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PROSPECTUS
May 1, 1998, as amended October 1, 1998
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EVERGREEN VARIABLE ANNUITY TRUST LOGO
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EVERGREEN VA FUND
EVERGREEN VA GROWTH AND INCOME FUND
EVERGREEN VA FOUNDATION FUND
EACH "A FUND", TOGETHER "THE FUNDS"
The Evergreen Variable Annuity Trust (the "Trust") is designed to provide
investors with a selection of investment alternatives which seek to provide
capital growth, income and diversification through its eight investment series.
The Trust is an open-end management investment company. This amended 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 ("SAI") for the Trust dated May 1,
1998, as amended August 10, 1998, has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference herein. The SAI
provides information regarding certain matters discussed in this amended
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 NOR HAS THE SECURITIES AND EXCHANGE 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
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TABLE OF CONTENTS
OVERVIEW OF THE FUNDS......................................... 3
FINANCIAL HIGHLIGHTS.......................................... 3
DESCRIPTION OF THE FUNDS...................................... 7
Investment Objectives and Policies......................... 7
Investment Practices and Restrictions...................... 9
Special Risk Considerations................................ 15
MANAGEMENT OF THE FUNDS....................................... 17
Investment Advisors........................................ 17
Administrator.............................................. 18
Portfolio Managers......................................... 18
Sub-Advisor................................................ 18
SALE AND REDEMPTION OF SHARES................................. 18
Participating Insurance Companies.......................... 18
Purchases.................................................. 19
Redemptions................................................ 19
Dividends.................................................. 19
Tax Status................................................. 20
Effect of Banking Laws..................................... 20
GENERAL INFORMATION........................................... 21
Custodian, and Transfer and Dividend
Paying Agent............................................... 21
Expenses of the Trust...................................... 21
Shareholder Rights......................................... 21
Description of Shares...................................... 22
Performance................................................ 22
General.................................................... 22
2
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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 advisor to the Funds is Evergreen Asset Management Corp.
("Evergreen Asset") which, with its predecessors, has served as investment
advisor 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.
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 advisor 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.
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FINANCIAL HIGHLIGHTS
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The tables below present financial highlights for a share outstanding
throughout each period presented. The information in the tables has been audited
by KPMG Peat Marwick LLP. The report of KPMG Peat Marwick LLP with respect to
the Funds is incorporated by reference in the Funds' SAI. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are incorporated by reference in the Funds'
SAI.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge.
3
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EVERGREEN VA FUND
YEAR ENDED
DECEMBER 31,
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1997** 1996*
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Per Share Data:
Net asset value, beginning of period........................ $ 11.41 $ 10.00
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Income from investment operations:
Net investment income...................................... 0.06 0.05
Net realized and unrealized gain on investments............ 4.15 1.44
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Total from investment operations............................ 4.21 1.49
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Less distributions from:
Net investment income...................................... (0.05) (0.05)
Net realized gain on investments........................... (0.68) (0.03)
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Total distributions......................................... (0.73) (0.08)
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Net asset value, end of period.............................. $ 14.89 $ 11.41
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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
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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.
4
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EVERGREEN VA FOUNDATION FUND
YEAR ENDED DECEMBER
31,
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1997** 1996*
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Per Share Data:
Net asset value, beginning of period................. $ 11.31 $ 10.00
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Income from investment operations:
Net investment income............................... 0.26 0.16
Net realized and unrealized gain on investments..... 2.86 1.37
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Total from investment operations..................... 3.12 1.53
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Less distributions from:
Net investment income............................... (0.24) (0.16)
Distributions in excess of net investment income.... 0 (a) 0
Net realized gain on investments.................... (0.65) (0.06)
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Total distributions.................................. (0.89) (0.22)
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Net asset value, end of period....................... $ 13.54 $ 11.31
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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
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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.
5
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EVERGREEN VA GROWTH AND INCOME FUND
YEAR ENDED
DECEMBER 31,
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1997** 1996*
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Per Share Data:
Net asset value, beginning of period........................ $ 11.83 $ 10.00
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Income from investment operations:
Net investment income...................................... 0.08 0.06
Net realized and unrealized gain on investments............ 4.01 1.84
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Total from investment operations............................ 4.09 1.90
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Less distributions from:
Net investment income...................................... (0.07) (0.06)
Net realized gain on investments........................... (0.56) (0.01)
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Total distributions......................................... (0.63) (0.07)
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Net asset value, end of period.............................. $ 15.29 $ 11.83
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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
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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.
6
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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 advisor, 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. Shortterm investments may also be made if
the Fund's investment advisor 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 advisor 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 advisor 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.
7
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The Fund will use the "value timing" approach as a process for purchasing
securities when events indicate that fundamental investment values are being
ignored in the marketplace. Fundamental investment value is based on one or more
of the following: assets--tangible and intangible (examples of the latter
include brand names or licenses); capitalization of earnings; cash flow or
potential earnings growth. A discrepancy between market valuation and
fundamental value often arises due to the presence of unrecognized assets or
business opportunities, or as a result of incorrectly perceived or short-term
negative factors. Changes in regulations, basic economic or monetary shifts and
legal action (including the initiation of bankruptcy proceedings) are some of
the factors that create these capital appreciation opportunities. If the
securities in which the Fund invests never reach their perceived potential or
the valuation of such securities in the marketplace does not in fact reflect
significant undervaluation, there may be little or no appreciation or a
depreciation in the value of such securities.
The Fund will invest primarily in common stocks and securities convertible
into or exchangeable for common stock. It is anticipated that the Fund's
investments in these securities will contribute to the Fund's return primarily
through capital appreciation. In addition, the Fund will invest in
nonconvertible preferred stocks and debt securities. It is anticipated that the
Fund's investments in these securities will also produce capital appreciation
but the current income component of return will be a more significant factor in
their selection. However, the Fund will invest in nonconvertible preferred stock
and debt securities only if the anticipated capital appreciation plus income
from such investments is equivalent to that anticipated from investments in
equity or equity-related securities. The Fund may invest up to 5% of its total
assets in debt securities which are rated below investment grade, commonly known
as "junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. The Fund may invest up to 25% of its assets in foreign
securities. See "Special Risk Considerations."
EVERGREEN VA FOUNDATION FUND
The investment objectives of the EVERGREEN VA FOUNDATION FUND, in order of
priority, are 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 advisor 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 advisor 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 advisor 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 advisor. 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).
8
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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 advisor believes
changes in interest rates will lead to an increase in the value of such
securities. The fixed income portion of the Fund's portfolio may include:
1. Marketable obligations of, or guaranteed by, the United States
Government, its agencies or instrumentalities, including issues of the United
States Treasury, such as bills, certificates of indebtedness, notes and bonds,
and issues of agencies and instrumentalities established under the authority of
an act of Congress. Some of these securities are supported by the full faith and
credit of the United States Government, and others are supported only by the
credit of the agency or instrumentality. Agencies or instrumentalities whose
securities are supported by the full faith and credit of the United States
include, but are not limited to, the Federal Housing Administration, Farmers
Home Administration, Export-Import Bank of the United States, Small Business
Administration and Government National Mortgage Association. Agencies or
instrumentalities whose securities are supported only by the credit of the
agency or instrumentality include the Interamerican Development Bank and the
International Bank for Reconstruction and Development. These obligations are
supported by appropriated but unpaid commitments of their member countries.
There are no assurances that the commitments will be fulfilled in the future.
2. Corporate obligations rated no lower than A by Moody's Investors
Service, Inc. ("Moody's") or A-2 by Standard & Poor's Ratings Service ("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 advisor 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 SAI.
INVESTMENT PRACTICES AND RESTRICTIONS
In addition to making the investments described above, each of the Funds
(except as stated herein) may invest in cash and cash equivalents and short-term
debt securities, write covered put and call options, purchase put and call
options, engage in transactions in futures contracts and related options, engage
in forward foreign currency exchange transactions, enter into repurchase
agreements, lend portfolio securities, enter into transactions on a "when
issued" or delayed settlement basis, enter into forward commitments, invest in
the securities of other investment companies and borrow funds under certain
limited circumstances. These investment strategies and instruments referred to
above and the risks related to them are discussed below and certain of these
strategies and instruments are described in more detail in the SAI.
Defensive Investments. The Funds may invest without limitation in high quality
money market instruments, such as notes, certificates of deposit or bankers'
acceptances, or U.S. Government securities.
9
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Portfolio Turnover and Brokerage. It is anticipated that the annual portfolio
turnover rate for EVERGREEN VA FUND and EVERGREEN VA GROWTH AND INCOME FUND may
exceed 100%. A portfolio turnover rate of 100% would occur if all of a Fund's
portfolio securities were replaced in one year. The annual turnover rate for the
fixed income portion of the EVERGREEN VA FOUNDATION FUND generally will not
exceed 200%. A 200% turnover rate is greater than that of most other investment
companies. The portfolio turnover rate experienced by a Fund directly affects
brokerage commissions and other transaction costs which the Fund bears directly.
A high rate of portfolio turnover will increase such costs. It is contemplated
that Lieber & Company, an affiliate of Evergreen Asset and a member of the New
York and American Stock Exchanges, will to the extent practicable effect
substantially all of the portfolio transactions for the Funds managed by
Evergreen Asset effected on those exchanges. See the SAI for further information
regarding the brokerage allocation practices of the Funds.
Borrowing. Each Fund may borrow money to the extent permitted by applicable law.
This includes borrowings from banks as a temporary measure for extraordinary or
emergency purposes. The proceeds from borrowings may be used to facilitate
redemption requests which might otherwise require the untimely disposition of
portfolio securities. The Funds will not engage in leveraging. The specific
limits and other terms applicable to borrowing by each Fund are set forth in the
SAI.
Lending of Portfolio Securities. In order to generate income and to offset
expenses, the Funds may lend portfolio securities to brokers, dealers and other
financial institutions. Each Fund's investment advisor 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 advisor to be illiquid or not readily marketable and,
therefore, are not subject to the aforementioned 15% limit. The inability of a
Fund to dispose of illiquid or not readily marketable investments readily or at
a reasonable price could impair the Fund's ability to raise cash for redemptions
or other purposes. The liquidity of securities purchased by a Fund which are
eligible for resale be monitored by each Fund's investment advisor, 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 advisor
will review and continually monitor the creditworthiness of each institution
with which a Fund enters into a repurchase agreement to evaluate these risks.
10
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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.
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 advisor, suitable short-term investment vehicles. Each Fund's
investment advisor will waive its investment advisory fee on assets invested by
a Fund in securities of other open-end investment companies. As a shareholder of
another investment company, the Fund would pay its portion of the other
investment company's expenses. These expenses would be in addition to the
expenses that the Fund currently bears concerning its own operations and may
result in some duplication of fees. 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. EVERGREEN VA GROWTH AND INCOME FUND
and EVERGREEN VA FOUNDATION FUND may purchase foreign securities in the form of
American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"),
Global Depositary Receipts ("GDRs") or other securities convertible into
securities of corporations in which the Funds are permitted to invest pursuant
to their respective investment objectives and policies. These securities may not
necessarily be denominated in the same currency into which they may be
converted. ADRs are receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe by banks or depositories which
evidence a similar ownership arrangement. Generally, ADRs, in registered form,
are designed for use in United States securities markets and EDRs, in bearer
form, are designed for use in European securities markets.
Forward Commitments. Each Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") if it holds, and maintains until the settlement date in a
segregated account, cash or high-grade debt obligations in an amount sufficient
to meet the purchase price, or if it enters into offsetting contracts for the
forward sale of other securities it owns. Forward commitments may be considered
securities in themselves and involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date, which risk is in addition
to the risk of decline in value of the Fund's other assets. Where such purchases
are made through dealers, the Fund relies on the dealer to consummate the sale.
The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price.
HEDGING TECHNIQUES
In addition to making investments directly in securities, the Funds may, to
the extent provided below, 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 advisor to the EVERGREEN VA GROWTH
AND INCOME FUND does not currently intend to write covered put or call 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.
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Writing Options. EVERGREEN VA FUND and EVERGREEN VA GROWTH AND INCOME FUND may
write covered call options. EVERGREEN VA FUND may write covered put options on
certain portfolio securities in an attempt to earn income and realize a higher
return on its portfolio. 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. With respect to EVERGREEN VA GROWTH AND INCOME FUND, 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 or put 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. EVERGREEN VA FUND and EVERGREEN
VA GROWTH AND INCOME FUND may purchase put options to protect their 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.
EVERGREEN VA FUND and EVERGREEN VA GROWTH AND INCOME 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.
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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 SAI 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 advisor 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 advisor 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 the 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 the
Fund's investment advisor 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.
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Foreign Currency Transactions. The Funds may enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange contracts
("forward contracts"). A Fund may also enter into forward foreign currency
exchange contracts to protect fund assets denominated in a foreign currency
against adverse changes in foreign currency exchange rates or exchange control
regulations. Such changes could unfavorably affect the value of fund assets
which are denominated in foreign currencies, such as foreign securities or funds
deposited in foreign banks, as measured in U.S. dollars. The use of forward
contracts for hedging purposes may limit any potential gain that might result
from a relative increase in the value of such currencies and might, in certain
cases, result in losses to the Fund.
Forward Foreign Currency Exchange Contracts. A forward contract is an obligation
to purchase or sell an amount of a particular currency at a specific price and
on a future date agreed upon by the parties. Generally, no commission charges or
deposits are involved. At the time a Fund enters into a forward contract, fund
assets with a value equal to the Fund's obligation under the forward contract
are segregated and are maintained until the contract has been settled. The Funds
will not enter into a forward contract with a term of more than one year. In
addition to forward contracts entered into for hedging purposes, the Funds will
generally enter into a forward contract to provide the proper currency to
settle a securities transaction at the time the transaction occurs ("trade
date"). The period between trade date and settlement date will vary between 24
hours and 60 days, depending upon local custom.
As described above, the Funds 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 advisor 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.
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In the second circumstance, a Fund's custodian will segregate cash or
liquid high-grade debt securities belonging to the Fund in an amount not less
than the value of the assets committed to forward foreign currency contracts
entered into under such transactions. If the value of the securities segregated
declines, additional cash or debt securities will be added on a daily basis
(i.e. marked to market) so that the segregated amount will not be less than the
amount of the Fund's commitments with respect to such contracts.
Hedging/Cross Hedging. A cross hedge is accomplished by entering into a forward
contract or other arrangement with respect to one foreign currency for the
purpose of hedging against a possible decline in the value of another foreign
currency in which certain of the Fund's portfolio instruments are denominated.
The Funds' investment advisers may cause a Fund to enter into a cross hedge,
rather than hedge directly, in instances where (i) the rates for forward
contracts, options, futures contract or options on futures contracts relating to
the currency in which the cross hedge is effected are more favorable than rates
for similar instruments denominated in the currency that is to be hedged, and
(ii) there is a high degree of correlation between the two currencies with
respect to their movement against the U.S. dollar. Cross hedges may be effected
using the various hedging instruments described below. A cross hedge cannot
protect against exchange rate risks perfectly, and if a Fund's investment
advisor is incorrect in its judgment of future exchange rate relationships, the
Fund could be in a less advantageous position than if such a hedge had not been
established.
SPECIAL RISK CONSIDERATIONS
Fixed Income Investments. Investments by the Funds in fixed income securities
are subject to a number of risks. For example, changes in economic conditions
could result in the weakening of the capacity of the issuers of such securities
to make principal and interest payments, particularly in the case of issuers of
non-investment grade fixed income securities. In addition, the market value of
fixed-income securities in a Fund's portfolio can be expected to vary inversely
to changes in prevailing interest rates. In the event there is a downgrading in
the rating of a fixed income security held in a Fund's portfolio, the Fund may
continue to hold the security if such action is deemed to be in the best
interests of the Fund and its shareholders.
Investment in Small Companies. The Funds may from time to time, 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.
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Investment in Foreign Securities. Investing in non-U.S. securities involves
additional risks not normally associated with domestic investments. In an
attempt to reduce some of these risks, each Fund except EVERGREEN VA FUND may
diversify its investments broadly among foreign countries which may include both
developed and developing countries.
Foreign securities are denominated or traded in foreign currencies.
Therefore, the value in U.S. dollars of a Fund's assets and income may be
affected by changes in exchange rates and regulations. Although the Funds value
their assets daily in U.S. dollars, they will not convert their holdings of
foreign currencies to U.S. dollars daily. When a Fund converts its holdings to
another currency, it may incur conversion costs. Foreign exchange dealers
realize a profit on the difference between the prices at which such dealers buy
and sell currencies.
To the extent that securities purchased by the Funds are denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Funds' net asset values; the value of interest earned;
gains and losses realized on the sale of securities; and net investment income
and capital gains, if any, to be distributed to shareholders by a Fund. If the
value of a foreign currency rises against the U.S. dollar, the value of a Fund's
assets denominated in that currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. dollar, the value of a Fund's
assets denominated in that currency will decrease. The performance of the Funds
will be measured in U.S. dollars, the base currency for the Funds.
Securities markets of foreign countries in which the Fund may invest are
generally not subject to the same degree of regulation as the U.S. markets and
may be more volatile and less liquid than the major U.S. markets. The
differences between investing in foreign and U.S. companies include: (1) less
publicly available information about foreign companies; (2) the lack of uniform
financial accounting standards and practices among countries which could impair
the validity of direct comparisons of valuations measures (such as
price/earnings ratios) for securities in different countries; (3) less readily
available market quotations on foreign companies; (4) differences in government
regulation and supervision of foreign stock exchanges, brokers, listed
companies, and banks; (5) differences in legal systems which may affect the
ability to enforce contractual obligations or obtain court judgments; (6)
generally lower foreign stock market volume; (7) the likelihood that foreign
securities may be less liquid or more volatile, which may affect the Fund's
ability to purchase or sell large blocks of securities and thus obtain the best
price; (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.
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Lower-Rated Securities. EVERGREEN VA GROWTH AND INCOME FUND may invest a portion
of its assets in securities rated below Baa by Moody's or BBB by S&P (commonly
known as "junk bonds"). Lower-rated and comparable unrated securities
(collectively referred to in this 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 SAI.
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MANAGEMENT OF THE FUNDS
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INVESTMENT ADVISORS
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 advisor to
the Funds. Evergreen Asset, with its predecessors, has served as investment
advisor 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 advisor to the Funds.
First Union is headquartered in Charlotte, North Carolina, and had
approximately $140 billion in consolidated assets as of December 31, 1997. First
Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States.
Evergreen Asset provides various administrative services, and supervises
each Fund's daily business affairs, subject to the authority of the Trustees.
Evergreen Asset, is entitled to receive from EVERGREEN VA FUND and EVERGREEN VA
GROWTH AND INCOME FUND an annual fee equal to .95 of 1% of average daily net
assets thereof. For the most recent fiscal year EVERGREEN VA FUND and EVERGREEN
VA GROWTH AND INCOME FUND paid .65% and .73%, respectively, of their average
daily net assets to Evergreen Asset. As compensation for its services as
investment advisor 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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Each Fund's investment advisor currently voluntarily waives fees and/or
reimburses expenses to limit the Fund's annual operating expenses to 1.00% of
average daily net assets. These voluntary waivers and reimbursements may be
terminated at any time.
ADMINISTRATOR
Evergreen Investment Services, Inc. ("EIS") also serves as administrator to
each Fund and is entitled to receive a fee based on the average daily net assets
of the Fund at a rate based on the total assets of the mutual funds administered
by EIS for which Evergreen Asset also serves as investment advisor, 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 and Gary R. Buesser. Mr. Buesser joined Lieber & Company in
1996 as an analyst. Previously, he was a portfolio manager/ analyst with Cowen
Asset Management and Shearson Lehman Brothers.
SUB-ADVISOR
Evergreen Asset has entered into sub-advisory agreements with Lieber &
Company which provides that Lieber & Company's research department and staff
will furnish Evergreen Asset with information, investment recommendations,
advice and assistance, and will be generally available for consultation on each
Fund's portfolio. Lieber & Company will be reimbursed by Evergreen Asset in
connection with the rendering of services on the basis of the direct and
indirect costs of performing such services. There is no additional charge to the
Funds for the services provided by Lieber & Company. It is contemplated that
Lieber & Company will, to the extent practicable, effect substantially all of
the portfolio transactions for these Funds on the New York and American Stock
Exchanges. The address of Lieber & Company is 2500 Westchester Avenue, Purchase,
New York 10577. Lieber & Company is an indirect, wholly-owned, subsidiary of
First Union.
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SALE AND REDEMPTION OF SHARES
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PARTICIPATING INSURANCE COMPANIES
The Funds were organized to serve as investment vehicles for (a) separate
accounts funding variable annuity ("VA") and variable life insurance ("VLI")
contracts issued by certain life insurance companies ("Participating Insurance
Companies"). The Trust does not currently foresee any disadvantages to the
holders of VA and VLI contracts arising from the fact that the interests of
holders of VA and VLI contracts may differ due to the difference of tax
treatment and other considerations.
Nevertheless, the Trustees have established procedures for the purpose of
identifying any irreconcilable material conflicts that may arise and to
determine what action, if any, would be taken in response thereto. The VA and
VLI contracts are described in the separate prospectuses issued by the
Participating Insurance Companies. The Trust assumes no responsibility for such
prospectuses.
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PURCHASES
Shares of each Fund are sold at net asset value to the separate accounts of
Participating Insurance Companies. All investments in the Trust are credited to
the shareholder's account in the form of full or fractional shares of the
designated Fund (rounded to the nearest 1/1000 of a share). The Trust does not
issue share certificates. Initial and subsequent purchase payments allocated to
a specific Fund are subject to the limits described in the separate prospectuses
issued by the Participating Insurance Companies or in pension and retirement
plan documents.
How the Funds Value Their Shares. The net asset value of shares of a Fund is
calculated by dividing the value of the amount of the Fund's net assets by the
number of outstanding shares. Shares are valued each day the New York Stock
Exchange (the "Exchange") is open as of the close of regular trading (currently
4:00 p.m. Eastern time). The securities in a Fund are valued at their current
market value determined on the basis of market quotations or, if such quotations
are not readily available, such other methods as the Trustees believe would
accurately reflect fair value. Non-dollar denominated securities will be valued
as of the close of the Exchange at the closing price of such securities in their
principal trading markets.
REDEMPTIONS
The separate accounts of Participating Insurance Companies redeem shares to
make benefit or surrender payments under the terms of the VA or VLI contract.
Redemptions are processed on any day on which the Trust is open for business and
are effected at net asset value next determined after the redemption order, in
proper form, is received by the Trust or its agent. The net asset value per
share of each Fund is determined once daily, as of 4:00 p.m. Eastern time on
each business day the Exchange is open and on such other days as the Trustees
determine, and on any other day during which there is a sufficient degree of
trading in a Fund's portfolio securities that the net asset value of the Fund is
materially affected by changes in the value of portfolio securities.
The Trust may suspend the right of redemption only under the following
unusual circumstances: (1) when the Exchange is closed (other than weekends and
holidays) or trading is restricted; (2) when an emergency exists, making
disposal of portfolio securities or the valuation of net assets not reasonably
practicable; or (3) during any period when the SEC has by order permitted a
suspension of redemptions for the protection of shareholders.
DIVIDENDS
All dividends payable by a Fund are distributed at least annually to the
separate accounts of Participating Insurance Companies and will be automatically
reinvested in additional shares of such Fund. Dividends and other distributions
made by the Funds to such separate accounts are taxable, if at all, to the
Participating Insurance Companies; they are not currently taxable to the VA or
VLI owners.
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TAX STATUS
Each Fund is treated as a separate entity for federal income tax purposes
and is not combined with the Trust's other Funds. It is the intention of each
Fund to qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and meet all other
requirements necessary for it to be relieved of federal income taxes on that
part of its net investment income and net capital gains distributed to its
shareholders. Each Fund intends to distribute all of its net investment income
and net capital gains to its shareholders.
For a discussion of the tax consequences of VA or VLI contracts, refer to
the prospectus of the VA or VLI contract offered by the Participating Insurance
Company. VA or VLI contracts purchased through insurance company separate
accounts provide for the accumulation of all earnings from interest, dividends,
and capital appreciation without current federal income tax liability to the
owner. Depending on the VA or VLI contract, distributions from the contract may
be subject to ordinary income tax and, in addition, a 10% penalty tax on
distributions before age 59 1/2. Only the portion of a distribution attributable
to income on the investment in the contract is subject to federal income tax.
Investors should consult with competent tax advisers for a more complete
discussion of possible tax consequences in a particular situation.
Section 817(h) of the Code provides that investments of a separate account
underlying a VA or VLI contract (or the investments of a mutual fund, the shares
of which are owned by the VA or VLI separate account) must be "adequately
diversified" in order for the VA or VLI contract to be treated as an annuity for
tax purposes. The Treasury Department has issued regulations prescribing these
diversification requirements. Each Fund intends to comply with these
requirements. If a separate account underlying a VA or VLI contract were not
adequately diversified, the owner of such VA or VLI contract would be
immediately subject to tax on the earnings allocable to the contract. Additional
information about the tax status of the Funds is provided in the SAI.
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 advisor, 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. FUNB and
its affiliates 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 FUNB and its affiliates 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
the Funds by their customers. If FUNB or its affiliates 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.
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GENERAL INFORMATION
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CUSTODIAN, AND TRANSFER AND DIVIDEND PAYING AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02109 (the "Custodian") acts as custodian of the assets of the
Trust. Evergreen Service Company, 200 Berkeley Street, Boston, Massachusetts
02116 acts as the transfer agent and dividend disbursing agent for the Trust and
in doing so performs certain bookkeeping, data processing and administrative
services for the Trust and each Fund.
EXPENSES OF THE TRUST
Each Fund bears all expenses of its operations other than those incurred by
Evergreen Asset under its investment advisory agreement, and EIS under its
administration agreement with the Trust. In particular, the Funds pay investment
advisory fees, administrative fees, custodian fees and expenses, legal,
accounting and auditing fees, brokerage fees, interest and taxes, registration
fees and expenses, expenses of the transfer and dividend disbursing agent, the
compensation and expenses of Trustees who are not otherwise affiliated with the
Trust and Evergreen Asset, 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.
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DESCRIPTION OF SHARES
The Declaration of Trust permits the Trustees to establish and designate
series or classes in addition to the Funds. Each share of any series or class
represents an equal proportionate share in the net assets of that series or
class with each other share of that series or class. The Trustees may divide or
combine the shares of any series or class into a greater or lesser number of
shares of that series or class without thereby changing the proportionate
interests in the assets of that series or class. Upon liquidation of a
particular series or class, the shareholders of that series or class shall be
entitled to share pro rata in the net assets of such series or class available
for distribution to shareholders.
Any inquiries regarding the Trust should be directed to the Trust at the
telephone number or address shown on the cover page of this prospectus. All
inquiries regarding the VA or VLI contracts should be directed to the
Participating Insurance Company, as indicated in the VA or VLI prospectus
accompanying this prospectus.
PERFORMANCE
From time to time, the Trust may advertise the "average annual or
cumulative total return" of the Funds and may compare the performance of the
Funds with that of other mutual funds with similar investment objectives as
listed in rankings prepared by Lipper Analytical Services, Inc., or similar
independent services monitoring mutual fund performance, and with appropriate
securities or other relevant indices. The "average annual total return" of a
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.
GENERAL
Independent Auditors. KPMG Peat Marwick LLP, 99 High Street, Boston,
Massachusetts 02110, serves as the independent public accountants of the
Trust.
Legal Counsel. Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036, acts as counsel for the Trust.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be adversely
affected if the computer systems used by the Funds' investment advisers and the
Funds' other service providers do not properly process and calculate daterelated
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Funds' investment advisors 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 amended prospectus and the SAI, which has been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statement filed by the Trust with the SEC under the
Securities Act of 1933. Copies of the Registration Statement may be obtained at
a reasonable charge from the SEC or may be examined, without charge, at the
offices of the SEC in Washington, D.C.
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INVESTMENT ADVISOR
Evergreen Asset Management Corp., 2500 Westchester Avenue, Purchase, New York
10577
Evergreen VA Fund
Evergreen VA Growth and Income Fund
Evergreen VA Foundation Fund
CUSTODIAN
State Street Bank and Trust Company, P.O. 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
97806_____________________________________________________________537769RV3
