings allocable to the contract.
Additional information about the tax status of the Funds is provided in the
Statement of Additional Information.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Funds. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of their customer.
Evergreen Asset and Keystone, since they are subsidiaries of FUNB and CMG, 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, CMG and Keystone
being prevented from continuing to perform the services required under the
investment advisory contracts or from acting as agents in connection with the
purchase of shares of a Fund by their customers. If Evergreen Asset, CMG or
Keystone were prevented from continuing to provide the services called for
under the investment advisory agreements, it is expected that the Trustees
would identify, and call upon each Fund's shareholders to approve, new
investment advisers. If this were to occur, it is not anticipated that the
shareholders of any Fund would suffer any adverse financial consequences.
23
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
CUSTODIAN, AND TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02109 (the "Custodian"), acts as custodian of the assets of the
Trust. Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts
02116, acts as the transfer agent and dividend disbursing agent for the Trust
and in doing so performs certain bookkeeping, data processing and administrative
services for the Trust and each Fund.
EXPENSES OF THE TRUST
Each Fund bears all expenses of its operations other than those incurred
by Evergreen Asset, CMG and Keystone under their respective Advisory
Agreements, and EIS under its Administration Agreement with the Trust. In
particular, the Funds pay investment advisory fees, administrative fees,
custodian fees and expenses, legal, accounting and auditing fees, brokerage
fees, interest and taxes, registration fees and expenses, expenses of the
transfer and dividend disbursing agent, the compensation and expenses of
Trustees who are not otherwise affiliated with the Trust, Evergreen Asset, CMG,
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
The Trust is a Delaware business trust organized on December 23, 1997, and
was originally organized as a Massachusetts business trust in 1996. Pursuant to
current interpretations of the 1940 Act, each Participating Insurance Company
will solicit voting instructions from VA or VLI contract owners with respect to
any matters that are presented to a vote of shareholders. On any matter
submitted to a vote of shareholders, all the shares of the Trust then issued
and outstanding and entitled to vote shall be voted in the aggregate and not by
Fund except for matters concerning only a specific Fund. Certain matters
approved by a vote of shareholders of one Fund of the Trust may not be binding
on a Fund whose shareholders have not approved such matters. The holder of each
share of the Trust shall be entitled to one vote for each full share and a
fractional vote for each fractional share. Shares of one Fund may not bear the
same economic relationship to the Trust as shares of another Fund.
The Trust is not required to hold annual meetings of shareholders and does
not plan to do so. The Trustees may call special meetings of shareholders for
action by shareholder vote as may be required by the 1940 Act or the Trust's
Declaration of Trust. The Trustees will be a self-perpetuating body until fewer
than 50% of the Trustees, then serving as Trustees, are Trustees who were
elected by shareholders. At that time a meeting of shareholders will be called
to elect additional Trustees.
The Declaration of Trust may be amended by a vote of the Trustees;
provided, if any such amendment materially adversely affects the rights of any
shares of any series or any class with respect to matters to which such
amendment is applicable, such amendment shall be subject to approval by holders
of a majority of the outstanding voting securities, as that term is defined in
the 1940 Act, of such series or class. Shares have no pre-emptive or conversion
rights and are fully paid and nonassessable. When a majority is required, it
means the lesser of 67% or more of the shares present at a meeting when the
holders of more than 50% of the outstanding shares are present or represented
by proxy, or more than 50% of the outstanding shares.
DESCRIPTION OF SHARES
The Declaration of Trust permits the Trustees to establish and designate
series or classes in addition to the Funds. Each share of any series or class
represents an equal proportionate share in the net assets of that series or
class with each other share of that series or class. The Trustees may divide or
combine the shares of any series or class into a greater or lesser number of
shares of that series or class without thereby changing the proportionate
interests in the assets of that series or class. Upon liquidation of a
particular series or class, the shareholders of that series or class shall be
entitled to share pro rata in the net assets of such series or class available
for distribution to shareholders.
24
<PAGE>
Any inquiries regarding the Trust should be directed to the Trust at the
telephone number or address shown on the cover page of this Prospectus. All
inquiries regarding the VA or VLI contracts should be directed to the
Participating Insurance Company, as indicated in the VA or VLI prospectus
accompanying this Prospectus.
PERFORMANCE
From time to time, the Trust may advertise the "average annual or
cumulative total return" of the Funds and may compare the performance of the
Funds with that of other mutual funds with similar investment objectives as
listed in rankings prepared by Lipper Analytical Services, Inc., or similar
independent services monitoring mutual fund performance, and with appropriate
securities or other relevant indices. The "average annual total return" of a
Fund refers to the average annual compounded rate of return over the stated
period that would equate an initial investment in that Fund at the beginning of
the period to its ending redeemable value, assuming reinvestment of all
dividends and distributions and deduction of all recurring charges. Figures
will be given for the recent one, five and ten year periods and for the life of
the Fund if it has not been in existence for such periods. When considering
"average annual total return" figures for periods longer than one year it is
important to note that a Fund's annual total return for any given year might
have been greater or less than its average for the entire period. "Cumulative
total return" represents the total change in value of an investment in a Fund
for a specified period (again reflecting changes in a Fund's share price and
assuming reinvestment of Fund distributions).
The performance of each Fund will vary from time to time in response to
fluctuations in market conditions, interest rates, the composition of the
Fund's investments and expenses. Consequently, a Fund's performance figures are
historical and should not be considered representative of the performance of
the Fund for any future period.
Performance Information on Comparable Fund. Evergreen Asset is the investment
- ------------------------------------------
adviser to Evergreen Small Cap Equity Income Fund (the "Comparable Fund")
which is substantially similar to the Trust's Evergreen VA Small Cap Equity
Income Fund, in that it has the same investment objective, investment policies
and restrictions, and is managed using substantially the same investment
strategies and techniques.
As of the date of this Prospectus, the Evergreen VA Small Cap Equity Income
Fund had not commenced operations. Since the Evergreen VA Small Cap Equity
Income Fund lacks any substantial operating history, along with actual Fund
performance information, if any, information may be included regarding the
historical performance of the Comparable Fund. Set forth below is certain
performance information regarding the Comparable Fund, which has been obtained
from Evergreen Asset and is set forth in the current prospectuses and statement
of additional information of the Comparable Fund. Investors should not rely on
the following financial information as an indication of the future performance
of the Evergreen VA Small Cap Equity Income Fund.
25
<PAGE>
Average Annual Total Return of Comparable Funds
The average annual compounded total return for the Class Y shares offered
by the Evergreen Small Cap Equity Income Fund for the most recently completed
one year fiscal period and the period from inception through the fund's fiscal
year is set forth below:
<TABLE>
<S> <C> <C>
1 Year From 10/1/93
Ended (Inception)
Evergreen Small Cap Equity Income Fund 7/31/97 to 7/31/97
- --------------------------------------------- ------- ---------------
43.24% 18.78%
</TABLE>
The calculations of total return assume the reinvestment of all dividends
and capital gains distributions on the reinvestment dates during the period and
the deduction of all recurring expenses that were charged to shareholders
accounts. The above tables do not reflect charges and deductions which are, or
may be, imposed at the separate account level under the VA or VLI contracts.
Such charges and deductions would result in performance lower than that shown
above.
GENERAL
Independent Auditors. KPMG Peat Marwick LLP, 99 High Street, Boston,
- --------------------
Massachusetts 02110, serves as the independent public accountants of the Trust.
Legal Counsel. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
- -------------
Washington, D.C. 20036, acts as counsel for the Trust.
Year 2000 Risks. Like other investment companies, financial and business
- ---------------
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used the Funds' Investment Advisers and the
Funds' other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Funds' Investment Advisers are
taking steps to address the Year 2000 Problem with respect to the computer
systems that they use and to obtain assurances that comparable steps are being
taken by the Funds' other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Funds.
Additional Information. This Prospectus and the Statement of Additional
- ----------------------
Information, which has been incorporated by reference herein, do not contain
all the information set forth in the Registration Statement filed by the Trust
with the SEC under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the SEC or may be
examined, without charge, at the offices of the SEC in Washington, D.C.
26
<PAGE>
Investment Advisers
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New
York 10577
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Small Cap Equity Income Fund
Capital Management Group of First Union National Bank, 210 South College
Street, Charlotte, North Carolina 28288
Evergreen VA Aggressive Growth Fund
Keystone Investment Management Company, 200 Berkeley Street, Boston,
Massachusetts 02116-5034
Evergreen VA Strategic Income Fund
Custodian
State Street Bank and Trust Company, Box 9021, Boston, Massachusetts
02205-9827
Transfer Agent
Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts
02116-5034
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington, D.C.
20036
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
200 BERKELEY STREET, BOSTON, MASSACHUSETTS 02116
800-633-2700
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 Aggressive Growth Fund
("Aggressive") Evergreen VA Strategic Income Fund ("Strategic Income"), and
Evergreen VA Small Cap Equity Income Fund ("Small Cap")
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 May 1, 1998 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.
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<PAGE>
TABLE OF CONTENTS
FUND INVESTMENTS.................................................... 4
GENERAL INFORMATION................................................ 4
FUNDAMENTAL POLICIES...............................................23
INVESTMENT GUIDELINES..............................................24
MANAGEMENT OF THE TRUST.............................................26
PRINCIPAL HOLDERS OF FUND SHARES....................................29
INVESTMENT ADVISORY SERVICES........................................29
ADMINISTRATIVE SERVICE PROVIDERS....................................32
BROKERAGE...........................................................32
ADDITIONAL TAX INFORMATION..........................................34
NET ASSET VALUE.....................................................36
ADDITIONAL SALE AND REDEMPTION INFORMATION..........................37
GLASS-STEAGALL ACT..................................................37
GENERAL INFORMATION ABOUT THE FUNDS.................................38
CUSTODIAN..........................................................38
TRANSFER AGENT.....................................................38
CAPITALIZATION AND ORGANIZATION.....................................38
PERFORMANCE INFORMATION.............................................39
YIELD CALCULATIONS.................................................39
NON STANDARDIZED PERFORMANCE.......................................40
ADDITIONAL INFORMATION .............................................41
INDEPENDENT ACCOUNTANTS.............................................41
LEGAL COUNSEL.......................................................41
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<PAGE>
FINANCIAL STATEMENTS................................................41
APPENDIX A .........................................................42
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<PAGE>
FUND INVESTMENTS
GENERAL INFORMATION
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 nonfundamental and may be changed without the approval
of shareholders. Shareholders would be notified prior to the implementation of
any such change. The following expands upon the discussion in the Prospectus
regarding certain investments of each Fund.
U.S. Government Securities (All Funds)
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
Brady Bonds (Strategic Income), Strategic Income may also 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.
-4-
<PAGE>
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.
Zero Coupon "Stripped" and Payment-in-Kind Bonds (Strategic Income)
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, 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
-5-
<PAGE>
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.
Lending of Portfolio SECURITIES (All Funds)
Each Fund may lend its portfolio securities to generate income and to
offset expenses. The collateral received when a Fund lends portfolio securities
must be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the Fund any
dividends or interest paid on such securities. Loans are subject to termination
at the option of the Fund or the borrower. A Fund may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent of
collateral to the borrower or placing broker. A Fund does not have the right to
vote securities on loan, but would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.
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 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.
-6-
<PAGE>
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.
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
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.
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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 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
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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 SEC 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, many issuers could be 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 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
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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 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,
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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 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
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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.
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
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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.
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.
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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
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
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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 (All Funds)
To the extent provided for elsewhere in this Statement of Additional
Information, each Fund 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 the Funds to earn income
and enhance returns, to hedge or adjust the risk profile of the portfolio, and
in place of more traditional direct investments 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. An Investment Adviser'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 elsewhere in this section.
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.
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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 Backed Securities,"
below.
While the judicious use of derivatives by experienced investment
managers such as Keystone and Evergreen Asset 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 Funds.
* 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 which is detrimental to a 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 a 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, a Fund's investment adviser 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.
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* 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 a 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, a Fund's use
of derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering a Fund's investment objective.
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 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.
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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)
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
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"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 (Aggressive)
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 the Fund 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 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
SEC 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.
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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, Aggressive)
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 Aggressive 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.
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
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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.
FUNDAMENTAL POLICIES
The Funds have adopted the fundamental restrictions set forth below
which, as to a Fund, may not be changed without the vote of a majority of a
Fund's outstanding voting securities. As used in this Statement of Additional
Information and in the Prospectus, "a majority of the outstanding voting
securities of a 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.
Diversification
A Fund may not make any investment inconsistent with the Fund's
classification as a diversified investment company under the Investment Company
Act of 1940.
Concentration
A Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
Issuance of Senior Securities
Except as permitted under the Investment Company Act of 1940, the Fund
may not issue senior securities.
Borrowing
A Fund may not borrow money, except to the extent permitted by
applicable law.
Underwriting
A Fund may not underwrite securities of other issuers, except insofar
as the Fund may be deemed an underwriter in connection with the disposition of
its portfolio securities.
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Real Estate
The Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, the Fund may invest in (a) securities
directly or indirectly secured by real estate, or (b) securities issued by
companies that invest in real estate.
Commodities
A Fund may not purchase or sell commodities or contracts on commodities
except to the extent that the Fund may engage in financial futures contracts and
related options and currency contracts and related options and may otherwise do
so in accordance with applicable law and without registering as a commodity pool
operator under the Commodity Exchange Act.
Loans to Other Persons
A Fund may not make loans to other persons, except that the Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment instruments shall not be deemed to be the making of a loan.
INVESTMENT GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are tin terms of
current market value.
Diversification
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Borrowings
Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total assets from banks or others. Each Fund may
borrow only as a temporary measure for extraordinary or emergency purposes. Each
Fund will not purchase securities while borrowings are outstanding except to
exercise prior commitments and to exercise subscription rights. Each Fund may
obtain such short-term credit as may be necessary for the clearance of purchases
and sales of portfolio securities. Each Fund may purchase securities on margin
to the extent permitted by applicable law.
Illiquid and Restricted Securities
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Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
Each Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determining
the liquidity of Rule 144A securities, the Trustees will consider: (1)the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in
investment companies. However, each Fund may invest all of its investable assets
in securities of a single open-end management investment company with
substantially the same fundamental investment objectives, policies and
limitations as each Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
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
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<PAGE>
high-grade debt securities belonging to the Fund in an amount not less than the
value of the assets committed to the written options.
Neither Aggressive nor Strategic Income nor Small Cap 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.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and the
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
NAME POSITION WITH TRUST PRINCIPAL OCCUPATIONS FOR LAST FIVE YEARS
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; and
(DOB: 10/23/34) former Managing Director, Seaward Management
Corporation (investment advice).
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K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus and
Director, American Institute of Food and Wine;
Chairman and President, Oldways Preservation and
Exchange Trust (education); former Chairman of the
Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former
Chairman, Gifford, Drescher & Associates
(environmental consult ing); and former Director,
Keystone Investments, Inc.
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for the
(DOB: 8/13/24) Board of Trustees Carolinas; and former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix Total
Return Fund and Equifax, Inc.; Trustee of Phoenix
Series Fund, Phoenix Multi-Portfolio Fund, and The
Phoenix Big Edge Series Fund; and former President,
Morehouse College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc. (steel
(DOB: 7/14/39) producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR
(DOB: 9/14/41) International, Inc. (executive recruitment); former
Senior Vice President, Boyden International Inc.
(executive recruitment); and Director, Commerce and
Industry Association of New Jersey, 411 International,
Inc., and J&M Cumming Paper Co.
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Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin, Inc. (executive outplacement); Director
of Connecticut Natural Gas Corporation, Hartford
Hospi tal, Old State House Association, Middlesex
Mutual Assurance Company, and Enhance Financial
Services, Inc.; Chairman, Board of Trustees,
Hartford Graduate Center; Trustee, Greater Hartford
YMCA; former Director, Vice Chairman and Chief
Investment Officer, The Travelers Corporation;
former Trustee, Kingswood-Oxford School; and former
Managing Director and Consultant, Russell Miller,
Inc.
William J. Tomko** President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BISYS Fund Services.
Nimish S. Bhatt** Vice President Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) and Assistant Treasurer Assistant Vice President, Evergreen Asset
Management Corp./First Union Bank; former Senior
Tax Consulting/Acting Manager, Investment Companies
Group, Price Waterhouse, LLP, New York.
Bryan Haft** Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
D'Ray Moore** Secretary Vice President, Client Services, BISYS Fund Services.
(DOB: 3/30/59)
</TABLE>
*This trustee may be considered an interested trustee within the meaning of the
1940 Act.
**Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
The officers of the Trust are all officers and/or employees of BISYS
Fund Services.
Trustee Compensation
Listed below is the estimated trustee compensation for the twelve-month
period ended December 31, 1997.
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TRUSTEE COMPENSATION FROM TRUST COMPENSATION FROM TRUST
AND FUND COMPLEX
LAURENCE B. ASHKIN $0 $68,673
CHARLES A. AUSTIN III $0 $43,312
K. DUN GIFFORD $0 $38,818
JAMES S. HOWELL $4,000 $107,167
LEROY KEITH JR. $0 $39,218
GERALD M. MCDONNELL $0 $94,014
THOMAS L. MCVERRY $0 $96,065
WILLIAM WALT PETTIT $0 $91,709
DAVID M. RICHARDSON $0 $43,312
RUSSELL A. SALTON, III $4,000 $93,651
MICHAEL S. SCOFIELD $4,000 $90,815
RICHARD J. SHIMA $0 $63,333
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this Statement of Additional Information, the
officers and trustees of the trust owned as a group less than 1% of the
outstanding shares of any Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a Fund's
outstanding shares as of December 31, 1997.
EVERGREEN VA GROWTH & INCOME FUND
Nationwide Life Insurance Co. 81%
Variable Account #6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life Insurance Co. 14%
Registered Share Account
Attn. Richard Leifels
84 Business Park DR STE 303
Armock, NY 10504-1738
Nationwide Life Insurance Co. 5%
Seed Account
Variable Account Six
C/O IPO Portfolio Accounting
P.O. Bonx 182029
Columbus, OH 43218-2029
EVERGREEN VA AGGRESSIVE GROWTH FUND
Nationwide Life Insurance Co. 41%
NWVA6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 59%
NWVA6 Seed Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
EVERGREEN VA FOUNDATION FUND
Nationwide Life Insurance Co. 85%
Variable Account #6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life Insurance Co. 11%
Registered Share Account
Attn. Richard Leifels
84 Business Park DR STE 303
Armock, NY 10504-1738
EVERGREEN VA GLOBAL LEADERS FUND
Nationwide Life Insurance Co. 62%
NWVA6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 38%
NWVA6 Seed Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
EVERGREEN VA STRATEGIC INCOME FUND
Nationwide Life Insurance Co. 52%
NWVA6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 48%
NWVA6 Seed Account
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
EVERGREEN VA FUND
Nationwide Life Insurance Co. 73%
Variable Account #6
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life Insurance Co. 20%
Registered Share Account
Attn. Richard Leifels
84 Business Park DR STE 303
Armock, NY 10504-1738
Nationwide Life Insurance Co. 7%
Seed Account
Variable Account Six
C/O IPO Portfolio Accounting
P.O. Bonx 182029
Columbus, OH 43218-2029
INVESTMENT ADVISORY SERVICES
The investment adviser to Evergreen, Growth and Income, Foundation,
Global Leaders and Small Cap 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 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 investment adviser to Aggressive is the Capital Management Group of FUNB
("CMG" or the "Adviser").
On behalf of each of its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements").
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Advisers furnish to the appropriate Fund investment
advisory, management and administrative services, office
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<PAGE>
facilities, and equipment in connection with its services for managing the
investment and reinvestment of the Fund's assets. The Adviser pays for all of
the expenses incurred in connection with the provision of its services. Each
Fund pays for all charges and expenses, other than those specifically referred
to as being borne by the Adviser, including, but not limited to, (1) custodian
charges and expenses; (2) bookkeeping and auditors' charges and expenses; (3)
transfer agent charges and expenses; (4) fees and expenses of Independent
Trustees; (5) brokerage commissions, brokers' fees and expenses; (6) issue and
transfer taxes; (7) taxes and trust fees payable to governmental agencies; (8)
the cost of share certificates; (9) fees and expenses of the registrations and
qualification of such Fund and its shares with the Securities and Exchange
Commission or under state or other securities laws; (10) expenses of preparing,
printing and mailing prospectuses, SAIs, notices, reports and proxy materials to
shareholders of each Fund; (11) expenses of shareholders' and Trustees'
meetings; (12) charges and expenses of legal counsel for each Fund and for the
Independent Trustees of the Trust on matters relating to such Fund; (13) charges
and expenses of filing annual and other reports with the Securities and Exchange
Commission and other authorities; and all extraordinary charges and expenses of
such Fund. (see also the section entitled "Financial Information."
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
each Fund's outstanding shares. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Independent Trustees (Trustees who are not interested persons of a Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
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 Agreements continue in effect 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. The
Sub-Advisory Agreements continue in effect 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.
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<PAGE>
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 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, each
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.
The method of computing the investment advisory fee for each Fund is
set forth in the Funds' prospectus. The advisory fees paid by each Fund (other
than Small Cap) are set forth below:
<TABLE>
<CAPTION>
OTHER EXPENSE
ADVISORY FEES ADVISORY FEES WAIVED REIMBURSEMENTS
FUND 1997 1996 1997 1996 1997 1996
- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EVERGREEN VA 0.95% 0.95% 0.30% 0.94% - 0.44%
- ------------ ------- ------- ------- ------ ------
VA FOUNDATION 0.825% 0.825% 0.09% 0.61% - 0.11%
- ------------- ------- ------- ------- ------ ------
VA GROWTH AND INCOME 0.95% 0.95% 0.22% 0.84% - 0.21%
- -------------------- ------- ------- ------- ------ ------
VA GLOBAL LEADERS 0.95% - 0.95% - 0.89% -
- ----------------- ------- ------- ------
VA AGGRESSIVE GROWTH 0.60% - 0.59% - 1.37% -
- -------------------- ------ ------ ------
VA STRATEGIC INCOME 0.58% - 0.58% - 1.06%
- ------------------- ------ ------ ------ -
VA SMALL CAP EQUITY INCOME N/A N/A N/A N/A N/A N/A
- -------------------------- ------ ------ ------ ------ ----- -----
</TABLE>
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<PAGE>
Transactions Among Advisory Affiliates
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 act 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.
ADMINISTRATIVE SERVICE PROVIDERS
Evergreen Investment Services ("EIS") provides administrative services
to each of the Funds for a fee based on the average daily net assets of each
fund administered by EIS for which Evergreen Asset, Keystone or FUNB also serve
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 EIS 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 EIS for which Evergreen Asset, Keystone or FUNB served as investment adviser
as of February 28, 1997 were approximately $35 billion.
For the fiscal period ended December 31, 1997, the Funds, other than
Small Cap which had not yet commenced operations, incurred, AND PAID TO EIS the
following administrative service costs: Evergreen: $4,994; Growth and Income:
$6,751; Foundation: $7,044; Global Leaders: $385; Strategic Income: $323;
Aggressive Growth: $301. 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.
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 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.
-32-
<PAGE>
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 do 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.
-33-
<PAGE>
The following chart shows: (1) the brokerage commissions paid by each
Fund other than Small Cap for the periods shown; (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:
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS AMOUNT TO LIEBER PERCENT BY LIEBER
FUND 1997 1996 1997 1996 1997 1996
- ---- ---- ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C> <C>
VA EVERGREEN $19,154 $17,474 $16,810 $16,882 25.7% 52.5%
- ------------ ------- ------- ------- ------- ----- -----
VA FOUNDATION $16,976 $16,849 $16,976 $17,682 56.1% 48.8%
- ------------- ------- ------- ------- ------- ----- -----
VA GROWTH AND INCOME $20,369 $20,587 $17,413 $17,389 21.0% 38.1%
- -------------------- ------- ------- ------- ------- ----- -----
VA GLOBAL LEADERS $6,526 - $1,965 - 43.8% 0.0%
- ----------------- ------ - ------ - ----- ----
</TABLE>
ADDITIONAL TAX INFORMATION
(See also "Sale and Redemption of Shares - Tax Status" in the Funds' Prospectus)
Each Fund other than SMALL CAP has qualified and intends to continue to
qualify, and SMALL CAP INTENDS 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, and (2)
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.
-34-
<PAGE>
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 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, a 10% penalty tax on distributions before age 59-1/2. Only the portion
of a distribution attributable to income on the investment in the contract is
subject to federal income tax. Investors should consult with competent tax
advisers for a more complete discussion of possible tax consequences in a
particular situation.
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
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<PAGE>
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".
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
-36-
<PAGE>
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 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 elected 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.
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<PAGE>
GENERAL INFORMATION ABOUT THE FUNDS
CUSTODIAN
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.
TRANSFER AGENT
Evergreen Service Company ("ESC"), 200 Berkeley Street, Boston,
Massachusetts 02116, a subsidiary of FUNB, serves 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,
ESC 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.
CAPITALIZATION AND ORGANIZATION
The Trust is a Delaware business trust organized on December 23, 1997.
It is the successor to 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 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 continues 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.
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<PAGE>
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 and 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.
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 the Funds for,
as applicable for the period from inception (March 1, 1996 for Evergreen, Growth
and Income and Foundation) through December 31, 1996 and for the year ended
December 31, 1997 were, respectively: Evergreen 1 YR:37.16%; SINCE
INCEPTION:28.05%; GROWTH AND INCOME 1 YR:34.66% INCEPTION:29.23%; FOUNDATION 1
YR:27.80% SINCE INCEPTION:23.47%. THE AVERAGE ANNUAL COMPUNDED TOTAL RETURN FOR
THE PERIOD FROM INCEPTION (MARCH 6, 1997) THROUGH DECEMBER 31, 1997 WAS: GLOBAL
LEADERS:8.80%; AGGRESSIVE:11.00%; AND STRATEGIC:5.28%.
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<PAGE>
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)B-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.
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<PAGE>
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 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, 99 High Street, Boston, Massachusetts, 02110
serve as 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, Foundation,
Global Leaders, Strategic Income and Aggressive Growth 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, is available upon request and without charge.
-41-
<PAGE>
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 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:
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.
-42-
<PAGE>
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.
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.
-43-
<PAGE>
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.
-44-
<PAGE>
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.
-45-
<PAGE>
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.
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.
-46-
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
Item 24(a). Financial Statements
The financial statements listed below are included in Part A of this
Amendment to the Registration Statement:
EVERGREEN VA FUND
Financial Highlights For the year ended December 31
1997; and for the period from
March 1, 1996 (Commencement of
Operations) to December 31,
1996
EVERGREEN VA GROWTH AND INCOME FUND
Financial Highlights For the year ended December 31
1997; and for the period from
March 1, 1996 (Commencement of
Operations) to December 31,
1996
EVERGREEN VA FOUNDATION FUND
Financial Highlights For the year ended December 31
1997; and for the period from
March 1, 1996 (Commencement of
Operations) to December 31,
1996
EVERGREEN VA GLOBAL LEADERS FUND
Financial Highlights For the period from March 6,
1997 (Commencement of
of Operations) to December 31,
1997
EVERGREEN VA STRATEGIC INCOME FUND
Financial Highlights For the period from March 6,
1997 (Commencement of
of Operations) to December 31,
1997
EVERGREEN VA AGGRESSIVE GROWTH FUND
Financial Highlights For the period from March 6,
1997 (Commencement of
of Operations) to December 31,
1997
The financial statements listed below are included in Part B of this
Amendment to the Registration Statement:
Schedule of Investments December 31, 1997
Statement of Assets and Liabilities December 31, 1997
Statement of Operations Year or period ended
December 31, 1997
Statement of Changes in Net Assets
Evergreen VA Fund For the year ended
Evergreen VA Foundation Fund December 31, 1997
Evergreen VA Growth and Income Fund
Evergreen VA Global Leaders Fund For the period from March 6,
Evergreen VA Aggressive Growth Fund 1997 to December 31, 1997
Evergreen VA Strategic Income Fund
Notes to Financial Statements December 31, 1997
Independent Auditors' Report January 30, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholder
Evergreen Variable Annuity Trust
We have audited the statement of assets and liabilities of Evergreen VA Small
Cap Equity Income Fund (a series of Evergreen Variable Annuity Trust) as of
March 20, 1998. This financial statement is the responsibility of management of
Evergreen Variable Annuity Trust. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit of a statement of assets and liabilities
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of assets and liabilities. An audit of a statement
of assets and liabilities 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 audit of the statement of
assets and liabilities provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of Evergreen
VA Small Cap Equity Income Fund at March 20, 1998, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 20, 1998
<PAGE>
Evergreen Variable Annuity Trust
Statement of Assets and Liabilities
March 20, 1998
Evergreen VA
Small Cap Equity
Income Fund
Assets:
Cash $10
------------
Total assets $10
------------
Liabilities: 0
------------
Net assets $10
------------
------------
Net assets comprised of:
Paid-in-Capital $10
------------
Net assets $10
------------
------------
$10
Net asset value per share (1 share
of beneficial interest issued and
outstanding) $10.00
------------
------------
See accompanying notes to the financial statement.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
NOTES TO FINANCIAL STATEMENT
March 20, 1998
Note 1 - Organization
Evergreen VA Small Cap Equity Income Fund ("Small Cap"), is a newly organized
diversified investment series of Evergreen Variable Annuity Trust (the "Trust"),
a Delaware business trust. The Trust is registered under the Investment Company
Act of 1940, as amended "(the Act)", as an open-end management company. The Fund
has had no operations other than the sale of one share of beneficial interest to
Nationwide Variable Account - 6.
Note 2 - Investment Advisory and Administration Agreements
The Management of the Fund is supervised by the Trustees of the Trust. The Fund
has entered into an investment advisory agreement with Evergreen Asset
Management Corp. ("Evergreen Asset"), pursuant to which Evergreen Asset is
entitled to receive an annual fee equal to 1.00% of average daily net assets on
the first $750 million in assets and at reduced rates thereafter. Evergreen
Asset is a wholly owned subsidiary of First Union National Bank of North
Carolina ("FUNB").
The Fund has entered to a sub-advisory agreement with Lieber & Company, an
indirect, wholly owned subsidiary of FUNB. It is contemplated that Lieber &
Company will, to the extent practicable, effect substantially all of the
portfolio transactions for the Fund on the New York and American Stock
Exchanges, Lieber & Company will be reimbursed by Evergreen Asset for advisory
services on the basis of the direct and indirect costs of rendering such
services.
The Fund has entered into an administrative service agreement with Evergreen
Investment Services ("EIS") to provide administrative services and to supervise
the Fund's daily business affairs. The Fund will pay EIS an administrative fee
accrued daily and payable monthly, at a rate based on the average daily net
assets of all the Funds administered by EIS for which CMG, or Evergreen Asset,
or other FUNB investment advisory affiliates serve as investment advisor. The
fee will start at 0.05% per annum and decline as net assets increase to 0.01%
per annum.
BISYS Fund Services, an affiliate of Evergreen Distributor, Inc. ("EDI"),
distributor for the Fund, serves as sub-administrator to the Fund and is
entitled to receive a fee from the Fund calculated on the average daily net
assets of the Fund at a rate based on the aggregate assets of the mutual funds
administered by EIS for which FUNB affiliates also serve as investment advisor.
The fee will be calculated daily and payable monthly and will start at 0.01% per
annum and decline, as aggregate net assets of such funds increase, to 0.004% per
annum.
<PAGE>
Item 24(b). Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- -----------
<S> <C> <C>
1 Declaration of Trust Incorporated by reference to Registrant's Post-Effective Amendment
No. 5 filed on March 20, 1998
2 By-Laws Incorporated by reference to Registrant's Post-Effective Amendment
No. 5 filed on March 20, 1998
3 Not applicable
4 Provisions of instruments defining the rights
of holders of the securities being registered
are contained in the Declaration of Trust
Articles II, III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II, III and VIII
included as part of Exhibits 1 and 2 of this
Registration Statement
5(a) Investment Advisory and Management Incorporated by reference to Registrant's Post-Effective Amendment
Agreement between the Registrant and First No. 5 filed on March 20, 1998
Union National Bank
5(b) Investment Advisory and Management Incorporated by reference to Registrant's Post-Effective Amendment
Agreement between the Registrant and Evergreen No. 5 filed on March 20, 1998
Asset Management Corp.
5(c) Investment Advisory and Management Incorporated by reference to Registrant's Post-Effective Amendment
Agreement between the Registrant and Keystone No. 5 filed on March 20, 1998
Investment Management Company
6 Form of Participation Agreement
7 Not applicable
8 Custodian Agreement between the Registrant
and State Street Bank and Trust Company
9(a) Administration Agreement between Evergreen Incorporated by reference to Registrant's Post-Effective Amendment
Investment Services, Inc. and the Registrant No. 5 filed on March 20, 1998
9(b) Transfer Agent Agreement between the
Registrant and Evergreen Service Company
10 Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to Registrant's Post-Effective Amendment
No. 5 filed on March 20, 1998
11 Consent of KPMG Peat Marwick LLP
12 Not applicable
13 Not applicable
15 Not applicable
16 Fund Performance
17 Financial Data Schedules
18 Not Applicable
19 Powers of Attorney
</TABLE>
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
Item 26. Number of Holders of Securities (as of February 28, 1997)
Evergreen VA Fund 3
Evergreen VA Growth and Income Fund 3
Evergreen VA Foundation Fund 3
Evergreen VA Global Leaders Fund 2
Evergreen VA Strategic Income Fund 2
Evergreen VA Aggressive Growth Fund 2
Evergreen VA Small Cap Equity Income Fund 0
Item 27. Indemnification.
Provisions for the indemnification of the Registrant's Trustees and
officers are contained the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors are
contained in their Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Item 28. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman and Chief Executive Officer,
First Union Corporation; Chief Executive
Officer and Chairman, First Union National
Bank
John R. Georgius President, First Union Corporation; Vice
Chairman and President, First Union National
Bank
Marion A. Cowell, Jr. Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Keystone Investment
Management Company is incorporated by reference to the Form ADV (File No.
801-8327) of Keystone Investment Management Company.
Item 29. Principal Underwriters.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
J. David Huber President
Kevin J. Dell Vice President, General Counsel and Secretary
All of the above persons are located at the following address: Evergreen
Distributor, Inc., 125 West 55th Street, New York, New York 10019.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
Keystone "fund complex" as such term is defined in Item 22(a) of Schedule 14A
under the Securities Exchange Act of 1934.
Item 30. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and Keystone
Investment Management Company, all located at 200 Berkeley Street, Boston,
Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase,
New York 10577
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, and State of Ohio, on the 28th day of
April, 1998.
EVERGREEN VARIABLE ANNUITY TRUST
By: /s/ William J. Tomko
-----------------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD
- ------------------------------ -------------------------------
David M. Richardson* Russell A. Salton, III MD*
Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Maureen E. Towle
- -------------------------------
Maureen E. Towle
Attorney-in-Fact
*Maureen E. Towle, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Columbus, and State of Ohio, on the 28th day of
April, 1998.
EVERGREEN VARIABLE TRUST
By: /s/ William J. Tomko
-----------------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 28th day of April, 1998.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/William J. Tomko /s/ James S. Howell /s/ Michael S. Scofield
- ------------------------- ---------------------------- --------------------------------
William J. Tomko James S. Howell* Michael S. Scofield*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ Russell A. Salton, III MD
- -------------------------------
Russell A. Salton, III MD*
Trustee
</TABLE>
*By: /s/ Maureen E. Towle
- -------------------------------
Maureen E. Towle
Attorney-in-Fact
*Maureen E. Towle, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- -------------- -------
6 Form of Participation Agreement
8 Custodian Agreement
9(b) Master Transfer Agency Agreement
11 Consent of Independent Auditors
16 Fund Performance
17 Financial Data Schedules
19 Powers of Attorney
EVERGREEN VARIABLE ANNUITY TRUST
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this ____ day of __________, 1998 between EVERGREEN
VARIABLE ANNUITY TRUST, an open-end management investment company organized as a
Delaware business trust (the "Trust"), and _________________________, a life
insurance company organized under the laws of the State of __________ (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the offer and sale of its shares are registered under the Securities Act of
1933, as amended (the "1933 Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies); and
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has obtained an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate account
exemptions from the provisions of section 9(a), 13(a), 15(a) and 15(b) of the
1940 Act and rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
nonaffiliated life insurance companies and certain qualified pension and
retirement plans (the "Shared Trust Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable life
insurance policies and/or variable annuity contracts under the 1933 Act (the
"Contracts"); and
WHEREAS, the Company has registered or will register certain Accounts as
unit investment trusts under the 1940 Act;
WHEREAS, the Company relies on certain provisions of the 1940 and 1933 Acts
that exempt certain Accounts and Contracts from the registration requirements of
the Acts in connection with the sale of Contracts under certain private
placement offerings; and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person or suspend or terminate the offering of shares of
any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary and in the best interest of the shareholders of such
Portfolio.
1.2. The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in the
manner established from time to time by the Trust, but in no event shall payment
be delayed for a greater period than is permitted by the 1940 Act.
1.3. For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints
the Company as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that (i) such orders are received by the Company in good order prior to
the close of the regular trading session of the New York Stock Exchange and (ii)
the Trust receives notice of such orders by 9:30 a.m. New York time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates its net
asst value pursuant to the rules of the Securities and Exchange Commission.
1.4. Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for on the same Business Day that the Trust receives
notice of the order. Payments shall be made in federal funds transmitted by
wire.
1.5. The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on shares of any Portfolio of
the Trust. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on a Portfolio's shares in additional
shares of that Portfolio. The Trust shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.6. The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7:00 p.m. New York time.
1.7. The Trust agrees that it shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Shared Trust Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that the trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time to
time.
1.8. The Trust agrees that all participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.9 and Article IV of
this Agreement.
ARTICLE II
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1. and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2. The Trust will bear or cause to be borne the printing costs (or
duplicating costs with respect to the statement of additional information) and
mailing costs associated with the delivery of the Trust's current prospectus,
statement of additional information, annual report, semi-annual report, Trust
sponsored proxy material or other shareholder communications, including any
amendments or supplements to any of the foregoing.
2.3. The Company will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs associated
with the delivery of the Accounts' current prospectuses and statements of
additional information, private placement memorandums, annual and semi-annual
reports, Contracts, Contract applications, Account sponsored proxy materials and
voting solicitation instructions.
2.4. The Company agrees and acknowledges that one of the Trust's advisers,
Evergreen Asset Management Corp. ("Evergreen Asset"), is the sole owner of the
name and mark "Evergreen" and that all use of any designation comprised in whole
or in part of Evergreen (an "Evergreen Mark") under this Agreement shall inure
to the benefit of Evergreen Asset. Except as provided in Section 2.5., the
Company shall not use any Evergreen Mark on its own behalf or on behalf of the
Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of Evergreen Asset. Upon termination of this Agreement for
any reason, the Company shall cease all use of any Evergreen Asset Mark(s) as
soon as reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust or
its designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment advisers are named prior to the
filing of such document with the Securities and Exchange Commission. The Company
shall furnish, or shall cause to be furnished, to the Trust or its designee,
each piece of sales literature or other promotional material including private
placement memoranda, in which the Trust or its investment advisers are named, at
least ten Business Days prior to its use. No such material shall be used if the
Trust or its designee reasonably objects to such use within ten Business Days
after receipt of such material.
2.6. The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or its investment
advisers in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), annual and
semi-annual reports of the Trust, Trust-sponsored proxy statements, or in sales
literature or other promotional material approved by the Trust or its designee,
except as required by legal process or regulatory authorities or with the
written permission of the Trust or its designee.
2.7. The Trust shall furnish or cause to be furnished, to the Company or
its designee, a copy of each Trust prospectus or statement of additional
information in which the Company or the Accounts are named prior to the filing
of such document with the Securities and Exchange Commission. The Trust shall
furnish, or shall cause to be furnished, to the Company or its designee, each
piece of sales literature or other promotional material in which the Company or
the Accounts are named, at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
2.8. The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Contracts other than information or representations contained in and
accurately derived from the registration statement, prospectus or private
placement memorandum for the Contracts (as such registration statement,
prospectus or private placement memorandum may be amended or supplemented from
time to time), or in materials approved by the Company for distribution
including sales literature or other promotional materials, except as required by
legal process or regulatory authorities or with the written permission of the
Company.
2.9. So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policy owners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculated voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policy owners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
ARTICLE III
Representations and Warranties
3.1. The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of ____________
and that it has legally and validly established each Account as a segregated
asset account under such law on the dates set forth in Schedule A.
3.2. The Company represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
3.3. The Company represents and warrants that the Contracts will be
registered under the 1933 Act to the extent required by the 1933 Act prior to
any issuance or sale of the Contracts; the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws;
and the sale of the Contracts shall comply in all material respects with state
insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust is registered under the 1940 Act prior to any issuance or sale of such
shares. The Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.6. The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder. The Trust shall provide the Company, or cause to be
provided, a letter from the appropriate office within ten Business Days
following the end of each calendar quarter of the Trust, certifying the Trust's
compliance during that calendar quarter with the diversification requirements
and qualification as a regulated investment company, including a detailed
listing of individual securities held by each Portfolio of the Trust. In the
event of a breach of this Section 3.6 by the Trust, it will take all reasonable
steps (a) to immediately notify the Company of such breach and (b) to adequately
diversify the Trust so as to achieve compliance within the grace period afforded
by Regulation 817-5.
ARTICLE IV
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Trust Exemptive
Order by providing the Trustees with all information reasonably necessary for
the Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3. If it is determined by a majority of the Trustees, or a majority of
its disinterested Trustees, that an irreconcilable material conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a difference investment medium, including (but
not limited to) another Portfolio of the Trust, or submitting the question of
whether or not such segregation should be implemented to a vote of all affected
Contract owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity contract owners, life insurance contract owners, or
variable contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4. If an irreconcilable material conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing irreconcilable material conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5. If any irreconcilable material conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and terminate this Agreement with
respect to such Account within six (6) months after the Trustees inform the
Company in writing that it had determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested Trustees. Until the end of such six (6) month period, the Trust
shall continue to accept and implement orders by the Company for the purchase
and redemption of shares of the Trust.
4.6. For purposes of Section 4.3. through 4.6. of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the Contracts
if any offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such irreconcilable material conflict as
determined by a majority of the disinterested Trustees.
4.7. The Company shall at least annually submit to the trustees such
reports, materials or data as the Trustees may reasonably request so that the
trustees may fully carry out the duties imposed upon them by the Shared Trust
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(l) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Trust Exemptive Order) on terms and conditions
materially different from those contained in the Shared Trust Exemptive Order,
then the Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(l),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
ARTICLE V
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify and
hold harmless the Trust and each of its Trustees, officers, employees and agents
and each person, if any, who controls the Trust within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in a registration statement,
prospectus or private placement memorandum for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company on behalf
of the Contracts or Accounts (or any amendment or supplement to any of the
foregoing) (collectively, "Company Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this indemnity shall not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately derived from
written information furnished to the Company by or on behalf of the Trust for
use in Company Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from Trust
Documents as defined in Section 5.2.(a)) or wrongful conduct of the Company or
persons under its control, with respect to the sale or acquisition of the
Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in Section
5.2(a) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust by or on
behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide the
services or furnish the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or result
from any other material breach of this Agreement by the Company.
5.2. Indemnification By the Trust. The Trust agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Trust) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided, that this indemnity shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately derived from written
information furnished to the Trust by or on behalf of the Company for use in
Trust Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other than
statements or representations contained in and accurately derived from Company
Documents) or wrongful conduct of the Trust or persons under its control, with
respect to the sale or acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived form written
information furnished to the Company by or on behalf of the Trust; or
(d) arise out of or result from any failure by the Trust to provide the
services or furnish the materials required under the terms of this Agreement; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement or arise out of or result
from any other material breach of this Agreement by the Trust.
5.3. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
5.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1. or 5.2., as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other party in writing within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim which shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim or shall not relieve that party from any liability which it may have to
the Indemnified Party int he absence of Sections 5.1. and 5.2.
5.5. In case any such action is brought against the Indemnified Parties,
the indemnifying party shall be entitled to participate, at its own expense, in
the defense of such action. The indemnifying party also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the indemnifying party to the Indemnified
Party of an election to assume such defense, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the
indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
ARTICLE VI
Termination
6.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason by six (6) months' advance
written notice delivered to the other party; or
(b) termination by the Company by written notice to the Trust with respect
to any Portfolio based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the Contracts
or not consistent with the Company's obligations to Contract owners; or
(c) termination by the Company by written notice to the Trust with respect
to any Portfolio in the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Trust with respect
to any Portfolio in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or any independent
or resulting failure under Section 817 of the Code, or under any successor or
similar provision of either, or if the Company reasonably believes that the
Trust may fail to so qualify; or
(e) termination by the Trust by written notice to the Company if the Trust
shall determine, in its sole judgment exercised in good faith, that the Company
and/or its affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, but no such
termination shall be effective under this subsection (e) until the Company has
been afforded a reasonable opportunity to respond to a statement by the Trust
concerning the reason for notice of termination hereunder; or
(f) termination by the Company by written notice to the Trust if the
Company shall determine, in its sole judgment exercised in good faith, that
either the Trust or an investment adviser to the Trust has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse
publicity; but no such termination shall be effective under this subsection (f)
until the Trust has been afforded a reasonable opportunity to respond to a
statement by the Company concerning the reason for notice of termination
hereunder.
6.2. Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
Section 2.3.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
ARTICLE VII
Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
200 Berkeley Street
Boston, Massachusetts 02116
Attention: Legal Department
If to the Company:
ARTICLE VIII
Miscellaneous
8.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising directly or indirectly under this Agreement, of
any and every nature whatsoever, shall be satisfied solely out of the assets of
the Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained int his Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10. No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
____________INSURANCE COMPANY EVERGREEN VARIABLE ANNUITY TRUST
By: __________________________ By:___________________________
Name: Name:
Title: Title:
<PAGE>
A-1
SCHEDULE A
Separate Accounts, Contracts and Associated Portfolios
Name of Separate Accounts and Date
Established by Board of Directors
Contracts Funded by Separate Account
Designated Portfolios
Custodian Agreement
This Agreement between The Evergreen Variable Annuity Trust, a business
trust organized and existing under the laws of Delaware with its principal place
of business at 200 Berkeley Street, Boston, Massachusetts 02116 (the "Fund"),
and State Street Bank and Trust Company, a Massachusetts trust company with its
principal place of business at 225 Franklin Street, Boston, Massachusetts 02110
(the "Custodian"),
Witnesseth:
Whereas, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
Whereas, the Fund intends that this Agreement be applicable to the series
set forth on Schedule C hereto (such series together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 18, be referred to herein as the "Portfolio(s)");
Now Therefore, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
Section 1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Fund's
Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver
to the Custodian all securities and cash of the Portfolios, and all payments of
income, payments of principal or capital distributions received by it with
respect to all securities owned by the Portfolio(s) from time to time, and the
cash consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (as such term is defined in Section 6
hereof), the Custodian shall on behalf of the applicable Portfolio(s) from time
to time employ one or more sub-custodians located in the United States, but only
in accordance with an applicable vote by the Board of Trustees of the Fund (the
"Board of Trustees") on behalf of the applicable Portfolio(s), and provided that
the Custodian shall have no more or less responsibility or liability to the Fund
on account of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian. The Custodian may employ as
sub-custodian for the Fund's foreign securities on behalf of the applicable
Portfolio(s) the foreign banking institutions and foreign securities
depositories designated in Schedules A and B hereto but only in accordance with
the applicable provisions of Sections 3 and 4.
Section 2. Duties of the Custodian with Respect to Property of the Fund
Held By the Custodian in the United States
Section 2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to Section
2.8 in a clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the Treasury (each, a
"U.S. Securities System") and (b) commercial paper of an issuer for which State
Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper System of the Custodian
(the "Direct Paper System") pursuant to Section 2.9.
Section 2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a U.S.
Securities System account of the Custodian or in the Custodian's Direct Paper
book entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions on behalf of the applicable Portfolio, which may be
continuing instructions when deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement
related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian or into
the name or nominee name of any agent appointed pursuant to Section 2.7 or into
the name or nominee name of any sub-custodian appointed pursuant to Section 1;
or for exchange for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units; provided that,
in any such case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for such securities
except as may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities for definitive securities;
provided that, in any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed upon from
time to time by the Custodian and the Fund on behalf of the Portfolio, which may
be in the form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the Custodian's account in the book-entry
system authorized by the U.S. Department of the Treasury, the Custodian will not
be held liable or responsible for the delivery of securities owned by the
Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowing by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of
the Portfolio, but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account deposits
in connection with transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent for the Fund (the
"Transfer Agent") for delivery to such Transfer Agent or to the holders of
Shares in connection with distributions in kind, as may be described from time
to time in the currently effective prospectus and statement of additional
information of the Fund related to the Portfolio (the "Prospectus"), in
satisfaction of requests by holders of Shares for repurchase or redemption; and
15) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the applicable
Portfolio, a copy of a resolution of the Board of Trustees or of the Executive
Committee thereof signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary thereof (a "Certified Resolution"),
specifying the securities of the Portfolio to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom delivery of such
securities shall be made.
Section 2.3 Registration of Securities. Domestic securities held by the
Custodian (other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio
or of any nominee of the Custodian which nominee shall be assigned exclusively
to the Portfolio, unless the Fund has authorized in writing the appointment of a
nominee to be used in common with other registered investment companies having
the same investment adviser as the Portfolio, or in the name or nominee name of
any agent appointed pursuant to Section 2.7 or in the name or nominee name of
any sub-custodian appointed pursuant to Section 1. All securities accepted by
the Custodian on behalf of the Portfolio under the terms of this Agreement shall
be in "street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls, maturities,
tender or exchange offers.
Section 2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant to the
terms of this Agreement, and shall hold in such account or accounts, subject to
the provisions hereof, all cash received by it from or for the account of the
Portfolio, other than cash maintained by the Portfolio in a bank account
established and used in accordance with Rule 17f-3 under the Investment Company
Act of 1940, as amended (the "1940 Act"). Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it may
in its discretion deem necessary or desirable; provided, however, that every
such bank or trust company shall be qualified to act as a custodian under the
1940 Act and that each such bank or trust company and the funds to be deposited
with each such bank or trust company shall on behalf of each applicable
Portfolio be approved by vote of a majority of the Board of Trustees. Such funds
shall be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
Section 2.5 Collection of Income. Subject to the provisions of Section 2.3,
the Custodian shall collect on a timely basis all income and other payments with
respect to registered domestic securities held hereunder to which each Portfolio
shall be entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by the issuer,
such securities are held by the Custodian or its agent thereof and shall credit
such income, as collected, to such Portfolio's custodian account. Without
limiting the generality of the foregoing, the Custodian shall detach and present
for payment all coupons and other income items requiring presentation as and
when they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
Section 2.6 Payment of Fund Monies. Upon receipt of Proper Instructions on
behalf of the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay out monies of a
Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts or
options on futures contracts for the account of the Portfolio but only (a)
against the delivery of such securities or evidence of title to such options,
futures contracts or options on futures contracts to the Custodian (or any bank,
banking firm or trust company doing business in the United States or abroad
which is qualified under the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this purpose) registered in the
name of the Portfolio or in the name of a nominee of the Custodian referred to
in Section 2.3 hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in accordance with the
conditions set forth in Section 2.8 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the conditions set forth
in Section 2.9; (d) in the case of repurchase agreements entered into between
the Fund on behalf of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities owned by the
Custodian along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for transfer to a time
deposit account of the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation from a broker and/or
the applicable bank pursuant to Proper Instructions from the Fund as defined
herein;
2) In connection with conversion, exchange or surrender of securities owned
by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 5 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer agent and legal
fees, and operating expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to the
governing documents of the Fund;
6) For payment of the amount of dividends received in respect of securities
sold short;
7) For any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the Portfolio, a copy
of a Certified Resolution specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such purpose to be a
proper trust purpose, and naming the person or persons to whom such payment is
to be made.
Section 2.7 Appointment of Agents. The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the 1940 Act to act as a custodian, as
its agent to carry out such of the provisions of this Section 2 as the Custodian
may from time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or liabilities
hereunder.
Section 2.8 Deposit of Fund Assets in U.S. Securities Systems. The
Custodian may deposit and/or maintain securities owned by a Portfolio in a
clearing agency registered with the United States Securities and Exchange
Commission (the "SEC") under Section 17A of the Exchange Act , which acts as a
securities depository, or in the book-entry system authorized by the U.S.
Department of the Treasury and certain federal agencies, collectively referred
to herein as "U.S. Securities System" in accordance with applicable Federal
Reserve Board and SEC rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S. Securities
System provided that such securities are represented in an account of the
Custodian in the U.S. Securities System (the "U.S. Securities System Account")
which account shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the Portfolio
which are maintained in a U.S. Securities System shall identify by book-entry
those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of the
Portfolio upon (i) receipt of advice from the U.S. Securities System that such
securities have been transferred to the U.S. Securities System Account, and (ii)
the making of an entry on the records of the Custodian to reflect such payment
and transfer for the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i) receipt of advice from
the U.S. Securities System that payment for such securities has been transferred
to the U.S. Securities System Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the account of
the Portfolio. Copies of all advices from the U.S. Securities System of
transfers of securities for the account of the Portfolio shall identify the
Portfolio, be maintained for the Portfolio by the Custodian and be provided to
the Fund at its request. Upon request, the Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each transfer to or from the account of
the Portfolio in the form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transactions in the U.S. Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the U.S. Securities System's accounting system, internal accounting
control and procedures for safeguarding securities deposited in the U.S.
Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be, required by
Section 15 hereof;
6) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio for any
loss or damage to the Portfolio resulting from use of the U.S. Securities System
by reason of any negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as it may have
against the U.S. Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to any
claim against the U.S. Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the extent that
the Portfolio has not been made whole for any such loss or damage.
Section 2.9 Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio in the
Direct Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will be
effected in the absence of Proper Instructions from the Fund on behalf of the
Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in the Direct Paper System
Account, which account shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Portfolio
which are maintained in the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of the
Portfolio upon the making of an entry on the records of the Custodian to reflect
such payment and transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of the Portfolio upon
the making of an entry on the records of the Custodian to reflect such transfer
and receipt of payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio, in the
form of a written advice or notice, of Direct Paper on the next business day
following such transfer and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets reflecting each day's transaction in the
Direct Paper System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with any
report on its system of internal accounting control as the Fund may reasonably
request from time to time.
Section 2.10 Segregated Account. The Custodian shall upon receipt of Proper
Instructions on behalf of each applicable Portfolio establish and maintain a
segregated account or accounts for and on behalf of each such Portfolio, into
which account or accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to Section 2.8
hereof, (i) in accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered under the
Exchange Act and a member of the NASD (or any futures commission merchant
registered under the Commodity Exchange Act), relating to compliance with the
rules of The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Portfolio or commodity
futures contracts or options thereon purchased or sold by the Portfolio, (iii)
for the purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the SEC relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper trust purposes, but only, in the
case of clause (iv), upon receipt of, in addition to Proper Instructions from
the Fund on behalf of the applicable Portfolio, a copy of a Certified Resolution
setting forth the purpose or purposes of such segregated account and declaring
such purpose(s) to be a proper trust purpose.
Section 2.11 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in connection
with transfers of securities.
Section 2.12 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
Section 2.13 Communications Relating to Portfolio Securities. Subject to
the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund
for each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect to tender
or exchange offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents) making the
tender or exchange offer. If the Portfolio desires to take action with respect
to any tender offer, exchange offer or any other similar transaction, the
Portfolio shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
Section 3. The Custodian as Foreign Custody Manager of the Portfolios
Section 3.1. Definitions. The following capitalized terms shall have the
indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of
holding Foreign Assets in a particular country including, but not limited to,
such country's political environment; economic and financial infrastructure
(including financial institutions such as any Mandatory Securities Depositories
operating in the country); prevailing or developing custody and settlement
practices; and laws and regulations applicable to the safekeeping and recovery
of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of
Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as
defined in Rule 17f-5), a bank holding company meeting the requirements of an
Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate
action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5)
of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of
the 1940 Act, except that the term does not include Mandatory Securities
Depositories.
"Foreign Assets" means any of the Portfolios' investments (including
foreign currencies) for which the primary market is outside the United States
and such cash and cash equivalents as are reasonably necessary to effect the
Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(2) of
Rule 17f-5.
"Mandatory Securities Depository" means a foreign securities depository or
clearing agency that, either as a legal or practical matter, must be used if the
Fund, on the Portfolios' behalf, determines to place Foreign Assets in a country
outside the United States (i) because required by law or regulation; (ii)
because securities cannot be withdrawn from such foreign securities depository
or clearing agency; or (iii) because maintaining or effecting trades in
securities outside the foreign securities depository or clearing agency is not
consistent with prevailing or developing custodial or market practices.
Section 3.2. Delegation to the Custodian as Foreign Custody Manager. The
Fund, by resolution adopted by the Board of Trustees, hereby delegates to the
Custodian with respect to the Portfolios, subject to Section (b) of Rule 17f-5,
the responsibilities set forth in this Section 3 with respect to Foreign Assets
of the Portfolios held outside the United States, and the Custodian hereby
accepts such delegation, as Foreign Custody Manager with respect to the
Portfolios.
Section 3.3. Countries Covered. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A of this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule
A the Eligible Foreign Custodians selected by the Foreign Custody Manager to
maintain the assets of the Portfolios. Mandatory Securities Depositories are
listed on Schedule B to this Contract, which may be amended from time to time by
the Foreign Custody Manager. The Foreign Custody Manager will provide amended
versions of Schedules A and B in accordance with Section 3.7 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to
open an account or to place or maintain Foreign Assets in a country listed on
Schedule A, and the fulfillment by the Fund on behalf of the Portfolios of the
applicable account opening requirements for the country, the Foreign Custody
Manager shall be deemed to have been delegated by the Board of Trustees on
behalf of the Portfolios responsibility as Foreign Custody Manager with respect
to that country and to have accepted such delegation. Following the receipt of
Proper Instructions directing the Foreign Custody Manager to close the account
of a Portfolio with the Eligible Foreign Custodian selected by the Foreign
Custody Manager in a designated country, the delegation by the Board of Trustees
on behalf of the Portfolios to the Custodian as Foreign Custody Manager for that
country shall be deemed to have been withdrawn and the Custodian shall
immediately cease to be the Foreign Custody Manager of the Portfolios with
respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated
responsibilities with respect to a designated country upon written notice to the
Fund. Thirty days (or such longer period as to which the parties agree in
writing) after receipt of any such notice by the Fund, the Custodian shall have
no further responsibility as Foreign Custody Manager to the Fund with respect to
the country as to which the Custodian's acceptance of delegation is withdrawn.
Section 3.4. Scope of Delegated Responsibilities.
3.4.1. Selection of Eligible Foreign Custodians. Subject to the provisions
of this Section 3, the Portfolios' Foreign Custody Manager may place and
maintain the Foreign Assets in the care of the Eligible Foreign Custodian
selected by the Foreign Custody Manager in each country listed on Schedule A, as
amended from time to time.
In performing its delegated responsibilities as Foreign Custody Manager to
place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign
Custody Manager shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to custodians in the country
in which the Foreign Assets will be held by that Eligible Foreign Custodian,
after considering all factors relevant to the safekeeping of such assets,
including, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures, and internal
controls, including, but not limited to, the physical protections available for
certificated securities (if applicable), its methods of keeping custodial
records, and its security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the financial strength to
provide reasonable care for Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation and standing and,
in the case of a foreign securities depository or clearing agency which is not a
Mandatory Securities Depository, the foreign securities depository's or clearing
agency's operating history and the number of participants in the foreign
securities depository or clearing agency; and
(iv) whether the Fund will have jurisdiction over and be able to enforce
judgments against the Eligible Foreign Custodian, such as by virtue of the
existence of any offices of the Eligible Foreign Custodian in the United States
or the Eligible Foreign Custodian's consent to service of process in the United
States.
3.4.2. Contracts With Eligible Foreign Custodians. The Foreign Custody
Manager shall determine that the contract (or the rules or established practices
or procedures in the case of an Eligible Foreign Custodian that is a foreign
securities depository or clearing agency) governing the foreign custody
arrangements with each Eligible Foreign Custodian selected by the Foreign
Custody Manager will provide reasonable care for the Foreign Assets held by that
Eligible Foreign Custodian based on the standards applicable to custodians in
the particular country. Each such contract shall include provisions that
provide:
(i) for indemnification or insurance arrangements (or any combination of
the foregoing) such that each Portfolio will be adequately protected against the
risk of loss of the Foreign Assets held in accordance with such contract;
(ii) that the Foreign Assets will not be subject to any right, security
interest, or lien or claim of any kind in favor of the Eligible Foreign
Custodian or its creditors except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or rights in favor of
creditors of the Eligible Foreign Custodian arising under bankruptcy,
insolvency, or similar laws;
(iii) that beneficial ownership of the Foreign Assets will be freely
transferable without the payment of money or value other than for safe custody
or administration;
(iv) that adequate records will be maintained identifying the Foreign
Assets as belonging to the applicable Portfolio or as being held by a third
party for the benefit of such Portfolio;
(v) that the independent public accountants for each Portfolio will be
given access to those records or confirmation of the contents of those records;
and
(vi) that the Fund will receive periodic reports with respect to the
safekeeping of the Foreign Assets, including, but not limited to, notification
of any transfer of the Foreign Assets to or from a Portfolio's account or a
third party account containing the Foreign Assets held for the benefit of the
Portfolio, or, in lieu of any or all of the provisions set forth in (i) through
(vi) above, such other provisions that the Foreign Custody Manager determines
will provide, in their entirety, the same or greater level of care and
protection for the Foreign Assets as the provisions set forth in (i) through
(vi) above, in their entirety.
3.4.3. Monitoring. In each case in which the Foreign Custody Manager
maintains Foreign Assets with an Eligible Foreign Custodian selected by the
Foreign Custody Manager, the Foreign Custody Manager shall establish a system to
monitor (i) the appropriateness of maintaining the Foreign Assets with such
Eligible Foreign Custodian and (ii) the contract governing the custody
arrangements established by the Foreign Custody Manager with the Eligible
Foreign Custodian. In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has selected are no
longer appropriate, the Foreign Custody Manager shall notify the Board of
Trustees in accordance with Section 3.7 hereunder.
Section 3.5. Guidelines for the Exercise of Delegated Authority. For
purposes of this Section 3, the Board of Trustees shall be deemed to have
considered and determined to accept such Country Risk as is incurred by placing
and maintaining the Foreign Assets in each country for which the Custodian is
serving as Foreign Custody Manager of the Portfolios. The Fund, on behalf of the
Portfolios, and the Custodian each expressly acknowledge that the Foreign
Custody Manager shall not be delegated any responsibilities under this Section 3
with respect to Mandatory Securities Depositories.
Section 3.6. Standard of Care as Foreign Custody Manager of the Portfolios.
In performing the responsibilities delegated to it, the Foreign Custody Manager
agrees to exercise reasonable care, prudence and diligence such as a person
having responsibility for the safekeeping of assets of management investment
companies registered under the 1940 Act would exercise.
Section 3.7. Reporting Requirements. The Foreign Custody Manager shall
report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian
and the placement of such Foreign Assets with another Eligible Foreign Custodian
by providing to the Board of Trustees amended Schedules A or B at the end of the
calendar quarter in which an amendment to either Schedule has occurred. The
Foreign Custody Manager shall make written reports notifying the Board of
Trustees of any other material change in the foreign custody arrangements of the
Portfolios described in this Article 3 after the occurrence of the material
change.
Section 3.8. Representations with Respect to Rule 17f-5. The Foreign
Custody Manager represents to the Fund that it is a U.S. Bank as defined in
section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the
Board of Trustees has determined that it is reasonable for the Board of Trustees
to rely on the Custodian to perform the responsibilities delegated pursuant to
this Agreement to the Custodian as the Foreign Custody Manager of the
Portfolios.
Section 3.9. Effective Date and Termination of the Custodian as Foreign
Custody Manager. The Board of Trustees' delegation to the Custodian as Foreign
Custody Manager of the Portfolios shall be effective as of the date of execution
of this Agreement and shall remain in effect until terminated at any time,
without penalty, by written notice from the terminating party to the
non-terminating party. Termination will become effective thirty (30) days after
receipt by the non-terminating party of such notice. The provisions of Section
3.3 hereof shall govern the delegation to and termination of the Custodian as
Foreign Custody Manager of the Portfolios with respect to designated countries.
Section 4. Duties of the Custodian with Respect to Property of the
Portfolios Held Outside of the United States
Section 4.1 Definitions. Capitalized terms in this Section 4 shall have the
following meanings:
"Foreign Securities System" means either a clearing agency or a securities
depository listed on Schedule A hereto or a Mandatory Securities Depository
listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an
Eligible Foreign Custodian.
Section 4.2. Holding Securities. The Custodian shall identify on its books
as belonging to the Portfolios the foreign securities held by each Foreign
Sub-Custodian or Foreign Securities System. The Custodian may hold foreign
securities for all of its customers, including the Portfolios, with any Foreign
Sub-Custodian in an account that is identified as belonging to the Custodian for
the benefit of its customers, provided however, that (i) the records of the
Custodian with respect to foreign securities of the Portfolios which are
maintained in such account shall identify those securities as belonging to the
Portfolios and (ii) the Custodian shall require that securities so held by the
Foreign Sub-Custodian be held separately from any assets of such Foreign
Sub-Custodian or of other customers of such Foreign Sub-Custodian.
Section 4.3. Foreign Securities Systems. Foreign securities shall be
maintained in a Foreign Securities System in a designated country only through
arrangements implemented by the Foreign Sub-Custodian in such country pursuant
to the terms of this Agreement.
Section 4.4. Transactions in Foreign Custody Account.
4.4.1. Delivery of Foreign Securities. The Custodian or a Foreign
Sub-Custodian shall release and deliver foreign securities of the Portfolios
held by such Foreign Sub-Custodian, or in a Foreign Securities System account,
only upon receipt of Proper Instructions, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolios in
accordance with reasonable market practice in the country where such foreign
securities are held or traded, including, without limitation: (A) delivery
against expectation of receiving later payment; or (B) in the case of a sale
effected through a Foreign Securities System in accordance with the rules
governing the operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign
securities;
(iii) to the depository agent in connection with tender or other similar
offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are
called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the
Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee
of the Custodian or such Foreign Sub-Custodian) or for exchange for a different
number of bonds, certificates or other evidence representing the same aggregate
face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for examination or
trade execution in accordance with market custom; provided that in any such case
the Foreign Sub-Custodian shall have no responsibility or liability for any loss
arising from the delivery of such securities prior to receiving payment for such
securities except as may arise from the Foreign Sub-Custodian's own negligence
or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions for
conversion contained in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the
surrender thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for definitive
securities;
(ix) or delivery as security in connection with any borrowing by the
Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution specifying the
foreign securities to be delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a proper trust purpose, and
naming the person or persons to whom delivery of such securities shall be made.
4.4.2. Payment of Portfolio Monies. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the parties, the
Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the
respective Foreign Securities System to pay out, monies of a Portfolio in the
following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless
otherwise directed by Proper Instructions, by (A) delivering money to the seller
thereof or to a dealer therefor (or an agent for such seller or dealer) against
expectation of receiving later delivery of such foreign securities; or (B) in
the case of a purchase effected through a Foreign Securities System, in
accordance with the rules governing the operation of such Foreign Securities
System;
(ii) in connection with the conversion, exchange or surrender of foreign
securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio,
including but not limited to the following payments: interest, taxes, investment
advisory fees, transfer agency fees, fees under this Agreement, legal fees,
accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange
contracts for the Portfolio, including transactions executed with or through the
Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including
delivery as original margin and variation margin;
(vii) in connection with the borrowing or lending of foreign securities;
and
(viii) for any other proper trust purpose, but only upon receipt of, in
addition to Proper Instructions, a copy of a Certified Resolution specifying the
amount of such payment, setting forth the purpose for which such payment is to
be made, declaring such purpose to be a proper trust purpose, and naming the
person or persons to whom such payment is to be made.
4.4.3. Market Conditions. Notwithstanding any provision of this Agreement
to the contrary, settlement and payment for Foreign Assets received for the
account of the Portfolios and delivery of Foreign Assets maintained for the
account of the Portfolios may be effected in accordance with the customary
established securities trading or processing practices and procedures in the
country or market in which the transaction occurs, including, without
limitation, delivering Foreign Assets to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) with the expectation of
receiving later payment for such Foreign Assets from such purchaser or dealer.
Section 4.5. Registration of Foreign Securities. The foreign securities
maintained in the custody of a Foreign Custodian (other than bearer securities)
shall be registered in the name of the applicable Portfolio or in the name of
the Custodian or in the name of any Foreign Sub-Custodian or in the name of any
nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to
hold any such nominee harmless from any liability as a holder of record of such
foreign securities. The Custodian or a Foreign Sub-Custodian shall not be
obligated to accept securities on behalf of a Portfolio under the terms of this
Agreement unless the form of such securities and the manner in which they are
delivered are in accordance with reasonable market practice.
Section 4.6. Bank Accounts. A bank account or bank accounts opened and
maintained outside the United States on behalf of a Portfolio with a Foreign
Sub-Custodian shall be subject only to draft or order by the Custodian or such
Foreign Sub-Custodian, acting pursuant to the terms of this Agreement to hold
cash received by or from or for the account of the Portfolio.
Section 4.7. Collection of Income. The Custodian shall use reasonable
endeavors to collect all income and other payments in due course with respect to
the Foreign Assets held hereunder to which the Portfolios shall be entitled and
shall credit such income, as collected, to the applicable Portfolio. In the
event that extraordinary measures are required to collect such income, the Fund
and the Custodian shall consult as to such measures and as to the compensation
and expenses of the Custodian relating to such measures.
Section 4.8. Proxies. The Custodian will generally with respect to the
foreign securities held under this Section 4 use its reasonable endeavors to
facilitate the exercise of voting and other shareholder proxy rights, subject
always to the laws, regulations and practical constraints that may exist in the
country where such securities are issued. The Fund acknowledges that local
conditions, including lack of regulation, onerous procedural obligations, lack
of notice and other factors may have the effect of severely limiting the ability
of the Fund to exercise shareholder rights.
Section 4.9. Communications Relating to Foreign Securities. The Custodian
shall transmit promptly to the Fund written information (including, without
limitation, pendency of calls and maturities of foreign securities and
expirations of rights in connection therewith) received by the Custodian via the
Foreign Sub-Custodians from issuers of the foreign securities being held for the
account of the Portfolios. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Fund written information so received by
the Custodian from issuers of the foreign securities whose tender or exchange is
sought or from the party (or its agents) making the tender or exchange offer.
The Custodian shall not be liable for any untimely exercise of any tender,
exchange or other right or power in connection with foreign securities or other
property of the Portfolios at any time held by it unless (i) the Custodian or
the respective Foreign Sub-Custodian is in actual possession of such foreign
securities or property and (ii) the Custodian receives Proper Instructions with
regard to the exercise of any such right or power, and both (i) and (ii) occur
at least three (3) business days prior to the date on which such right or power
is to be exercised.
Section 4.10. Liability of Foreign Sub-Custodians and Foreign Securities
Systems. Each agreement pursuant to which the Custodian employs as a Foreign
Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian
to exercise reasonable care in the performance of its duties and, to the extent
possible, to indemnify, and hold harmless, the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Sub-Custodian's performance of such obligations. At the Fund's
election, the Portfolios shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a Foreign Sub-Custodian as a
consequence of any such loss, damage, cost, expense, liability or claim if and
to the extent that the Portfolios have not been made whole for any such loss,
damage, cost, expense, liability or claim.
Section 4.11. Tax Law. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund, the
Portfolios or the Custodian as custodian of the Portfolios by the tax law of the
United States or of any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian of the obligations imposed on
the Fund with respect to the Portfolios or the Custodian as custodian of the
Portfolios by the tax law of countries other than those mentioned in the above
sentence, including responsibility for withholding and other taxes, assessments
or other governmental charges, certifications and governmental reporting. The
sole responsibility of the Custodian with regard to such tax law shall be to use
reasonable efforts to assist the Fund with respect to any claim for exemption or
refund under the tax law of countries for which the Fund has provided such
information.
Section 4.12. Conflict. If the Custodian is delegated the responsibilities
of Foreign Custody Manager pursuant to the terms of Section 3 hereof, in the
event of any conflict between the provisions of Sections 3 and 4 hereof, the
provisions of Section 3 shall prevail.
Section 5. Payments for Sales or Repurchases or Redemptions of Shares
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent and deposit into the account of the appropriate Portfolio such
payments as are received for Shares thereof issued or sold from time to time by
the Fund. The Custodian will provide timely notification to the Fund on behalf
of each such Portfolio and the Transfer Agent of any receipt by it of payments
for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's Declaration of Trust and any applicable votes of the
Board of Trustees pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial bank designated
by the redeeming shareholders. In connection with the redemption or repurchase
of Shares, the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
Section 6. Proper Instructions
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees accompanied
by a detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Trustees and
the Custodian are satisfied that such procedures afford adequate safeguards for
the Portfolios' assets. For purposes of this Section, Proper Instructions shall
include instructions received by the Custodian pursuant to any three - party
agreement which requires a segregated asset account in accordance with Section
2.10.
Section 7. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the Fund on behalf of
the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts and
other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other dealings with the
securities and property of the Portfolio except as otherwise directed by the
Board of Trustees.
Section 8. Evidence of Authority
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a Certified Resolution as conclusive evidence
(a) of the authority of any person to act in accordance with such resolution or
(b) of any determination or of any action by the Board of Trustees pursuant to
the Fund's Declaration of Trust as described in such resolution, and such
resolution may be considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
Section 9. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees to keep the books of
account of each Portfolio and/or compute the net asset value per Share of the
outstanding Shares or, if directed in writing to do so by the Fund on behalf of
the Portfolio, shall itself keep such books of account and/or compute such net
asset value per Share. If so directed, the Custodian shall also calculate daily
the net income of the Portfolio as described in the Prospectus and shall advise
the Fund and the Transfer Agent daily of the total amounts of such net income
and, if instructed in writing by an officer of the Fund to do so, shall advise
the Transfer Agent periodically of the division of such net income among its
various components. The calculations of the net asset value per Share and the
daily income of each Portfolio shall be made at the time or times described from
time to time in the Prospectus.
Section 10. Records
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Agreement in such
manner as will meet the obligations of the Fund under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Fund and shall at all times during
the regular business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Fund and employees and agents of
the SEC. The Custodian shall, at the Fund's request, supply the Fund with a
tabulation of securities owned by each Portfolio and held by the Custodian and
shall, when requested to do so by the Fund and for such compensation as shall be
agreed upon between the Fund and the Custodian, include certificate numbers in
such tabulations.
Section 11. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any
other requirements thereof.
Section 12. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a U.S. Securities
System or a Foreign Securities System (collectively referred to herein as the
"Securities Systems"), relating to the services provided by the Custodian under
this Agreement; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
Section 13. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
Section 14. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for the Fund) on
all matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. The Custodian shall be without liability to the
Fund and the Portfolios for any loss, liability, claim or expense resulting from
or caused by anything which is (A) part of Country Risk (as defined in Section 3
hereof), including without limitation nationalization, expropriation, currency
restrictions, or acts of war, revolution, riots or terrorism, or (B) part of the
"prevailing country risk" of the Portfolios, as such term is used in SEC Release
Nos. IC-22658; IS-1080 (May 12, 1997) or as such term or other similar terms are
now or in the future interpreted by the SEC or by the staff of the Division of
Investment Management thereof.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, work
stoppages, natural disasters, or other similar events or acts; (ii) errors by
the Fund or the Investment Advisor in their instructions to the Custodian
provided such instructions have been in accordance with this Agreement; (iii)
the insolvency of or acts or omissions by a Securities System; (iv) any delay or
failure of any broker, agent or intermediary, central bank or other commercially
prevalent payment or clearing system to deliver to the Custodian's sub-custodian
or agent securities purchased or in the remittance or payment made in connection
with securities sold; (v) any delay or failure of any company, corporation, or
other body in charge of registering or transferring securities in the name of
the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
any consequential losses arising out of such delay or failure to transfer such
securities including non- receipt of bonus, dividends and rights and other
accretions or benefits; (vi) delays or inability to perform its duties due to
any disorder in market infrastructure with respect to any particular security or
Securities System; and (vii) changes to any existing, or any provision of any
future, law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a Foreign
Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth
with respect to sub-custodians generally in this Agreement.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Agreement, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
Section 15. Effective Period, Termination and Amendment
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.8 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the 1940 Act and that the Custodian shall not with respect to a
Portfolio act under Section 2.9 hereof in the absence of receipt of an initial
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use of the Direct Paper System by such
Portfolio; provided further, however, that the Fund shall not amend or terminate
this Agreement in contravention of any applicable federal or state regulations,
or any provision of the Fund's Declaration of Trust, and further provided, that
the Fund on behalf of one or more of the Portfolios may at any time by action of
its Board of Trustees (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Agreement, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
Section 16. Successor Custodian
If a successor custodian for one or more Portfolios shall be appointed by
the Board of Trustees, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of each applicable Portfolio then held by it
hereunder and shall transfer to an account of the successor custodian all of the
securities of each such Portfolio held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a Certified Resolution, deliver at the office of
the Custodian and transfer such securities, funds and other properties in
accordance with such resolution.
In the event that no written order designating a successor custodian or
Certified Resolution shall have been delivered to the Custodian on or before the
date when such termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of
its own selection, having an aggregate capital, surplus, and undivided profits,
as shown by its last published report, of not less than $25,000,000, all
securities, funds and other properties held by the Custodian on behalf of each
applicable Portfolio and all instruments held by the Custodian relative thereto
and all other property held by it under this Agreement on behalf of each
applicable Portfolio, and to transfer to an account of such successor custodian
all of the securities of each such Portfolio held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Custodian
under this Agreement.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the Certified Resolution to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of such securities, funds
and other properties and the provisions of this Agreement relating to the duties
and obligations of the Custodian shall remain in full force and effect.
Section 17. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Agreement as
may in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Fund's Declaration of Trust. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
Section 18. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to those set forth on Schedule C with respect to which it desires to
have the Custodian render services as custodian under the terms hereof, it shall
so notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such series of Shares shall become a Portfolio hereunder.
Section 19. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
Section 20. Prior Agreements
This Agreement supersedes and terminates, as of the date hereof, all prior
Agreements between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
Section 21. Notices.
Any notice, instruction or other instrument required to be given hereunder
may be delivered in person to the offices of the parties as set forth herein
during normal business hours or delivered prepaid registered mail or by telex,
cable or telecopy to the parties at the following addresses or such other
addresses as may be notified by any party from time to time.
To the Fund: The Evergreen Variable Annuity Trust
c/o First Union Corporation - Legal Division
200 Berkeley Street
Boston, Massachusetts 02116-5034
Attention: Terrence J. Cullen, Esq.
Telephone: 617-210-3200
Telecopy: 617-210-3468
To the Custodian: State Street Bank and Trust Company
One Heritage Drive, 3rd Floor South
North Quincy, Massachusetts 02171
Attention: Ronald F. Mauriello
Telephone: 617-985-1891
Telecopy: 617-537-5203
Such notice, instruction or other instrument shall be deemed to have been
served in the case of a registered letter at the expiration of five business
days after posting, in the case of cable twenty-four hours after dispatch and,
in the case of telex, immediately on dispatch and if delivered outside normal
business hours it shall be deemed to have been received at the next time after
delivery when normal business hours commence and in the case of cable, telex or
telecopy on the business day after the receipt thereof. Evidence that the notice
was properly addressed, stamped and put into the post shall be conclusive
evidence of posting.
Section 22. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
Section 23. Shareholder Communications Election
SEC Rule 14b-2 requires banks which hold securities for the account of
customers to respond to requests by issuers of securities for the names,
addresses and holdings of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected to disclosure of
this information. In order to comply with the rule, the Custodian needs the Fund
to indicate whether it authorizes the Custodian to provide the Fund's name,
address, and share position to requesting companies whose securities the Fund
owns. If the Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the Custodian "yes" or
does not check either "yes" or "no" below, the Custodian is required by the rule
to treat the Fund as consenting to disclosure of this information for all
securities owned by the Fund or any funds or accounts established by the Fund.
For the Fund's protection, the Rule prohibits the requesting company from using
the Fund's name and address for any purpose other than corporate communications.
Please indicate below whether the Fund consents or objects by checking one of
the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address, and
share positions.
NO [ ] The Custodian is not authorized to release the Fund's name, address,
and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of *[date].
The Evergreen Variable Annuity Trust Fund signature attested to By:
By: By:
Name: William J. Tomko Name: D'Ray Moore
Title: President Title: Secretary
State Street Bank and Trust Company Signature attested to By:
By: By:
Name: Ronald E. Logue Name:
Title: Executive Vice President Title:
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der oesterreichischen --
Sparkasen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Ltd. --
France Banque Paribas --
Germany Dresdner Bank AG --
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan Securities
The Fuji Bank, Limited Depository
Center;
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking --
Corporation Limited
Latvia Hansabank --
Lebanon The British Bank of the Middle East Custodian and
(as delegate of the Hongkong and Clearing Center
Shanghai Banking Corporation Limited) of Financial
Instruments
for Lebanon
(MIDCLEAR)
S.A.L.;
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa -
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
Slovak Republic Ceskoslovenska Obchodna -
Banka A.S.
Slovenia Banka Creditanstalt d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Barclays Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots et
de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil - Camara de Liquidacao de Sao Paulo, (Calispa);
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao Financeira
de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Bulgaria - Central Depository AD
Canada -The Canadian Depository
for Securities Limited; West Canada
Depository Trust Company [depositories linked]
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych papiru;
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing, Settlement,
and Central Depository
Estonia - Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
Republic of Korea -Korea Securities Depository Corporation
Latvia - The Latvian Central Depository
Lebanon -The Central Bank of Lebanon
Lithuania - The Central Securities Depository of Lithuania
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
Systems
Mauritius -The Central Depository & Settlement
Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
The Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF");
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko
Sentral ng Pilipinas;
-The Registry of Scripless Securities of the
Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow Wartos'ciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
Romania -National Securities Clearing, Settlement and
Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pvt.)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
-National Bank of Slovakia
Slovenia - Klirinsko Depotna Bruzba
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
Schedule C
Pursuant to the custodian agreement between The Evergreen Variable Annuity
Trust (the "Fund") and State Street Bank and Trust Company dated as of May 1,
1998] (the "Agreement"), the Fund had made the following Portfolios (as such
term is defined in the Agreement) subject to the Agreement:
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 Aggressive Growth Fund
Evergreen VA Small Cap Equity Income Fund
<PAGE>
DATA ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT
Addendum to the Custodian Agreement between The Evergreen Variable Annuity
Trust (the "Customer") and State Street Bank and Trust Company ("State Street").
PREAMBLE
WHEREAS, State Street has been appointed as custodian of certain assets of
the Customer pursuant to a certain Custodian Agreement (the "Custodian
Agreement") dated as of September 18, 1997;
WHEREAS, State Street has developed and utilizes proprietary accounting and
other systems, including State Street's proprietary Multicurrency HORIZONSM
Accounting System, in its role as custodian of the Customer, and maintains
certain Customer-related data ("Customer Data") in databases under the control
and ownership of State Street (the "Data Access Services"); and
WHEREAS, State Street makes available to the Customer certain Data Access
Services solely for the benefit of the Customer, and intends to provide
additional services, consistent with the terms and conditions of this Addendum.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the parties
agree as follows:
1. SYSTEM AND DATA ACCESS SERVICES
a. System. Subject to the terms and conditions of this Addendum, State
Street hereby agrees to provide the Customer with access to State Street's
Multicurrency HORIZONSM Accounting System and the other information systems
(collectively, the "System") as described in Attachment A, on a remote basis for
the purpose of obtaining reports and information, solely on computer hardware,
system software and telecommunication links as listed in Attachment B (the
"Designated Configuration") of the Customer, or certain third parties approved
by State Street that serve as investment advisors or investment managers of the
Customer (the "Investment Advisor"), and solely with respect to the Customer or
on any designated substitute or back-up equipment configuration with State
Street's written consent, such consent not to be unreasonably withheld.
b. Data Access Services. State Street agrees to make available to the
Customer the Data Access Services subject to the terms and conditions of this
Addendum and data access operating standards and procedures as may be issued by
State Street from time to time. The ability of the Customer to originate
electronic instructions to State Street on behalf of the Customer in order to
(i) effect the transfer or movement of cash or securities held under custody by
State Street or (ii) transmit accounting or other information (such transactions
are referred to herein as "Client Originated Electronic Financial
Instructions"), and (iii) access data for the purpose of reporting and analysis,
shall be deemed to be Data Access Services for purposes of this Addendum.
c. Additional Services. State Street may from time to time agree to make
available to the Customer additional Systems that are not described in the
attachments to this Addendum. In the absence of any other written agreement
concerning such additional systems, the term "System" shall include, and this
Addendum shall govern, the Customer's access to and use of any additional System
made available by State Street and/or accessed by the Customer.
2. NO USE OF THIRD PARTY SYSTEMS-LEVEL SOFTWARE
State Street and the Customer acknowledge that in connection with the Data
Access Services provided under this Addendum, the Customer will have access,
through the Data Access Services, to Customer Data and to functions of State
Street's proprietary systems; provided, however that in no event will the
Customer have direct access to any third party systems-level software that
retrieves data for, stores data from, or otherwise supports the System.
3. LIMITATION ON SCOPE OF USE
a. Designated Equipment; Designated Location. The System and the Data
Access Services shall be used and accessed solely on and through the Designated
Configuration at the offices of the Customer or the Investment Advisor located
in Boston, Massachusetts ("Designated Location").
b. Designated Configuration; Trained Personnel. State Street shall be
responsible for supplying, installing and maintaining the Designated
Configuration at the Designated Location. State Street and the Customer agree
that each will engage or retain the services of trained personnel to enable both
parties to perform their respective obligations under this Addendum. State
Street agrees to use commercially reasonable efforts to maintain the System so
that it remains serviceable, provided, however, that State Street does not
guarantee or assure uninterrupted remote access use of the System.
c. Scope of Use. The Customer will use the System and the Data Access
Services only for the processing of securities transactions, the keeping of
books of account for the Customer and accessing data for purposes of reporting
and analysis. The Customer shall not, and shall cause its employees and agents
not to (i) permit any third party to use the System or the Data Access Services,
(ii) sell, rent, license or otherwise use the System or the Data Access Services
in the operation of a service bureau or for any purpose other than as expressly
authorized under this Addendum, (iii) use the System or the Data Access Services
for any fund, trust or other investment vehicle without the prior written
consent of State Street, (iv) allow access to the System or the Data Access
Services through terminals or any other computer or telecommunications
facilities located outside the Designated Locations, (v) allow or cause any
information (other than portfolio holdings, valuations of portfolio holdings,
and other information reasonably necessary for the management or distribution of
the assets of the Customer) transmitted from State Street's databases, including
data from third party sources, available through use of the System or the Data
Access Services to be redistributed or retransmitted to another computer,
terminal or other device for other than use for or on behalf of the Customer or
(vi) modify the System in any way, including without limitation, developing any
software for or attaching any devices or computer programs to any equipment,
system, software or database which forms a part of or is resident on the
Designated Configuration.
d. Other Locations. Except in the event of an emergency or of a planned
System shutdown, the Customer's access to services performed by the System or to
Data Access Services at the Designated Location may be transferred to a
different location only upon the prior written consent of State Street. In the
event of an emergency or System shutdown, the Customer may use any back-up site
included in the Designated Configuration or any other back-up site agreed to by
State Street, which agreement will not be unreasonably withheld. The Customer
may secure from State Street the right to access the System or the Data Access
Services through computer and telecommunications facilities or devices complying
with the Designated Configuration at additional locations only upon the prior
written consent of State Street and on terms to be mutually agreed upon by the
parties.
e. Title. Title and all ownership and proprietary rights to the System,
including any enhancements or modifications thereto, whether or not made by
State Street, are and shall remain with State Street.
f. No Modification. Without the prior written consent of State Street, the
Customer shall not modify, enhance or otherwise create derivative works based
upon the System, nor shall the Customer reverse engineer, decompile or otherwise
attempt to secure the source code for all or any part of the System.
g. Security Procedures. The Customer shall comply with data access
operating standards and procedures and with user identification or other
password control requirements and other security procedures as may be issued
from time to time by State Street for use of the System on a remote basis and to
access the Data Access Services. The Customer shall have access only to the
Customer Data and authorized transactions agreed upon from time to time by State
Street and, upon notice from State Street, the Customer shall discontinue remote
use of the System and access to Data Access Services for any security reasons
cited by State Street; provided, that, in such event, State Street shall, for a
period not less than 180 days (or such other shorter period specified by the
Customer) after such discontinuance, assume responsibility to provide accounting
services under the terms of the Custodian Agreement.
h. Inspections. State Street shall have the right to inspect the use of the
System and the Data Access Services by the Customer and the Investment Advisor
to ensure compliance with this Addendum. The on-site inspections shall be upon
prior written notice to the Customer and the Investment Advisor and at
reasonably convenient times and frequencies so as not to result in an
unreasonable disruption of the Customer's or the Investment Advisor's business.
4. PROPRIETARY INFORMATION
a. Proprietary Information. The Customer acknowledges and State Street
represents that the System and the databases, computer programs, screen formats,
report formats, interactive design techniques, documentation and other
information made available to the Customer by State Street as part of the Data
Access Services and through the use of the System constitute copyrighted, trade
secret, or other proprietary information of substantial value to State Street.
Any and all such information provided by State Street to the Customer shall be
deemed proprietary and confidential information of State Street (hereinafter
"Proprietary Information"). The Customer agrees that it will hold such
Proprietary Information in the strictest confidence and secure and protect it in
a manner consistent with its own procedures for the protection of its own
confidential information and to take appropriate action by instruction or
agreement with its employees who are permitted access to the Proprietary
Information to satisfy its obligations hereunder. The Customer further
acknowledges that State Street shall not be required to provide the Investment
Advisor with access to the System unless it has first received from the
Investment Advisor an undertaking with respect to State Street's Proprietary
Information in the form of Attachment C to this Addendum. The Customer shall use
all commercially reasonable efforts to assist State Street in identifying and
preventing any unauthorized use, copying or disclosure of the Proprietary
Information or any portions thereof or any of the logic, formats or designs
contained therein.
b. Cooperation. Without limitation of the foregoing, the Customer shall
advise State Street immediately in the event the Customer learns or has reason
to believe that any person to whom the Customer has given access to the
Proprietary Information, or any portion thereof, has violated or intends to
violate the terms of this Addendum, and the Customer will, at its expense,
co-operate with State Street in seeking injunctive or other equitable relief in
the name of the Customer or State Street against any such person.
c. Injunctive Relief.The Customer acknowledges that the disclosure of any
Proprietary Information, or of any information which at law or equity ought to
remain confidential, will immediately give rise to continuing irreparable injury
to State Street inadequately compensable in damages at law. In addition, State
Street shall be entitled to obtain immediate injunctive relief against the
breach or threatened breach of any of the foregoing undertakings, in addition to
any other legal remedies which may be available.
d. Survival.The provisions of this Section 4 shall survive the termination
of this Addendum.
5. LIMITATION ON LIABILITY
a. Limitation on Amount and Time for Bringing Action. The Customer agrees
that any liability of State Street to the Customer or any third party arising
out of State Street's provision of Data Access Services or the System under this
Addendum shall be limited to the amount paid by the Customer for the preceding
24 months for such services. In no event shall State Street be liable to the
Customer or any other party for any special, indirect, punitive or consequential
damages even if advised of the possibility of such damages. No action,
regardless of form, arising out of this Addendum may be brought by the Customer
more than two years after the Customer has knowledge that the cause of action
has arisen.
b. Limited Warranties. NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY STATE STREET.
c. Third-Party Data. Organizations from which State Street may obtain
certain data included in the System or the Data Access Services are solely
responsible for the contents of such data, and State Street shall have no
liability for claims arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof.
d. Regulatory Requirements. As between State Street and the Customer, the
Customer shall be solely responsible for the accuracy of any accounting
statements or reports produced using the Data Access Services and the System and
the conformity thereof with any requirements of law.
e. Force Majeure. Neither party shall be liable for any costs or damages
due to delay or nonperformance under this Addendum arising out of any cause or
event beyond such party's control, including without limitation, cessation of
services hereunder or any damages resulting therefrom to the other party, or the
Customer as a result of work stoppage, power or other mechanical failure,
computer virus, natural disaster, governmental action, or communication
disruption.
6. INDEMNIFICATION
The Customer agrees to indemnify and hold State Street harmless from any
loss, damage or expense including reasonable attorney's fees, (a "loss")
suffered by State Street arising from (i) the negligence or willful misconduct
in the use by the Customer of the Data Access Services or the System, including
any loss incurred by State Street resulting from a security breach at the
Designated Location or committed by the Customer's employees or agents or the
Investment Advisor and (ii) any loss resulting from incorrect Client Originated
Electronic Financial Instructions. State Street shall be entitled to rely on the
validity and authenticity of Client Originated Electronic Financial Instructions
without undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by State Street
from time to time.
7. FEES
Fees and charges for the use of the System and the Data Access Services and
related payment terms shall be as set forth in the Custody Fee Schedule in
effect from time to time between the parties (the "Fee Schedule"). Any tariffs,
duties or taxes imposed or levied by any government or governmental agency by
reason of the transactions contemplated by this Addendum, including, without
limitation, federal, state and local taxes, use, value added and personal
property taxes (other than income, franchise or similar taxes which may be
imposed or assessed against State Street) shall be borne by the Customer. Any
claimed exemption from such tariffs, duties or taxes shall be supported by
proper documentary evidence delivered to State Street.
8. TRAINING, IMPLEMENTATION AND CONVERSION
a. Training. State Street agrees to provide training, at a designated State
Street training facility or at the Designated Location, to the Customer's
personnel in connection with the use of the System on the Designated
Configuration. The Customer agrees that it will set aside, during regular
business hours or at other times agreed upon by both parties, sufficient time to
enable all operators of the System and the Data Access Services, designated by
the Customer, to receive the training offered by State Street pursuant to this
Addendum.
b. Installation and Conversion. State Street shall be responsible for the
technical installation and conversion ("Installation and Conversion") of the
Designated Configuration. The Customer shall have the following responsibilities
in connection with Installation and Conversion of the System:
(i) The Customer shall be solely responsible for the timely acquisition and
maintenance of the hardware and software that attach to the Designated
Configuration in order to use the Data Access Services at the Designated
Location.
(ii) State Street and the Customer each agree that they will assign
qualified personnel to actively participate during the Installation and
Conversion phase of the System implementation to enable both parties to perform
their respective obligations under this Addendum.
9. SUPPORT
During the term of this Addendum, State Street agrees to provide the
support services set out in Attachment D to this Addendum.
10. TERM OF ADDENDUM
a. Term of Addendum. This Addendum shall become effective on the date of
its execution by State Street and shall remain in full force and effect until
terminated as herein provided.
b. Termination of Addendum. Either party may terminate this Addendum (i)
for any reason by giving the other party at least one-hundred and eighty days'
prior written notice in the case of notice of termination by State Street to the
Customer or thirty days' notice in the case of notice from the Customer to State
Street of termination; or (ii) immediately for failure of the other party to
comply with any material term and condition of the Addendum by giving the other
party written notice of termination. In the event the Customer shall cease doing
business, shall become subject to proceedings under the bankruptcy laws (other
than a petition for reorganization or similar proceeding) or shall be
adjudicated bankrupt, this Addendum and the rights granted hereunder shall, at
the option of State Street, immediately terminate with notice to the Customer.
This Addendum shall in any event terminate as to any Customer within 90 days
after the termination of the Custodian Agreement applicable to such Customer.
c. Termination of the Right to Use. Upon termination of this Addendum for
any reason, any right to use the System and access to the Data Access Services
shall terminate and the Customer shall immediately cease use of the System and
the Data Access Services. Immediately upon termination of this Addendum for any
reason, the Customer shall return to State Street all copies of documentation
and other Proprietary Information in its possession; provided, however, that in
the event that either party terminates this Addendum or the Custodian Agreement
for any reason other than the Customer's breach, State Street shall provide the
Data Access Services for a period of time and at a price to be agreed upon by
the parties.
11. MISCELLANEOUS
a. Assignment; Successors. This Addendum and the rights and obligations of
the Customer and State Street hereunder shall not be assigned by either party
without the prior written consent of the other party, except that State Street
may assign this Addendum to a successor of all or a substantial portion of its
business, or to a party controlling, controlled by, or under common control with
State Street.
b. Year 2000. State Street will take all steps necessary to ensure that its
products (and those of its third-party suppliers) reflect the available state of
the art technology to offer products that are Year 2000 compliant, including,
but not limited to, century recognition of dates, calculations that correctly
compute same century and multi century formulas and date values, and interface
values that reflect the date issues arising between now and the next one-hundred
years. If any changes are required, State Street will make the changes to its
products at no cost to Customer and in a commercially reasonable time frame and
will require third-party suppliers to do likewise.
c. Survival. All provisions regarding indemnification, warranty, liability
and limits thereon, and confidentiality and/or protection of proprietary rights
and trade secrets shall survive the termination of this Addendum.
d. Entire Agreement. This Addendum and the attachments hereto constitute
the entire understanding of the parties hereto with respect to the Data Access
Services and the use of the System and supersedes any and all prior or
contemporaneous representations or agreements, whether oral or written, between
the parties as such may relate to the Data Access Services or the System, and
cannot be modified or altered except in a writing duly executed by the parties.
This Addendum is not intended to supersede or modify the duties and liabilities
of the parties hereto under the Custodian Agreement or any other agreement
between the parties hereto except to the extent that any such agreement
specifically refers to the Data Access Services or the System. No single waiver
of any right hereunder shall be deemed to be a continuing waiver.
e. Severability. If any provision or provisions of this Addendum shall be
held to be invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired.
f. Governing Law. This Addendum shall be interpreted and construed in
accordance with the internal laws of The Commonwealth of Massachusetts without
regard to the conflict of laws provisions thereof.
<PAGE>
ATTACHMENT A
Multicurrency HORIZONSM Accounting System
System Product Description
I. The Multicurrency HORIZONSM Accounting System is designed to provide lot
level portfolio and general ledger accounting for SEC and ERISA type
requirements and includes the following services: 1) recording of general ledger
entries; 2) calculation of daily income and expense; 3) reconciliation of daily
activity with the trial balance, and 4) appropriate automated feeding mechanisms
to (i) domestic and international settlement systems, (ii) daily, weekly and
monthly evaluation services, (iii) portfolio performance and analytic services,
(iv) customer's internal computing systems and (v) various State Street provided
information services products.
II. GlobalQuestR is designed to provide customer access to the following
information maintained on The Multicurrency HORIZONSM Accounting System: 1)
cash transactions and balances; 2) purchases and sales; 3) income receivables;
4) tax refund receivables; 5) daily priced positions; 6) open trades; 7)
settlement status; 8) foreign exchange transactions; 9) trade history, and 10)
daily, weekly and monthly evaluation services.
III SaFiReSM. SaFiReSM is designed to provide the customer with the ability to
prepare its own financial reports by permitting the customer to access
customer information maintained on the Multicurrency HORIZONR Accounting System,
to organize such information in a flexible reporting format and to have such
reports printed on the customer's desktop or by its printing provider.
<PAGE>
ATTACHMENT B
Designated Configuration
<PAGE>
ATTACHMENT C
Undertaking
The undersigned understands that in the course of its employment as
Investment Advisor to The Evergreen Variable Annuity Trust (the "Customer") it
will have access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZONSM Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation and other information made available to the undersigned by State
Street as part of the Data Access Services provided to the Customer and through
the use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
First Union National Bank
By: _________________________
Title: _________________________
Date: _________________________
<PAGE>
ATTACHMENT C-1
Undertaking
The undersigned understands that in the course of its employment as
Independent Auditor to The Evergreen Variable Annuity Trust (the "Customer") it
will have access to State Street Bank and Trust Company's ("State Street")
Multicurrency HORIZON Accounting System and other information systems
(collectively, the "System").
The undersigned acknowledges that the System and the databases, computer
programs, screen formats, report formats, interactive design techniques,
documentation, and other information made available to the Undersigned by State
Street as part of the Data Access Services provided to the Customer and through
the use of the System constitute copyrighted, trade secret, or other proprietary
information of substantial value to State Street. Any and all such information
provided by State Street to the Undersigned shall be deemed proprietary and
confidential information of State Street (hereinafter "Proprietary
Information"). The Undersigned agrees that it will hold such Proprietary
Information in confidence and secure and protect it in a manner consistent with
its own procedures for the protection of its own confidential information and to
take appropriate action by instruction or agreement with its employees who are
permitted access to the Proprietary Information to satisfy its obligations
hereunder.
The Undersigned will not attempt to intercept data, gain access to data in
transmission, or attempt entry into any system or files for which it is not
authorized. It will not intentionally adversely affect the integrity of the
System through the introduction of unauthorized code or data, or through
unauthorized deletion.
Upon notice by State Street for any reason, any right to use the System and
access to the Data Access Services shall terminate and the Undersigned shall
immediately cease use of the System and the Data Access Services. Immediately
upon notice by State Street for any reason, the Undersigned shall return to
State Street all copies of documentation and other Proprietary Information in
its possession.
*[Name of Independent Auditor]
By:
Title:
Date:
<PAGE>
ATTACHMENT D
Support
During the term of this Addendum, State Street agrees to provide the
following on-going support services:
a. Telephone Support. The Customer Designated Persons may contact State
Street's Multicurrency HORIZONSM Help Desk and Customer Assistance Center
between the hours of 8 a.m. and 6 p.m. (Eastern time) on all business days for
the purpose of obtaining answers to questions about the use of the System, or to
report apparent problems with the System. From time to time, the Customer shall
provide to State Street a list of persons, not to exceed five in number, who
shall be permitted to contact State Street for assistance (such persons being
referred to as "the Customer Designated Persons").
b. Technical Support. State Street will provide technical support to assist
the Customer in using the System and the Data Access Services. The total amount
of technical support provided by State Street shall not exceed 10 resource days
per year. State Street shall provide such additional technical support as is
expressly set forth in the fee schedule in effect from time to time between the
parties (the "Fee Schedule"). Technical support, including during installation
and testing, is subject to the fees and other terms set forth in the Fee
Schedule.
c. Maintenance Support. State Street shall use commercially reasonable
efforts to correct system functions that do not work according to the System
Product Description as set forth on Attachment A in priority order in the next
scheduled delivery release or otherwise as soon as is practicable.
d. System Enhancements. State Street will provide to the Customer any
enhancements to the System developed by State Street and made a part of the
System; provided that, sixty (60) days prior to installing any such enhancement,
State Street shall notify the Customer and shall offer the Customer reasonable
training on the enhancement. Charges for system enhancements shall be as
provided in the Fee Schedule. State Street retains the right to charge for
related systems or products that may be developed and separately made available
for use other than through the System.
e. Custom Modifications. In the event the Customer desires custom
modifications in connection with its use of the System, the Customer shall make
a written request to State Street providing specifications for the desired
modification. Any custom modifications may be undertaken by State Street in its
sole discretion in accordance with the Fee Schedule.
f. Limitation on Support. State Street shall have no obligation to support
the Customer's use of the System: (i) for use on any computer equipment or
telecommunication facilities which does not conform to the Designated
Configuration or (ii) in the event the Customer has modified the System in
breach of this Addendum.
MASTER TRANSFER AND RECORDKEEPING AGREEMENT
AGREEMENT made as of the 18th day of September, 1997 by and between
each of the parties listed on Exhibit A which is attached hereto and made a part
hereof (each a "Fund" or "Funds"), each for itself and not jointly, each having
its principal place of business at 200 Berkeley Street, Boston, Massachusetts
02116, and Evergreen Service Company ("ESC"), having its principal place of
business at 200 Berkeley Street, Boston, Massachusetts 02116.
W I T N E S S E T H T H A T
WHEREAS, each Fund desires ESC to perform certain services for the
Fund, and ESC is willing to perform such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, each party, for itself and not jointly, agrees as follows:
1. ADDITIONAL PARTIES - Any other registered investment company for
which Keystone Investment Management Company (KIMCO), Evergreen Asset Management
Corp. ("Evergreen Asset"), First Union National Bank or one of its affiliates
serves as investment adviser, trustee or manager may become a Fund party to this
Agreement, for itself and not jointly, by giving written notice to ESC that it
has elected to become a Fund party hereto, to which election ESC has given its
written consent.
2. SERVICES - ESC shall perform for each Fund the services set forth on
Exhibit B which is attached hereto and made a part hereof. ESC shall also
perform for each Fund, without additional charge, any services which it
customarily performs in the ordinary course of business without additional
charge for the investment companies for which ESC acts as transfer agent,
dividend disbursing agent, or shareholder servicing and recordkeeping agent.
ESC shall perform such other services in addition to those set forth on
Exhibit B hereto as a Fund shall request in writing. Any of the services to be
performed hereunder, and the manner in which such services are to be performed,
shall be changed only pursuant to a written agreement signed by the parties
hereto.
ESC will undertake no activity which, in its judgment, will adversely
effect the performance of its obligations to a Fund under this Agreement.
3. FEES - Each Fund shall pay ESC for the services to be performed
pursuant to this Agreement in accordance with and in the manner set forth with
respect to such Fund on Exhibit C attached hereto and made a part hereof.
4. EFFECTIVE DATE - This Agreement shall become effective as of the
date set forth above and shall become effective as to each Fund which gives
written notice to ESC
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pursuant to Paragraph 1 hereof that it elects to become a party hereto as of the
date of such notice.
5. TERM - This Agreement shall be in effect until terminated in
accordance with Section 17 hereof.
6. USE OF ESC'S NAME - The Funds will not use ESC's name in any sales
literature or other material in a manner not approved by ESC in writing before
such use, unless a similar use was previously approved. Notwithstanding the
foregoing, ESC hereby consents to all uses of ESC's name which merely refer in
accurate terms to ESC's appointments hereunder or which are required by the
Securities and Exchange Commission or a state securities commission, and
provided, further, that in no case will such approval be unreasonably withheld
or delayed.
7. STANDARD OF CARE - ESC shall at all times use its best efforts and
act in good faith and in a non-negligent manner in performing all services
pursuant to this Agreement.
8. UNCONTROLLABLE EVENTS - ESC shall not be liable for damage, loss of
data, delays or errors occurring by reason of circumstances beyond its control,
including, but not limited to, acts of civil or military authority, national
emergencies, fire, flood or catastrophe, acts of God, insurrection, war, riots,
or failure of transportation, communication or power supply. However, ESC shall
keep in a separate and safe place additional copies of all records required to
be maintained pursuant to this Agreement or additional tapes or discs necessary
to reproduce all such records. Furthermore, at all times during this Agreement,
ESC shall maintain an arrangement whereby ESC will have a backup computer
facility available for its use in providing the services required hereunder in
the event circumstances beyond ESC's control result in ESC not being able to
process the necessary work at its principal computer facility. ESC shall, from
time to time, upon request from any Fund provide written evidence and details of
its arrangement for obtaining the use of such a backup computer facility. ESC
shall use reasonable care to minimize the likelihood of all damage, loss of
data, delays and errors resulting from an uncontrollable event. Should such
damage, loss of data, delays or errors occur, ESC shall use its best efforts to
mitigate the effects of such occurrence. Representatives of each Fund shall be
entitled to inspect the ESC premises and operating capabilities within
reasonable business hours and upon reasonable notice to ESC.
9. INDEMNIFICATION - Each Fund shall indemnify and hold ESC, its
employees and agents harmless against any losses, claims, damages, judgments,
liabilities or expenses (including reasonable counsel fees and expenses)
resulting from (1) transactions which occurred prior to the date ESC began
serving as Transfer Agent to the Fund; (2) action taken or permitted by ESC in
good faith with due care and without negligence in reliance upon instructions
received from such Fund in accordance with Section 10 hereof or with respect to
a Fund upon the opinion of counsel for the Fund, as to anything arising in
connection with its performance under this Agreement; or (3) any act done or
suffered by ESC with respect to a Fund in good faith with due care and without
negligence in connection with its performance under this Agreement in reliance
upon any instruction, order, stock certificate or other instrument reasonably
believed by it to be
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<PAGE>
genuine and to bear the genuine signature of any person or persons authorized to
sign, countersign, or execute same, and which complies with all applicable
requirements of the Fund's current prospectus(es) and statement of additional
information, this Agreement and instructions and other governing documents
provided to ESC by the Fund. For purposes of this indemnification, it is
specifically agreed that if any instruction received by ESC in accordance with
Section 10 hereof differs from the requirements set forth in the Fund's current
prospectus(es) or statement of additional information then, with regard to that
difference, the instruction, order, stock certificate or other instrument relied
upon by ESC, ESC need only comply with such instruction (and not the current
prospectus(es) or statement of additional information).
In the event that ESC requests any Fund to indemnify or hold it
harmless hereunder, ESC shall use its best efforts to inform the Fund of the
relevant facts concerning the matter in question. ESC shall use reasonable care
to identify and promptly notify a Fund concerning any matter which ESC believes
may result in a claim for indemnification against such Fund, and shall notify
the Fund within seven days of notice to ESC of the filing of any suit or other
legal action or the institution by a government agency of any administrative
action or investigation against ESC which involves its duties under this
Agreement. Each Fund shall have the election of defending ESC against any claim
with respect to such Fund which may be the subject of indemnification or holding
it harmless hereunder. In the event a Fund so elects, it will so notify ESC.
Thereupon the Fund shall take over defense of the claim, and, if so requested by
a Fund, ESC shall incur no further legal or other expenses related thereto for
which it shall be entitled to indemnity or holding harmless hereunder; provided,
however, that nothing herein shall prevent ESC from retaining counsel to defend
any claim at ESC's own expense.
Except with the prior written consent of a Fund, ESC shall in no event
confess any claim or make any compromise in any matter in which such Fund will
be asked to indemnify or hold ESC harmless hereunder. ESC shall be without
liability to a Fund with respect to anything done or omitted to be done in
accordance with the terms of this Agreement or instructions properly received
pursuant hereto if done in good faith and without negligence or willful or
wanton misconduct. In no event shall ESC be liable for consequential damages,
lost profits, or other special damages, even if ESC has been informed of the
possibility of such damage or loss by the Fund or by third parties.
Notwithstanding the foregoing, ESC shall be liable to each Fund for
any damage or losses suffered by such Fund as a result of a delay or negligence
on the part of ESC in processing a purchase or liquidation transaction or in
making payment to a shareholder of such Fund; it being agreed that, without in
any way limiting ESC's liability for other transactions hereunder, that such
damages shall not be deemed to be consequential or special.
10. INSTRUCTIONS - ESC shall comply with all instructions issued by a
Fund in the form prescribed below which are permitted or required under Exhibit
B attached hereto. Whenever ESC takes action hereunder pursuant to instructions
from a Fund, ESC shall be entitled to rely upon such instructions only when such
instructions are signed by the President or Treasurer of
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<PAGE>
the Fund or by an individual designated in writing by the President or Treasurer
as a person authorized to give instructions hereunder. A Fund may waive the
requirement that all instructions be in writing, if such waiver defines the
occurrences not requiring written instruction, indicates the persons authorized
to give such non-written instructions, and is signed by one of the persons
pursuant to the immediately preceding sentence of this Section 10. In the event
ESC obtains a Fund's written waiver, it may rely on non-written instructions
received pursuant thereto.
11. CONFIDENTIALITY - ESC agrees to treat as confidential all records
and other information relative to a Fund and the Fund's shareholders. ESC, on
behalf of itself and its employees, agrees to keep confidential all such
information, except, after prior notification to and approval by a Fund (which
approval shall not be unreasonably withheld and may not be withheld where ESC
may be exposed to civil or criminal contempt proceedings) when requested to
divulge such information by duly constituted authorities or when requested by a
shareholder of a Fund seeking information about his own or an appropriately
related account.
12. REPORTS - ESC will furnish to each Fund and to properly authorized
auditors, examiners, investment companies, dealers, salesmen, insurance
companies, transfer agents, registrars, investors, and others designated by each
Fund in writing, such reports at such times as are prescribed for each service
in Exhibit B.
13. RIGHT OF OWNERSHIP - ESC agrees that all records and other data
received, computed, developed, used and/or stored pursuant to this Agreement are
the exclusive property of each respective Fund and that all such records and
other data will be furnished without additional charge to a Fund in available
machine readable data form immediately upon termination of this Agreement with
respect to such Fund for any reason whatsoever. Furthermore, upon a Fund's
request at any time or times while this Agreement is in effect, ESC shall
deliver to such Fund, at the Fund's expense, any or all of the data and records
held by ESC pursuant to this Agreement, in the form as requested by the Fund. On
the effective date of termination of this Agreement with respect to a Fund or,
if later, on the date a Fund ceases to use ESC's services, ESC will promptly
return to the Fund any and all records and other data belonging to the Fund free
of any claim or retention of rights by ESC.
14. REDEMPTION OF SHARES - The parties hereto agree that ESC shall
process liquidations, redemptions or repurchases of shares of each Fund, as the
agent for such Fund, in the manner described in the then current prospectus(es)
and statement of additional information for the Fund. Notwithstanding the
foregoing, ESC shall be liable for any losses, damages, claims or expenses
resulting from ESC's failure to obtain the appropriate signature guarantee with
regard to any redemption or transfer processed by ESC even if the current
prospectus(es) or statement of additional information authorizes ESC to waive
the requirement of a signature guarantee unless ESC is authorized in writing by
an appropriate party to waive such a requirement.
15. SUBCONTRACTING - Each Fund may require that ESC, or ESC may, with
the prior written consent of such Fund, subcontract with one or more of its
affiliated or other persons to
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perform all or part of its obligations hereunder, provided, however, that,
notwithstanding any such subcontract, ESC shall be fully responsible to each
Fund hereunder.
16. ASSIGNMENT - This Agreement and the rights and duties hereunder
shall not be assignable by ESC or any of the Fund parties hereto except by the
specific written consent of the other party.
17. TERMINATION - This Agreement may be terminated with respect to a
Fund on such date on which ESC has given such Fund not less than 180 days prior
written notice or on which such Fund has given ESC not less than 90 days prior
written notice. Upon such termination, ESC will use its best efforts to
cooperate and assist in accomplishing a timely, efficient and accurate
conversion to the person or firm which will provide the services described
hereunder. This Agreement may be terminated by any Fund without the payment of
any penalty, forfeiture, compulsory buyout amount or performance of any other
obligation which could deter termination; provided, however, that for the
purpose of this Section 17 any amount due under Section 3 of this Agreement
which is undisputed is not considered a penalty, forfeiture, compulsory buyout
amount or performance of any other obligation which could deter termination.
This Agreement may be terminated with respect to a Fund after written
notice to ESC by the Fund if there is a material breach or violation of this
Agreement or if ESC fails to perform any of its obligations under this Agreement
and the failure continues for more than 30 days after the Fund gives notice of
the failure to ESC or bankruptcy or insolvency proceedings of any nature are
instituted by or against ESC.
18. INSURANCE - ESC shall maintain throughout the term of this
Agreement a fidelity bond(s) in an amount in excess of the minimum amount
required to be obtained by the Funds which are parties hereto pursuant to Rule
17g-1 under the Investment Company Act of 1940 (the "1940 Act") covering the
acts of its officers, employees or agents in performing any and all of the
services required to be performed hereunder. ESC agrees to promptly notify each
Fund in writing of any material amendment or cancellation of such bond(s). ESC
shall at such times as the Fund may request, but at least once each year, notify
each Fund of any claims made pursuant to such bond(s).
19. AMENDMENT - This Agreement may be amended at any time by an
instrument in writing executed by both ESC and any Fund which is a party hereto,
or each of their respective successors, provided that any such amendment will
conform to the requirements set forth in the 1940 Act and the rules and
regulations thereunder.
20. NOTICE - Any notice shall be sufficiently given when sent by
registered or certified mail to any party at the address of such party set forth
above or at such other address as such party may from time to time specify in
writing to the other party.
21. SECTION HEADINGS - Section headings are included for convenience
only and are not to be used to construe or interpret this Agreement.
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22. INTERPRETIVE PROVISIONS - In connection with the operation of this
Agreement, ESC and one or more of the Funds may agree with respect to such Funds
and ESC from time to time on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their combined opinion be consistent
with the general tenor of this Agreement. Furthermore, ESC and such Fund(s) may
agree to add to, delete from or change the services set forth with respect to
such Fund(s) in Exhibit B of the Agreement. Each such interpretive or additional
provision, and each addition, deletion or change is to be signed by all parties
affected and annexed hereto, and no such provision, addition, deletion or change
shall contravene any applicable federal or state law or regulation and no such
provision, addition, deletion or change shall be deemed to be an amendment of
any provision of this Agreement with the exception of Exhibit B hereto.
23. GOVERNING LAW - This Agreement shall be governed by and its
provisions shall be construed in accordance with the laws of The Commonwealth of
Massachusetts.
24. DELAWARE BUSINESS TRUST - Each of the Funds listed on Exhibit A
attached hereto is a Delaware business trust established under a Declaration of
Trust. The obligations of such Funds are not personally binding upon, nor shall
recourse be had against the private property of, any of the Trustees,
shareholders, officers, employees or agents of the Funds, but only the property
of such Funds shall be bound.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
EVERGREEN SERVICE COMPANY
By: /s/ Edward J. Falvey
-----------------------
Edward J. Falvey
President
Evergreen Select Fixed Income Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Select Limited Duration Fund Evergreen Select Fixed Income
Fund Evergreen Select Income Plus Fund Evergreen Select Intermediate
Tax Exempt Bond Fund Evergreen Select Core Bond Fund Evergreen Select
Intermediate Bond Fund Evergreen Select Adjustable Rate Fund
Evergreen Select Equity Trust, a Delaware Business Trust consisting of the
following series:
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Evergreen Select Strategic Value Fund Evergreen Select Large Cap Blend
Fund Evergreen Select Strategic Growth Fund Evergreen Select Social
Principles Fund Evergreen Select Equity Income Fund Evergreen Select
Small Company Value Fund Evergreen Select Common Stock Fund Evergreen
Select Small Cap Growth Fund Evergreen Select Balanced Fund Evergreen
Select Diversified Value Fund
Evergreen Select Money Market Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Select 100% Treasury Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Municipal Trust, a Delaware Business Trust consisting of the following
series:
Evergreen California Tax Free Fund Evergreen Connecticut
Municipal Bond Fund Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund Evergreen Georgia Municipal Bond
Fund Evergreen Massachusetts Tax Free Fund Evergreen Missouri Tax Free
Fund Evergreen New Jersey Tax Free Income Fund Evergreen New York Tax
Free Fund Evergreen North Carolina Municipal Bond Fund Evergreen
Pennsylvania Tax Free Fund Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund Evergreen High Grade Tax Free
Fund Evergreen Short-Intermediate Municipal Fund Evergreen Tax Free
Fund
Evergreen Equity Trust, a Delaware Business Trust consisting of the following
series:
Evergreen Aggressive Growth Fund Evergreen Fund Evergreen Micro
Cap Fund Evergreen Omega Fund Evergreen Small Company Growth Fund
Keystone Strategic Growth Fund (K-2) Evergreen American Retirement Fund
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Evergreen Foundation Fund Evergreen Tax Strategic Foundation Fund
Evergreen Balanced Fund Evergreen Fund for Total Return Evergreen
Growth & Income Fund Evergreen Income & Growth Fund Evergreen Small Cap
Equity Income Fund Evergreen Value Fund Evergreen Utility Fund Keystone
Growth and Income Fund (S-1)
Evergreen Fixed Income Trust, a Delaware Business Trust consisting of the
following series:
Evergreen U.S. Government Fund
Evergreen Strategic Income Fund
Evergreen Diversified Bond Fund
Keystone High Income Bond Fund (B-4)
Evergreen Capital Preservation and Income Fund
Evergreen Intermediate Term Bond Fund
Evergreen Intermediate-Term Government Securities Fund
Evergreen Short-Intermediate Bond Fund
Evergreen International Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Emerging Markets Growth Fund Evergreen
Global Leaders Fund Evergreen Global Opportunities Fund Evergreen
International Equity Fund Evergreen Latin America Fund Evergreen
Natural Resources Fund Keystone Precious Metals Holdings Keystone
International Fund
Evergreen Money Market Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Money Market Fund
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Treasury Money Market Fund
By: /s/ John Pileggi
---------------------------
John Pileggi
President and Treasurer of each
Delaware Business Trust listed above
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EXHIBIT A
Evergreen Select Fixed Income Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Select Limited Duration Fund Evergreen Select Fixed Income
Fund Evergreen Select Income Plus Fund Evergreen Select Intermediate
Tax Exempt Bond Fund Evergreen Select Core Bond Fund Evergreen Select
Intermediate Bond Fund Evergreen Select Adjustable Rate Fund
Evergreen Select Equity Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Select Strategic Value Fund Evergreen
Select Large Cap Blend Fund Evergreen Select Strategic Growth Fund
Evergreen Select Social Principles Fund Evergreen Select Equity Income
Fund Evergreen Select Small Company Value Fund Evergreen Select Common
Stock Fund Evergreen Select Small Cap Growth Fund Evergreen Select
Balanced Fund Evergreen Select Diversified Value Fund
Evergreen Select Money Market Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Select 100% Treasury Money Market Fund
Evergreen Institutional Money Market Fund
Evergreen Institutional Tax Exempt Money Market Fund
Evergreen Institutional Treasury Money Market Fund
Evergreen Municipal Trust, a Delaware Business Trust consisting of the following
series:
Evergreen California Tax Free Fund Evergreen Connecticut
Municipal Bond Fund Evergreen Florida High Income Municipal Bond Fund
Evergreen Florida Municipal Bond Fund Evergreen Georgia Municipal Bond
Fund Evergreen Massachusetts Tax Free Fund Evergreen Missouri Tax Free
Fund Evergreen New Jersey Tax Free Income Fund Evergreen New York Tax
Free Fund Evergreen North Carolina Municipal Bond Fund
23146
A-1
<PAGE>
Evergreen Pennsylvania Tax Free Fund
Evergreen South Carolina Municipal Bond Fund
Evergreen Virginia Municipal Bond Fund
Evergreen High Grade Tax Free Fund
Evergreen Short-Intermediate Municipal Fund
Evergreen Tax Free Fund
Evergreen Equity Trust, a Delaware Business Trust consisting of the following
series:
Evergreen Aggressive Growth Fund Evergreen Fund Evergreen Micro
Cap Fund Evergreen Omega Fund Evergreen Small Company Growth Fund
Keystone Strategic Growth Fund (K-2) Evergreen American Retirement Fund
Evergreen Foundation Fund Evergreen Tax Strategic Foundation Fund
Evergreen Balanced Fund Evergreen Fund for Total Return Evergreen
Growth & Income Fund Evergreen Income & Growth Fund Evergreen Small Cap
Equity Income Fund Evergreen Value Fund Evergreen Utility Fund Keystone
Growth and Income Fund (S-1)
Evergreen Fixed Income Trust, a Delaware Business Trust consisting of the
following series:
Evergreen U.S. Government Fund
Evergreen Strategic Income Fund
Evergreen Diversified Bond Fund
Keystone High Income Bond Fund (B-4)
Evergreen Capital Preservation and Income Fund
Evergreen Intermediate Term Bond Fund
Evergreen Intermediate-Term Government Securities Fund
Evergreen Short-Intermediate Bond Fund
Evergreen International Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Emerging Markets Growth Fund
Evergreen Global Leaders Fund
Evergreen Global Opportunities Fund
Evergreen International Equity Fund
Evergreen Latin America Fund
Evergreen Natural Resources Fund
23146
A-2
<PAGE>
Keystone Precious Metals Holdings
Keystone International Fund
Evergreen Money Market Trust, a Delaware Business Trust consisting of the
following series:
Evergreen Money Market Fund
Evergreen Pennsylvania Tax Free Money Market Fund
Evergreen Tax Exempt Money Market Fund
Evergreen Treasury Money Market Fund
23146
A-2
<PAGE>
EXHIBIT B
The services provided for in this Agreement shall be performed by ESC,
or any agent appointed by ESC pursuant to Section 15 of this Agreement, under
the name of Evergreen Service Company (ESC) and this name or any similar name or
logo will not be used by ESC or its agents for any purposes other than those
related to this Agreement or to any other agreement which ESC may enter into
with any of the Fund (s) or with companies affiliated with the Fund (s).
The offices of ESC shall be open to perform the services pursuant to
this Agreement on all days when the Fund is open to transact business.
ESC will perform all services normally provided to investment companies
such as the Fund(s), and the quality of such services shall be equal to or
better than that provided to the other investment companies serviced by ESC.
With respect to each Fund, by way of illustration, but not limitation, these
services will include:
1. Establishing, maintaining, safeguarding and reporting on
shareholder account information and account histories,
(including registration, name and address recorded in
generally accepted form, dealer, representative, branch, and
territory information, mailing address, distribution address,
various codes and specific information relating to (if
applicable); withdrawal plans, letters of intent, systematic
investing, insured redemptions plans, account groupings for
rights of accumulation discount processing, and for account
group reporting for plan accounts and other accounts grouped
for master sub-account reporting.)
2. Recording and controlling shares outstanding in certificate
("issued") and non-certificate ("unissued") form.
3. Maintaining a record for each certificate issued to include
certificate number, account number, issued date, number of
shares, canceled date or stop date, where appropriate.
4. Reconciling the number of outstanding shares of each Fund on a
daily basis with the Fund and the Fund's custodian, promptly
correcting any differences noted.
5. Establishing and maintaining a trade file on behalf of each
Fund based on trade information furnished to the transfer
agent by the Fund or its distributors.
23146
B-1
<PAGE>
6. Accepting and processing direct cash investments however
received and investing such investments promptly in
shareholder accounts.
7. Passing upon the adequacy of documents properly endorsed and
guaranteed submitted by or on behalf of a shareholder to
transfer ownership or redeem shares.
8. Transferring ownership of shares upon the books of each Fund.
9. Redeeming shares and preparing and mailing redemption checks
or wire proceeds as instructed.
10. Preparing and promptly mailing account statements to the
shareholder or such other authorized address and, when
appropriate, as instructed by a Fund, to the dealer or dealer
branch, whenever transaction activity effecting share balances
are posted to a Fund account that is of the type that should
receive such statement.
11. Checking surrendered certificates for stop transfer
instructions.
12. Canceling certificates surrendered.
13. Issuing certificates as replacements for those canceled, or as
an original issue of additional shares or upon the reduction
of an equal number of unissued shares.
14. Maintaining and updating a stop transfer file, promptly
placing stop transfer codes upon notification of possible
loss, destruction or disappearance of a certificate. Upon
receipt of proper documentation obtaining necessary insurance
forms and issuing replacement certificates.
15. Balancing outstanding shares of record with the custodian
prior to each distribution and calculating and paying or
reinvesting distributions to shareholders of record and to
open trade receivables and free stock.
23146
B-2
<PAGE>
16. Processing exchanges of shares of one Fund or Portfolio for
another, calculating proper sales charges and collecting fees
as required.
17. Processing withdrawal plan liquidations according to plan
instructions.
18. Reporting to each Fund and its custodian daily the capital
stock activities and dollar amounts of transactions.
19. Promptly answering inquiries from shareholders, dealers, Fund
personnel, and others as requested in accordance with the
terms of this Agreement as to account matters, referring
policy or investment matters to the Fund.
20. Mailing reports and special mailings, as directed by a Fund,
to all shareholders or selected holders or dealers.
23146
B-3
<PAGE>
21. Providing services with regard to the annual or special
meetings of a Fund, including preparation and timely mailing
of proxy material to shareholders of record and others as
directed by the Fund, and receiving, examining and recording
all properly executed proxies and performing such follow-up as
required by the Fund.
22. Providing periodic listings and tallies of shareholder votes
and certifying the final tally.
23. Providing an inspector of elections at the annual or any
special meetings of a Fund.
24. Maintaining tax information for each account, deducting
amounts where required and furnishing to a Fund, its
shareholders, dealers and, when appropriate, regulatory
bodies, the necessary tax information, all in compliance with
the various applicable laws.
25. Maintaining records of account and distribution information
for checks and confirmations returned as undeliverable by the
Post Office.
26. Maintaining records and reporting sales information for Blue
Sky reporting purposes.
27. Calculating and processing Fund mergers or stock dividends, as
directed by a Fund.
28. Maintaining all Fund records as outlined in the record and
tape retention schedule delivered by a Fund.
29. Reconciling all investment, distribution and redemption
accounts.
30. Providing for the replacement of uncashed distribution or
redemption checks.
31. Maintaining and safeguarding an inventory of unissued blank
stock certificates, checks and other Fund records.
32. Making available to a Fund and its distributors at their
locations devices which will provide immediate electronic
access to computerized records maintained for a Fund.
33. Providing space and such technical expertise as may be
required to enable a Fund
23146
B-3
<PAGE>
and its properly authorized auditors, examiners and others
designated by the Fund in writing to properly understand and
examine all books, records, computer files, microfilm and
other items maintained pursuant to this Agreement, and to
assist as required in such examination.
34. Assigning a single account number to each shareholder
regardless of the number of Funds or Portfolios owned for
which Keystone Investment Management Company, Evergreen Asset
Management Corp., First Union National Bank or one of its
affiliates is the trustee, investment adviser or manager
(except as instructed otherwise.)
35. Mailing prospectuses to existing accounts on receipt of the
first direct investment transaction after a new prospectus has
been issued by a Fund.
36. Mailing cash election notices when required prior to capital
gains distributions.
37. Maintaining information, performing the necessary research and
producing reports required to comply with all applicable state
escheat or abandoned property laws.
With respect to each Fund, the Transfer Agent will produce reports as requested
by a Fund including, but not limited to, the following:
Shareholder Account Confirmation As required
Redemption Checks When redemption is made
Certificates When requested
Withdrawal plan payment checks On payment cycle
Distribution checks As required
Name and address labels
(per account registration) As requested
Proxy When required
1099 Annually
1042-S Annually
23146
B-8
<PAGE>
Transaction journals Daily
Record date position control Daily
Daily and (monthly) cash proof Daily
Daily and (monthly) share proof Daily
Daily master control Daily
Blue Sky exception Daily
Blue Sky master list Monthly and whenever a new
permit is issued by a state
Blue Sky sales report Cycle as designated in
advance by distributor
Check register Daily
Account information reports When requested
(Monthly) Cumulative Monthly
transaction
New account list Monthly
Shareholder master list When requested
Sales by State Monthly
Activities statistics Monthly
Distribution journals As required
Proxy tallies and vote listings When requested
Withdrawal plan account check Monthly
reconciliation
Dividend account check As required
reconciliation
23146
B-9
<PAGE>
EXHIBIT C
TRANSFER AGENT FEE SCHEDULE
CHARGES TO FUNDS
GROUP 1 - MONTHLY DIVIDEND FUNDS
Per open account per year $26.50
Per closed account per year 9.00
Per new account 10.00
GROUP 2 - QUARTERLY DIVIDEND FUNDS
Per open account per year $25.50
Per closed account per year 9.00
Per new account 10.00
GROUP 3 - SEMI-ANNUAL AND ANNUAL DIVIDEND FUNDS
Per open account per year $24.50
Per closed account per year 9.00
Per new account 10.00
GROUP 4 - MONEY MARKET FUNDS
Per open account per year $26.50
Per closed account per year 9.00
Per new account 10.00
CHARGES TO SHAREHOLDERS
GROUP 5 - ERISA*
Per IRA participant per year $10.00 with a maximum of $20.00**
Per Keogh participant per year $10.00 with a maximum of $20.00
Per TSA per year $10.00 with a maximum of $20.00
*These fees are not borne by the Funds, but are direct shareholder charges.
**Fee waived for participants with assets in excess of $25,000. Funds that have
"seed" capital only will not be charged until the Fund has public shareholders.
23146
C-1
<PAGE>
This Fee Schedule is exclusive of out-of-pocket reimbursable expenses.
Out-of-pocket expenses include but are not limited to the following:
Stationery and supplies
Checks
Express Delivery
Postage
Printing of forms
Telephone
Photocopies and Microfilm
23146
C-1
<PAGE>
Dated: September 17, 1997
EXHIBIT C
TRANSFER AGENT FEE SCHEDULE
CHARGES TO FUNDS
GROUP 1 - MONTHLY DIVIDEND FUNDS
Per open account per year $25.50
Per closed account per year 9.00
Per new account* _
GROUP 2 - QUARTERLY DIVIDEND FUNDS
Per open account per year $24.50
Per closed account per year 9.00
Per new account* _
GROUP 3 - SEMI-ANNUAL AND ANNUAL DIVIDEND FUNDS
Per open account per year $23.50
Per closed account per year 9.00
Per new account* _
GROUP 4 - MONEY MARKET FUNDS
Per open account per year $25.50
Per closed account per year 9.00
Per new account _
CHARGES TO SHAREHOLDERS
GROUP 5 - ERISA**
Per IRA participant per year $10.00 with a maximum of $20.00***
Per Keogh participant per year $10.00 with a maximum of $20.00
Per TSA per year $10.00 with a maximum of $20.00
23146
C-2
<PAGE>
*One-time fee charged to the Fund at the time a new account is established.
**These fees are not borne by the Funds, but are direct shareholder charges.
***Fee waived for participants with assets in excess of $25,000.
Funds that have "seed" capital only will not be charged until the Fund has
public shareholders.
This Fee Schedule is exclusive of out-of-pocket reimbursable expenses.
Out-of-pocket expenses include but are not limited to the following:
Stationery and supplies
Checks
Express Delivery
Postage
Printing of forms
Telephone
Photocopies and Microfilm
23146
C-3
<PAGE>
Dated: January 1, 1998
23146
C-3
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
March 9, 1998
Evergreen Service Company
200 Berkeley Street
Boston, Massachusetts 02116
To Whom It May Concern:
Pursuant to Paragraph 1 of the Master Transfer and Recordkeeping Agreement dated
September 18, 1997 between Evergreen Service Company and various Funds (the
"Agreement"), as defined in the Agreement, this is to notify Evergreen Service
Company that the Evergreen Variable Annuity Trust, on behalf of each of its
series listed on Exhibit A attached hereto, hereby elects to become a Fund party
to such Agreement.
EVERGREEN VARIABLE ANNUITY TRUST
on behalf of each of its Series
listed on Exhibit A
By: /s/ William J. Tomko
----------------------------
William J. Tomko
President
Accepted and Agreed:
EVERGREEN SERVICE COMPANY
By: /s/ Edward J. Falvey
------------------------
Name: Edward J. Falvey
Title: President
Dated: March 9, 1998
23666
<PAGE>
EXHIBIT A
EVERGREEN VARIABLE ANNUITY TRUST
SERIES
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 Aggressive Growth Fund Evergreen VA Small Cap Equity Income Fund
(Each Series for itself and not jointly)
Dated: March 9, 1998
23666
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Variable Annuity Trust
We consent to the use of our report dated January 30, 1998 for
Evergreen VA Fund, Evergreen VA Growth and Income Fund, Evergreen VA Foundation
Fund, Evergreen VA Global Leaders Fund, Evergreen VA Strategic Income Fund and
Evergreen VA Aggressive Growth Fund incorporated by reference herein, to the use
of our report dated March 20, 1998 included herein, and to the references to our
firm under the captions "Financial Highlights" and "General Information" in the
prospectus and "Independent Accountants" in the statement of additional
information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 28, 1998
EVERGREEN VA FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,575.43 0.00%
30-Nov-97 1 MO 1,539.45 2.34% 2.34%
30-Sep-97 QTR 1,574.02 0.09% 0.09%
31-Dec-97 YTD 1,575.43 0.00% 0.00%
31-Dec-96 1 1,148.60 37.16% 37.16%
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-96 INCEPT. 1,000.00 57.54% 28.05%
INCEPTION FACTOR: 1.8384
EVERGREEN VA GROWTH & INCOME FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,602.30 0.00%
30-Nov-97 1 MO 1,565.62 2.34% 2.34%
30-Sep-97 QTR 1,605.28 -0.19% -0.19%
31-Dec-97 YTD 1,602.30 0.00% 0.00%
31-Dec-96 1 1,189.88 34.66% 34.66%
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-96 INCEPT. 1,000.00 60.23% 29.23%
INCEPTION FACTOR: 1.8384
EVERGREEN VA FOUNDATION FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,473.31 0.00%
30-Nov-97 1 MO 1,431.96 2.89% 2.89%
30-Sep-97 QTR 1,428.09 3.17% 3.17%
31-Dec-97 YTD 1,473.31 0.00% 0.00%
31-Dec-96 1 1,152.79 27.80% 27.80%
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-96 INCEPT. 1,000.00 47.33% 23.47%
INCEPTION FACTOR: 1.838
EVERGREEN VA GLOBAL LEADERS FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,087.96 0.00%
30-Nov-97 1 MO 1,086.95 0.09% 0.09%
30-Sep-97 QTR 1,131.00 -3.81% -3.81%
31-Dec-97 YTD
31-Dec-96 1
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-97 INCEPT. 1,000.00 8.80%
INCEPTION FACTOR: 0.8384
EVERGREEN VA STRATEGIC INCOME FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,052.83 0.00%
30-Nov-97 1 MO 1,048.70 0.39% 0.39%
30-Sep-97 QTR 1,037.00 1.53% 1.53%
31-Dec-97 YTD
31-Dec-96 1
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-97 INCEPT. 1,000.00 5.28%
INCEPTION FACTOR: 0.8384
EVERGREEN VA AGGRESSIVE GROWTH FUND
Y
TIME ACCOUNT Y AVERAGE
YEARS PERIOD VALUE CLASS ANNNUAL
31-Dec-97 BLANK 1,110.00 0.00%
30-Nov-97 1 MO 1,115.00 -0.45% -0.45%
30-Sep-97 QTR 1,170.00 -5.13% -5.13%
31-Dec-97 YTD
31-Dec-96 1
31-Dec-94 3
31-Dec-92 5
31-Dec-87 10
1-Mar-97 INCEPT. 1,000.00 11.00%
INCEPTION FACTOR: 0.8384
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VA FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 17,849,520
<INVESTMENTS-AT-VALUE> 22,424,347
<RECEIVABLES> 69,013
<ASSETS-OTHER> 64,030
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,557,390
<PAYABLE-FOR-SECURITIES> 929,049
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,179
<TOTAL-LIABILITIES> 957,228
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,699,746
<SHARES-COMMON-STOCK> 1,450,979
<SHARES-COMMON-PRIOR> 952,206
<ACCUMULATED-NII-CURRENT> (985)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 326,574
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,574,827
<NET-ASSETS> 21,600,162
<DIVIDEND-INCOME> 125,834
<INTEREST-INCOME> 101,158
<OTHER-INCOME> 0
<EXPENSES-NET> (210,162)
<NET-INVESTMENT-INCOME> 66,723
<REALIZED-GAINS-CURRENT> 1,210,189
<APPREC-INCREASE-CURRENT> 3,658,731
<NET-CHANGE-FROM-OPS> 4,935,643
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (66,336)
<DISTRIBUTIONS-OF-GAINS> (899,946)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 540,931
<NUMBER-OF-SHARES-REDEEMED> (108,385)
<SHARES-REINVESTED> 66,227
<NET-CHANGE-IN-ASSETS> 10,737,696
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 16,331
<OVERDISTRIB-NII-PRIOR> (1,372)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 152,253
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (210,162)
<AVERAGE-NET-ASSETS> 16,026,592
<PER-SHARE-NAV-BEGIN> 11.41
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 4.15
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> (0.68)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.89
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VA GROWTH AND INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 25,820,238
<INVESTMENTS-AT-VALUE> 32,466,868
<RECEIVABLES> 15,391
<ASSETS-OTHER> 22,205
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,504,464
<PAYABLE-FOR-SECURITIES> 1,387,518
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,028
<TOTAL-LIABILITIES> 1,416,546
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,373,685
<SHARES-COMMON-STOCK> 2,032,687
<SHARES-COMMON-PRIOR> 1,224,433
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (4,790)
<ACCUMULATED-NET-GAINS> 72,393
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,646,630
<NET-ASSETS> 31,087,918
<DIVIDEND-INCOME> 171,438
<INTEREST-INCOME> 175,355
<OTHER-INCOME> 0
<EXPENSES-NET> (217,818)
<NET-INVESTMENT-INCOME> 128,975
<REALIZED-GAINS-CURRENT> 1,072,723
<APPREC-INCREASE-CURRENT> 5,223,120
<NET-CHANGE-FROM-OPS> 6,424,818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (127,123)
<DISTRIBUTIONS-OF-GAINS> (1,004,449)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 786,872
<NUMBER-OF-SHARES-REDEEMED> (53,607)
<SHARES-REINVESTED> 74,988
<NET-CHANGE-IN-ASSETS> 16,604,071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (206,973)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (217,818)
<AVERAGE-NET-ASSETS> 21,786,617
<PER-SHARE-NAV-BEGIN> 11.83
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 4.01
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.56)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.29
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VA FOUNDATION FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 26,444,555
<INVESTMENTS-AT-VALUE> 31,693,072
<RECEIVABLES> 345,857
<ASSETS-OTHER> 203,953
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,242,882
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 402,519
<TOTAL-LIABILITIES> 402,519
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,399,046
<SHARES-COMMON-STOCK> 2,351,230
<SHARES-COMMON-PRIOR> 1,398,348
<ACCUMULATED-NII-CURRENT> (5,485)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 198,285
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,248,517
<NET-ASSETS> 31,840,363
<DIVIDEND-INCOME> 257,497
<INTEREST-INCOME> 439,761
<OTHER-INCOME> 0
<EXPENSES-NET> (248,248)
<NET-INVESTMENT-INCOME> 470,937
<REALIZED-GAINS-CURRENT> 1,288,151
<APPREC-INCREASE-CURRENT> 3,805,707
<NET-CHANGE-FROM-OPS> 5,564,795
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 905,499
<NUMBER-OF-SHARES-REDEEMED> (88,122)
<SHARES-REINVESTED> 135,505
<NET-CHANGE-IN-ASSETS> 12,252,823
<ACCUMULATED-NII-PRIOR> (2,920)
<ACCUMULATED-GAINS-PRIOR> 226,170
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (186,702)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (248,248)
<AVERAGE-NET-ASSETS> 22,630,551
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 2.88
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> (0.65)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.54
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VA GLOBAL LEADERS FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,949,851
<INVESTMENTS-AT-VALUE> 3,012,269
<RECEIVABLES> 24,759
<ASSETS-OTHER> 13,036
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,050,064
<PAYABLE-FOR-SECURITIES> 135,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 14,675
<TOTAL-LIABILITIES> 150,631
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,837,576
<SHARES-COMMON-STOCK> 268,669
<SHARES-COMMON-PRIOR> 1
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (513)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 62,401
<NET-ASSETS> 2,899,464
<DIVIDEND-INCOME> 24,088
<INTEREST-INCOME> 4,858
<OTHER-INCOME> 0
<EXPENSES-NET> (13,428)
<NET-INVESTMENT-INCOME> 15,518
<REALIZED-GAINS-CURRENT> 2,395
<APPREC-INCREASE-CURRENT> 62,401
<NET-CHANGE-FROM-OPS> 80,314
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (13,693)
<DISTRIBUTIONS-OF-GAINS> (6,846)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 275,213
<NUMBER-OF-SHARES-REDEEMED> (8,439)
<SHARES-REINVESTED> 1,894
<NET-CHANGE-IN-ASSETS> 2,899,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (12,787)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (13,428)
<AVERAGE-NET-ASSETS> 1,632,206
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.11
<PER-SHARE-GAIN-APPREC> 0.77
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.79
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VARIABLE ANNUITY STRATEGIC INCOME FUND CLASS A
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUN-30-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,963,406
<INVESTMENTS-AT-VALUE> 1,973,796
<RECEIVABLES> 23,816
<ASSETS-OTHER> 234,699
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,232,311
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,936
<TOTAL-LIABILITIES> 27,936
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,194,420
<SHARES-COMMON-STOCK> 216,179
<SHARES-COMMON-PRIOR> 111,510
<ACCUMULATED-NII-CURRENT> 1,266
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (1,626)
<ACCUM-APPREC-OR-DEPREC> 10,315
<NET-ASSETS> 2,204,375
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 70,641
<OTHER-INCOME> 0
<EXPENSES-NET> (11,132)
<NET-INVESTMENT-INCOME> 59,509
<REALIZED-GAINS-CURRENT> 1,177
<APPREC-INCREASE-CURRENT> 10,315
<NET-CHANGE-FROM-OPS> 71,001
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (58,403)
<DISTRIBUTIONS-OF-GAINS> (3,203)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 212,808
<NUMBER-OF-SHARES-REDEEMED> (2,693)
<SHARES-REINVESTED> 6,063
<NET-CHANGE-IN-ASSETS> 2,204,365
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6,441)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (11,132)
<AVERAGE-NET-ASSETS> 1,354,638
<PER-SHARE-NAV-BEGIN> 10
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> (0.31)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.2
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACCOUNTING
RECORDS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ACCOUNTING
RECORDS.
</LEGEND>
<SERIES>
<NUMBER> 101
<NAME> EVERGREEN VA AGGRESSIVE FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 1,528,423
<INVESTMENTS-AT-VALUE> 1,684,769
<RECEIVABLES> 211
<ASSETS-OTHER> 192,054
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,877,034
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 8,720
<TOTAL-LIABILITIES> 8,720
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,749,486
<SHARES-COMMON-STOCK> 168,377
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (253)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (37,265)
<ACCUM-APPREC-OR-DEPREC> 156,346
<NET-ASSETS> 1,868,314
<DIVIDEND-INCOME> 1,573
<INTEREST-INCOME> 1,192
<OTHER-INCOME> 0
<EXPENSES-NET> (10,579)
<NET-INVESTMENT-INCOME> (7,814)
<REALIZED-GAINS-CURRENT> (37,265)
<APPREC-INCREASE-CURRENT> 156,346
<NET-CHANGE-FROM-OPS> 111,267
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 181,866
<NUMBER-OF-SHARES-REDEEMED> (13,490)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,868,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (6,280)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (10,579)
<AVERAGE-NET-ASSETS> 1,289,274
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 1.16
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.10
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ K. Dun Gifford
- -------------------------------- Trustee
K. Dun Gifford
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Charles A. Austin III
- ----------------------------- Trustee
Charles A. Austin III
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Laurence B. Ashkin
- -------------------------------- Trustee
Laurence B. Ashkin
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ William Walt Pettit
- -------------------------------- Trustee
William Walt Pettit
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ James S. Howell
- -------------------------------- Trustee
James S. Howell
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Leroy Keith, Jr.
- -------------------------------- Trustee
Leroy Keith, Jr.
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Gerald M. McDonnell
- -------------------------------- Trustee
Gerald M. McDonnell
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Thomas L. McVerry
- -------------------------------- Trustee
Thomas L. McVerry
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ David M. Richardson
- -------------------------------- Trustee
David M. Richardson
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Richard J. Shima
- -------------------------------- Trustee
Richard J. Shima
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Michael S. Scofield
- -------------------------------- Trustee
Michael S. Scofield
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ Russell A. Salton, III, M.D. Trustee
- --------------------------------
Russell A. Salton, III M.D.
POWER OF ATTORNEY
I, the undersigned, hereby constitute Maureen E. Towle, Michael H. Koonce,
T. Hal Clarke, John A. Dudley, Robert N. Hickey, David M. Leahy and William J.
Tomko, and each of them singly, my true and lawful attorneys, with full power to
them and each of them to sign for me and in my name in the capacity indicated
below any and all registration statements, including, but not limited to, Forms
N-8A, N-8B-1, S-5, N-14 and N-1A, as amended from time to time, and any and all
amendments thereto to be filed with the Securities and Exchange Commission for
the purpose of registering from time to time all investment companies of which I
am now or hereafter a Trustee and for which Keystone Investment Management
Company, Evergreen Asset Management Corp., First Union National Bank, or any
other investment advisory affiliate of First Union National Bank, serves as
Adviser or Manager and registering from time to time the shares of such
companies, and generally to do all such things in my name and on my behalf to
enable such investment companies to comply with the provisions of the Securities
Act of 1933, as amended, the Investment Company Act of 1940, as amended, and all
requirements and regulations of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
my said attorneys to any and all registration statements and amendments thereto.
In Witness Whereof, I have executed this Power of Attorney as of
March 27, 1998.
Signature Title
/s/ William J. Tomko
- ----------------------- President and Treasurer
William J. Tomko
