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. 9 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 12 [X]
EVERGREEN VARIABLE ANNUITY 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)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] 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)(1)
[ ] on (date) pursuant to paragraph (a)(1)
EVERGREEN VARIABLE ANNUITY TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 9
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 9 to Registrant's 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 Aggressive Growth Fund,
Evergreen VA Fund, Evergreen VA Foundation Fund, Evergreen Global
Leaders Fund, Evergreen VA Growth and Income Fund, Evergreen VA
International Growth Fund, Evergreen VA Masters Fund, Evergreen VA
Small Cap Equity Income Fund and Evergreen VA Strategic
Income Fund is contained herein.
PART B
------
Statement of Additional Information for Evergreen VA Aggressive
Growth Fund, Evergreen VA Fund, Evergreen VA Foundation Fund,
Evergreen Global Leaders Fund, Evergreen VA Growth and Income Fund,
Evergreen VA International Growth Fund, Evergreen VA Masters Fund,
Evergreen VA Small Cap Equity Income Fund and Evergreen VA Strategic
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.
Part A Location in Prospectus
Item 1. Cover Page Cover Page
Item 2. Synopsis and Fee Table Overview of the Funds
Item 3. Condensed Financial Information Financial Highlights
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 Sale and Redemption of Shares;
Being Offered Participating Insurance Companies
Item 8. Redemption or Repurchase Sale and Redemption of Shares;
Participating Insurance Companies
Item 9. Pending Legal Proceedings Not Applicable
Location in Statement of
Part B 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 General Information; Fundamental
Policies 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 Investment Advisers;
Item 16. Investment Advisory and Additional Sale and Redemption
Other Services Information
Item 17. Brokerage Allocation Brokerage
Item 18. Capital Stock and Other Securities Additional Sale and Redemption
Information
Item 19. Purchase, Redemption and Additional Sale and Redemption
Pricing of Securities Information; Net Asset Value
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
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>
Evergreen Variable Annuity Funds
Evergreen VA Aggressive Growth Fund
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Evergreen VA International Growth Fund
Evergreen VA Masters Fund
Evergreen VA Small Cap Equity Income Fund
Evergreen VA Strategic Income Fund
Prospectus, May 1, 1999
The Securities and Exchange Commission has not determined that the information
in this prospectus is accurate or complete, nor has it approved or disapproved
these securities. Anyone who tells you otherwise is committing a crime.
<PAGE>
FUND SUMMARIES: In general, Funds included in
Evergreen VA Aggressive Growth this prospectus seek to provide
Fund 4 investors with a selection of
Evergreen VA Fund 6 investment alternatives which
Evergreen VA Foundation Fund 8 seek to provide capital growth,
Evergreen VA Global Leaders income and diversification.
Fund 10 Shares of the Funds are sold
Evergreen VA Growth and only to separate accounts
Income Fund 12 funding variable annuity
Evergreen VA International contracts and variable life
Growth Fund 14 insurance policies issued by
Evergreen VA Masters Fund 16 life insurance companies. For
Evergreen VA Small Cap Equity further information about these
Income Fund 18 contracts and policies, please
Evergreen VA Strategic Income see the separate prospectuses
Fund 20 issued by the participating life
insurance companies.
GENERAL INFORMATION: Fund Summaries Key
The Funds' Investment Each Fund's summary is organized
Advisors 22 around the following basic
The Funds' Portfolio Managers 22 topics and questions:
Calculating the Share Price 23
Participating Insurance INVESTMENT GOAL
Companies 23 What is the Fund's financial
How to Buy and Redeem Shares 23 objective? You can find
Other Services 23 clarification on how the Fund
The Tax Consequences of seeks to achieve its objective
Investing in the Funds 24 by looking at the Fund's
Fees and Expenses of the strategy and investment
Funds 24 policies. The Fund's Board of
Financial Highlights 25 Trustees can change the
investment objective without a
Other Fund Practices 30 shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about
trying to meet its goals? What
types of investments does it
contain? What style of investing
and investment philosophy does
it follow? Does it have limits
on the amount invested in any
particular type of security?
RISK FACTORS
What are the specific risks for
an investor in the Fund?
PERFORMANCE
How well has the Fund performed
in the past year? Since inception?
<PAGE>
OVERVIEW
Here are the most important
Variable factors that may affect the
Annuity Funds value of your investment:
Shares of the Funds are sold Stock Market Risk
only to separate accounts Your investment in a Fund that
funding variable annuity invests in stocks will be
contracts and variable life affected by general economic
insurance policies issued by conditions such as prevailing
life insurance companies. economic growth, inflation and
Evergreen Variable Annuity Funds interest rates. When economic
seek to provide investors with a growth slows, or interest or
selection of investment inflation rates increase,
alternatives which seek to securities tend to decline in
provide capital growth, income value. Such events also could
and diversification. cause companies to decrease the
dividends they pay. If these
Following this overview, you events were to occur, the value
will find information on each of and dividend yield and total
Variable Annuity Fund's specific return earned on your investment
investment strategies and risks. would likely decline. Even if
general economic conditions do
Risk Factors For All Mutual not change, your investment may
Funds decline in value if particular
Please remember that mutual fund industries, issuers or sectors
shares are: your Fund invests in do not
- not guaranteed to achieve perform well.
their goal
- not insured, endorsed or Interest Rate Risk
guaranteed by the FDIC, a bank When interest rates go up, the
or any government agency value of debt securities tends
subject to investment to fall. If your Fund invests a
risks, including possible loss significant portion of its
of your original investment. portfolio in debt securities or
dividend-paying stocks and interest rates
Like most investments, your rise, then the value of and total return
investment in an Evergreen earned on your investment may
Variable Annuity Fund could decline. When interest rates go
fluctuate significantly in value down, interest earned by your
over time and could result in a Fund on its investments may also
loss of money. decline, which could cause the
Fund to reduce the dividends it
pays.
Credit Risk
The value of a debt security is
directly affected by the issuer's ability
to repay principal and pay interest
on time. If your Fund invests in
debt securities, then the value
of and total return earned on
your investment may decline if
an issuer fails to pay an
obligation on a timely basis.
Small Company Risk
If your Fund invests in small
companies, your investment may
be subject to special risks
associated with investing in
such companies. Smaller, less
established companies tend to be
more dependent on individual
managers and limited products
and product lines.
Additionally, securities issued
by small companies also tend to
fluctuate in value more
dramatically than those of
larger companies.
Foreign Investment Risk
If your Fund invests in non-U.S.
securities it could be exposed
to certain unique risks of
foreign investing. For example,
political turmoil and economic
instability in the countries in
which the Fund invests could
adversely affect the value of
your investment. In addition, if
the value of any foreign
currency in which the Fund's
investments are denominated
declines relative to the U.S.
dollar, the value of your
investment in the Fund may
decline as well. Certain foreign
countries have less developed
and less regulated securities
markets and accounting systems
than the U.S. This may make it
harder to get accurate
information about a security or
company, and increase the
likelihood that an investment
will not perform as well as expected.
<PAGE>
VA Aggressive Growth Fund
INVESTMENT GOAL
The Fund seeks long-term capital
FUND FACTS: appreciation.
Goal:
Long-Term Capital Appreciation
Principal Investments: INVESTMENT STRATEGY
Common Stocks The Fund seeks to achieve its
Convertible Securities goal by investing in emerging
growth companies and larger,
Investment Advisor: more well-established companies,
Evergreen Investment which are viewed by the manager
Management as having above-average
appreciation potential. The
Portfolio Manager: Fund invests at least 65% of its
Harold J. Ireland, Jr. assets in common stocks, or
securities convertible into
NASDAQ Symbol: common stocks, of (1) companies
None that are in the less seasoned
stage of development but are
Dividend Payment Schedule: expected to grow over the long
Annually term, and/or (2) established
companies that, in the opinion
of the Fund's manager, have
growth potential similar to that
of companies in the less
seasoned stage of development.
The Fund may also invest up to
35% of its assets in investment
grade corporate bonds, U.S.
Government securities,
commercial paper, certificates
of deposit and repurchase
agreements.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Small Company Risk
In addition, your investment may
be subject to special risks
associated with investing in
securities issued by emerging
growth companies. These
companies are typically in a
less seasoned stage of
development. This could lead to
wide fluctuations in the
price/value of the securities
due to limited financing
alternatives, limited management
depth, intense competition from
larger companies, or limited
trading liquidity.
<PAGE>
PERFORMANCE
The following charts show how the
Fund has performed in the past.
Returns reflect reinvestment of
all dividends and distributions
and fees, but do not reflect
contract charges assessed by
participating insurance
companies. Past performance is
not an indication of future
results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
the Fund's inception on 3/6/97.
It should give you a general idea
of how the Fund's return has
varied from year-to-year.
Year-by-Year Total Return (%)
1998
22.25%
Best Quarter: 4th Quarter 1998
+23.70%
Worst Quarter:3rd Quarter 1998
- -10.67%
The next table lists the Fund's
average annual total return over
the past year and since inception
(through 12/31/98). This table is
intended to provide you with some
indication of the risks of
investing in the Fund. At the
bottom of the table you can
compare this performance with the
Nasdaq Industrials Index, which
is an unmanaged market index
tracking the performance of
almost 3,000 enterprises engaged
in agriculture, mining,
construction, electronics
manufacturing, services and
public administration. The
Nasdaq Industrials Index is not
an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 22.25% N/A N/A 18.24%
Nasdaq
Industrials 6.82% N/A N/A 9.45%
<PAGE>
VA Fund
INVESTMENT GOAL
The Fund seeks capital
appreciation.
FUND FACTS:
Goal:
Capital Appreciation
Principal Investments:
Common Stocks INVESTMENT STRATEGY
Convertible Securities The Fund invests primarily in
common stocks of companies with
innovative and entrepreneurial
Investment Advisor: management and that exhibit
Evergreen Asset Management sound financial business
Corp. practices.
The Fund may invest in
Portfolio Managers: securities of relatively well-
Stephen A. Lieber known and large companies as
Nola Maddox Falcone well as small and medium-sized
specialty companies. The Fund
NASDAQ Symbol: seeks long-term gains from
EVEFX the companies in which the
Fund invests. Securities are
selected based on a combination
Dividend Payment Schedule: of comparative undervaluation
Annually relative to growth potential
and/or merger/acquisition price.
The Fund may also invest to a
lesser extent in preferred
stocks that offer an opportunity
for capital appreciation.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Small Company Risk
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year.
Year-by-Year Total Return (%)
1997 1998
37.16% 6.44%
Best Quarter: 4th Quarter 1998
+18.02%
Worst Quarter:3rd Quarter 1998
- -17.20%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the Russell
2000 Index and the Nasdaq
Composite. The Russell 2000 is
an unmanaged index tracking the
performance of 2000 publicly-
traded U.S. stocks. It is often
used to indicate the performance
of smaller company stocks. The
Nasdaq Composite is market-value
weighted index that measures all
domestic and non-U.S.-based
common stocks listed on the
Nasdaq stock market. Neither
index is an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 6.44% N/A N/A 20.00%
Russell 2000 -2.55% N/A N/A 11.13%
Nasdaq
Composite 39.63% N/A N/A 27.49%
<PAGE>
VA Foundation Fund
INVESTMENT GOAL
FUND FACTS: The Fund seeks, in order of
priority, reasonable income,
Goals: conservation of capital and
Reasonable Income capital appreciation.
Conservation of Capital
Capital Appreciation
Principal Investments:
Common and Preferred Stocks
Fixed Income Securities INVESTMENT STRATEGY
The Fund invests principally in
Investment Advisor: a combination of common stocks,
Evergreen Asset Management securities convertible into or
Corp. exchangeable for common stocks
and fixed income securities.
Portfolio Manager: Investments in commons stocks
Stephen A. Lieber focus on those that pay
Irene D. O'Neill dividends and have the potential
for capital appreciation.
NASDAQ Symbol: Common stocks are selected based
EVFFX on a combination of financial
strength and estimated growth
potential. Fixed income
Dividend Payment Schedule: securities are selected based on
Annually the projections of
interest rates, varying amounts
and maturities in order to
achieve capital protection and,
when possible, capital
appreciation. The Fund will
emphasize fixed income
securities that it believes will
not be subject to significant
fluctuations in value. Under
normal circumstances, the Fund
anticipates that at least 25% of
its net assets will consist of
fixed income securities. The
corporate debt obligations
purchased by the Fund will be
rated A or higher by Standard &
Poor's Ratings Services and
Moody Investor's Service, Inc.
The Fund is not managed with a
targeted maturity.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
<PAGE>
PERFORMANCE
The following charts shows how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year.
Year-by-Year Total Return (%)
1997 1998
27.80% 10.56%
Best Quarter: 2nd Quarter 1997
+13.26%
Worst Quarter:3rd Quarter 1998
- -7.37%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the S&P 500
Index and the Lipper Balanced
Fund Average. The S&P 500 is an
unmanaged index tracking the
performance of 500 publicly-
traded U.S. stocks and is often
used to indicate the performance
of the overall stock market.
The Lipper Balanced Fund Average
reflects funds whose primary
objectives are to conserve
principal by maintaining at all
times a balanced portfolio of
both stocks and bonds. Neither
index is an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 10.56% N/A N/A 18.77%
S&P 500 28.58% N/A N/A 28.09%
Lipper Balanced
Fund Average 13.48% N/A N/A 15.76%
<PAGE>
VA Global Leaders Fund
INVESTMENT GOAL
The Fund seeks to provide
investors with long-term capital
FUND FACTS: growth.
Goal:
Long-term Capital Growth
Principal Investments:
U.S. and non-U.S. Equity INVESTMENT STRATEGY
Securities The Fund normally invests at
least 65% of its assets in a
Investment Advisor: diversified portfolio of U.S.
Evergreen Asset Management and non-U.S. equity securities
Corp. of companies located in the
world's major industrialized
Portfolio Managers: countries. The Fund will make
Stephen A. Lieber investments in no less than
Edwin D. Miska three countries, which may
include the U.S., but may invest
NASDAQ Symbol: more than 25% of its total
None assets in one country. The
Fund will screen the largest companies
Dividend Payment Schedule: in major industrialized countries.
Annually The Fund invests only in the
best 100 companies which are selected
based on qualitative and quantitative
criteria such as high return on
equity, consistent earnings
growth and established market
presence.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
Stock Market Risk
Foreign Investment Risk
In addition, if more than 25% of
the Fund's total assets is
invested in one country, the
value of the Fund's shares may
be subject to greater
fluctuation due to the lesser
degree of diversification across
countries and the fact that the
securities market of certain
countries may be subject to
greater risks and volatility
than that which exists in the
United States.
<PAGE>
PERFORMANCE
The following charts show how the
Fund has performed in the past.
Returns reflect reinvestment of
all dividends and distributions
and fees, but do not reflect
contract charges assessed by
participating insurance
companies. Past performance is
not an indication of future
results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/6/97. It
should give you a general idea of
how the Fund's return has varied
from year-to-year.
Year-by-Year Total Return (%)
1998
18.92%
Best Quarter: 4th Quarter 1998
+21.86%
Worst Quarter:3rd Quarter 1998
- -14.25%
The next table lists the Fund's
average annual total return over
the past year and since inception
(through 12/31/98). This table is
intended to provide you with some
indication of the risks of
investing in the Fund. At the
bottom of the table you can
compare this performance with the
Morgan Stanley Capital
International World Index
(MSCIWI). The MSCIWI is an
unmanaged market index that
represents the 23 developed
markets of the world in a variety
of industries. It is not an
actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 18.92% N/A N/A 15.19%
MSCIWI 24.34% N/A N/A 20.83%
<PAGE>
VA Growth and Income Fund
INVESTMENT GOAL
The Fund seeks capital growth in
the value of its shares and
FUND FACTS: current income.
Goals:
- - Capital Growth
- - Current Income
Principal Investment:
- - Common Stocks INVESTMENT STRATEGY
The Fund invests primarily in
Investment Advisor: common stocks of established
- - Evergreen Asset Management companies that the Fund
Corp. considers undervalued in the
marketplace and which have a
Portfolio Manager: trigger, or catalyst, that will
- - Philip M. Foreman bring the stock's price into
line with its actual or
NASDAQ Symbol: potential value. The catalysts
EVGIX may include new products, new
management, changes in
Dividend Payment Schedule: regulation and/or restructuring
Annually potential.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not indication of
future results.
The chart below shows the
percentage gain or loss of the
Fund in each calendar year since
its inception in 3/1/96. It
should give you a general idea
of how the Fund's return has
varied from year-to-year.
Year-by-Year Total Return (%)
1997 1998
34.66% 4.77%
Best Quarter: 2nd Quarter 1997
+17.25%
Worst Quarter:3rd Quarter 1998
- -15.19%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the S&P 500
Index and the Lipper Growth and
Income Fund Average. The S&P
500 is an unmanaged index
tracking the performance of 500
publicly-traded U.S. stocks and
is often used to indicate the
performance of the overall stock
market. The Lipper Growth and
Income Fund Average reflects
funds that combine a growth-of-
earnings orientation and an
income requirement for level
and/or rising dividends.
Neither index is an actual
investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/96
Fund 3/1/96 4.77% N/A N/A 20.05%
S&P 500 28.58% N/A N/A 28.09%
Lipper Growth
& Income
Fund Average 15.61% N/A N/A 20.59%
<PAGE>
VA International Growth Fund
INVESTMENT GOAL
The Fund seeks long-term growth
of capital and secondarily,
modest income.
FUND FACTS:
Goals: INVESTMENT STRATEGY
- - Long-Term Capital Growth The Fund invests primarily in
- - Modest Income equity securities issued by
established, quality non-U.S.
Principal Investment: companies located in countries
- - Equity Securities with developed markets. The
Fund may also invest in emerging
Investment Advisor: markets and in securities of
- - Evergreen Investment companies in the formerly
Management Company communist countries of Eastern
Europe. The Fund normally
Portfolio Manager: invests at least 65% of its
- - Gilman C. Gunn total assets in the securities
of companies in at least three
NASDAQ Symbol: different countries (other than
None the U.S.). The Fund may also
invest in debt securities,
including up to 10% of its
Dividend Payment Schedule: assets in below investment grade
Annually debt securities.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
Below investment grade bonds are
commonly referred to as "junk
bonds" because they are usually
backed by issuers of less proven
or questionable financial
strength. Such issuers are more
vulnerable to financial setbacks
and less certain to pay interest
and principal than issuers of
bonds offering lower yields and
risk. Markets may react to
unfavorable news about issuers
of below investment grade bonds
causing sudden and steep
declines in value.
In addition, the Fund may also
be subject to an emerging
markets risk. An "emerging
market" is any country
considered to be emerging or
developing, has a relatively low
gross national product, but the
potential for rapid growth
(which can lead to instability).
Investing in securities of
emerging countries has many
risks. Emerging countries are
generally small and rely heavily
on international trade and could
be adversely effected by the
economic conditions in the
countries with which they trade.
There is also a possibility of a
change in the political climate,
nationalization, diplomatic
developments (including war),
and social instability. Such
countries may experience high
levels of inflation or deflation
and currency devaluation.
Investments in emerging markets
are considered to be
speculative.
<PAGE>
PERFORMANCE
Since the Fund commenced
operations on 8/17/98, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Masters Fund
INVESTMENT GOAL
FUND FACTS: The Fund seeks long-term capital
appreciation.
Goal:
- - Long-Term Capital Appreciation
Principal Investment:
- - Equity Securities
Investment Advisor: INVESTMENT STRATEGY
- - Evergreen Investment The Fund's investment program is
Management based on the Manager of Managers
strategy of the investment
Portfolio Manager: advisor which allocates the
- - By committee of EIM Managers Fund's portfolio assets on an
approximately equal basis among
NASDAQ Symbol: four investment management
None organizations or sub-advisors --
each of which employs a
Dividend Payment Schedule: different investment style.
Annually
The Fund's current sub-advisors
are:
Evergreen Asset Management
Corp. (EAMC)
MFS Institutional Advisors,
Inc. (MFS)
OppenheimerFunds, Inc.
(Oppenheimer)
Putnam Investment
Management, Inc. (Putnam)
The following investment styles
will be applied by the sub-
advisors to the segment of the
Fund's portfolio for which that
sub-advisor is responsible.
EAMC's segment of the portfolio
will primarily be invested in
equity securities of U.S. and
foreign companies with market
capitalizations between
approximately $500 million and
$5 billion. EAMC invests in
companies it believes the market
has temporarily undervalued in
relation to such factors as the
company's assets, cash flow and
earnings potential. EAMC will
use a value-oriented investment strategy.
MFS manages its segment of the
portfolio by primarily investing
in equity securities of
companies with market
capitalizations between
approximately $500 million and
$5 billion. Such companies
generally would be expected to
show earnings growth over time
that is well above the growth
rate of the overall economy and
the rate of inflation, and would
have the products, management
and market opportunities which
are usually necessary to
continue sustained growth. MFS
may invest up to 25% (and
generally expects to invest
between 0% and 10%) of its
segment of the Fund's assets in
foreign securities (not
including American Depositary
Receipts), including foreign
growth securities, which are not
traded on a U.S. exchange. MFS
will use a growth-oriented investment
strategy.
Oppenheimer manages its segment
of the portfolio by investing
primarily in equity securities
of those companies with market
capitalizations over $5 billion;
however, Oppenheimer may, when
it deems advisable, invest in
the equity securities of mid-cap
and small-cap companies. In
purchasing portfolio securities,
Oppenheimer may invest without
limit in foreign securities and
may, to a limited degree, invest
in non-convertible debt
securities and preferred stocks
which have the potential for
capital appreciation.
Oppenheimer will use a blended
growth- and value-oriented investment
strategy.
Putnam's segment of the
portfolio will primarily be
invested in equity securities of
U.S. and foreign issuers with
market capitalizations of $2
billion or more. Putnam may
also purchase non-convertible
debt securities which offer the
opportunity for capital
appreciation. In the evaluation
of a company, more consideration
is given to growth potential
than to dividend income. Putnam
will use a growth-oriented strategy.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Interest Rate Risk
- Credit Risk
- Small Company Risk
- Foreign Securities Risk
<PAGE>
PERFORMANCE
Since the fund commenced
operations on 2/1/99, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Small Cap Equity Income Fund
INVESTMENT GOAL
The Fund seeks current income
and capital growth in the value
of its shares.
FUND FACTS:
Goal:
- - Current Income
- - Capital Growth
Principal Investments: INVESTMENT STRATEGY
- - Small-Cap Common Stocks The Fund invests primarily in
- - Small-Cap Convertible common stocks and convertible
Preferred Stocks preferred stocks of small
companies (less than $1 billion
Investment Advisor: in market capitalization). The
- - Evergreen Asset Management Fund seeks to limit the
Corp. investment risk of small company
investing by seeking stocks that
Portfolio Manager: produce regular income and trade
- - Nola Maddox Falcone below what the manager considers
- - Jordan D. Alexander their intrinsic value. The Fund
looks specifically for various
NASDAQ Symbol: growth triggers, or catalysts,
None that will bring the stock's
price into line with its actual
or potential value, such as new
Dividend Payment Schedule: products, new management,
Annually changes in regulation and/or
restructuring potential.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Stock Market Risk
- Small Company Risk
- Interest Rate Risk
<PAGE>
PERFORMANCE
Since the Fund commenced
operations on 5/1/98, total
return information is not yet
available for a full calendar
year.
<PAGE>
VA Strategic Income Fund
INVESTMENT GOAL
The Fund seeks high current
income from interest on debt
FUND FACTS: securities. Secondarily, the
Fund considers potential for
Goals: growth of capital in selecting
- - High Current Income securities.
- - Capital Growth
Principal Investment:
- -Domestic High-Yield Bonds
- -Foreign Securities INVESTMENT STRATEGY
- -U.S. Government Securities The Fund intends to allocate its
assets principally between
Fixed Income Securities eligible domestic high-yield,
high-risk bonds and debt
Investment Advisor: securities (which may be
- - Evergreen Investment denominated in U.S. dollars or
Management Company in non-U.S. currencies) of
foreign governments and foreign
Portfolio Manager: corporations. This allocation
- - Prescott B. Crocker will be made on the basis of the
investment advisor's assessment
NASDAQ Symbol: of global opportunities for high
EVAYX income and high investment
return. The Fund may invest
100% of its assets in U.S.
Dividend Payment Schedule: government securities, including
Annually 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 Fund's manager takes
an aggressive approach to
investing but seeks to control
risk through diversification,
credit analysis, economic
analysis, interest rate
forecasts and review of sector
and industry trends.
The Fund intends to sell a
portfolio investment when the
value of the investment reaches
or exceeds its estimated fair
value, when the issuer's
investment fundamentals begin to
deteriorate, when the investment
no longer appears to meet the
Fund's investment objective,
when the Fund must meet
redemptions, or for other
reasons which the portfolio
manager deems necessary.
The Fund may invest in high
quality money market instruments
in response to adverse economic,
political or market conditions.
This strategy is inconsistent
with the Fund's principal
investment strategy and
investment goal, and if employed
could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is
subject to the risks discussed
in the "Overview" on
page 1 under the headings:
- Interest Rate Risk
- Credit Risk
- Foreign Investment Risk
In addition, the Fund
principally invests in below
investment grade bonds, commonly
referred to as "junk bonds"
because they are usually backed
by issuers of less proven or
questionable financial strength.
Such issuers are more vulnerable
to financial setbacks and less
certain to pay interest and
principal than issuers of bonds
offering lower yields and risk.
Markets may react to unfavorable
news about issuers of below
investment grade bonds causing
sudden and steep declines in
value.
<PAGE>
PERFORMANCE
The following charts show how
the Fund has performed in the
past. Returns reflect
reinvestment of all dividends
and distributions and fees, but
do not reflect contract charges
assessed by participating
insurance companies. Past
performance is not an indication
of future results.
The chart below shows the
percentage gain or loss for the
Fund in each calendar year since
its inception on 3/6/97. It
should give you a general idea
of how the Fund's returns have
varied from year-to-year.
Year-by-Year Total Return (%)
1998
5.91%
Best Quarter: 1st Quarter 1998
+2.94%
Worst Quarter:4th Quarter 1998
+0.58%
The next table lists the Fund's
average annual total return over
the past year and since
inception (through 12/31/98).
This table is intended to
provide you with some indication
of the risks of investing in the
Fund. At the bottom of the
table you can compare this
performance with the Lehman
Brothers Government Bond Index.
The Lehman Brothers Government
Bond Index is an unmanaged
market index that tracks U.S.
agency debt issues and public
obligations of the U.S. Treasury
that have remaining maturities
of more than one year. It is
not an actual investment.
Average Annual Total Return
(for the period ended 12/31/98)
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/97
Fund 3/6/97 5.91% N/A N/A 6.16%
Lehman Brothers
Govt. Bond Index 9.85% N/A N/A 20.42%
<PAGE>
THE FUNDS' INVESTMENT ADVISORS manages over $_____billion in
The investment advisor manages a investment assets for ___of the
Fund's investments and Evergreen Funds. EIM is located
supervises its daily business at 201 South College Street,
affairs. There are three Charlotte, North Carolina 28288-
investment advisors for the 0630.
Evergreen Variable Annuity
Funds. All investment advisors Evergreen Investment Management
for the Evergreen Funds are Company (EIMC) is the investment
subsidiaries of First Union advisor to:
Corporation, the sixth largest - VA Strategic Income Fund
bank holding company in the - VA International Growth
United States, with over Fund
$_______ billion in consolidated EIMC has been managing mutual
assets as of __________. First funds and private accounts since
Union Corporation is located at 1932 and currently manages over
301 South College Street, $_____billion in investment
Charlotte, North Carolina 28288- assets for ___of the Evergreen
0013. Funds. EIMC is located at 200
Berkeley Street, Boston,
Evergreen Asset Management Massachusetts 02116-5034.
Corp. (EAMC) is the investment Year 2000 Compliance
advisor to: The investment advisors and
- VA Fund other service providers for the
- VA Foundation Fund Evergreen Funds are taking steps
- VA Global Leaders Fund to address any potential Year
- VA Growth and Income Fund 2000-related computer problems.
- VA Small Cap Equity Income However, there is some risk that
Fund these problems could disrupt the
EAMC, with its predecessors, has Funds' operations or financial
served as investment advisor to markets generally.
the Evergreen Funds since 1971,
and currently manages over European Currency Conversion
$_____billion in assets for Risk
___of the Evergreen Funds. EAMC Certain countries in Europe
is located at 2500 Westchester converted their different
Avenue, Purchase, New York currencies to a single, common
10577. currency on January 1, 1999. In
connection with this change,
Evergreen Investment Management investment advisors, mutual
(EIM) (formerly known as funds and their service
Capital Management Group, or providers have modified their
CMG), a division of First Union accounting and recordkeeping
National Bank, is the investment systems to handle the new
advisor to: currency. If a Fund invests in
- VA Aggressive Growth Fund foreign securities, your
- VA Masters Fund investment in the Fund may be
EIM has been managing money for adversely affected if these
over 50 years and currently technical modifications have not
been implemented properly. Also
the conversion to a single
currency may impair the markets
for securities denominated in
the currencies being eliminated,
which may also adversely impact
your investment.
<PAGE>
THE FUNDS' PORTFOLIO MANAGERS
VA Aggressive Growth Fund VA Growth and Income
The day-to-day management of the The day-to-day management of the
Fund is handled by Harold J. Fund is handled by Philip M.
Ireland, Jr. He is a Vice Foreman. Mr. Foreman joined
President of EIM and has been a EAMC in January 1999 as
portfolio manager at EIM since Portfolio Manager after seven
1995. Mr. Ireland also manages years as Senior Portfolio
Evergreen Aggressive Growth Manager at WM Advisors, Inc.
Fund. From 1983 to 1995, he Mr. Foreman has managed the Fund
worked for Palm Beach Capital since January 1999.
Management, Inc. as a Senior
Vice President and as a VA International Growth Fund
portfolio manager of ABT The day-to-day management of the
Emerging Growth Fund, the Fund is handled by Gilman C.
predecessor of Evergreen Gunn. Mr. Gunn joined EIMC in
Aggressive Growth Fund. Mr. 1991 as Senior Vice President -
Ireland has more than 30 years International and is currently
of investment experience. Senior Vice President and Chief
Investment Officer -
VA Fund International at EIMC. Mr. Gunn
The day-to-day management of the has managed Evergreen
Fund is handled by Stephen A. International Growth Fund since
Lieber and Nola Maddox Falcone, 1991. As head of the
CFA. Mr. Lieber is Chairman and International Team, Mr. Gunn has
Co-Chief Executive Officer of over 25 years of international
EAMC. He was a founding partner investment experience.
of Lieber & Company, the
original sponsor of the VA Small Cap Equity Income Fund
Evergreen Funds, when it was The day-to-day management of the
established in 1969. He has Fund is handled by Ms. Falcone
been with EAMC and its and Jordan D. Alexander, CFA.
predecessor since 1971 and has Mr. Alexander has been an
been in the investment assistant portfolio manager with
management profession since EAMC since September 1998. From
1952. Mr. Lieber has also 1995 to 1998, he was an
managed Evergreen Fund since its associate healthcare analyst
inception in 1970. Ms. Falcone with Paine Webber, Inc. Prior
is President and Co-Chief to that, he was a senior analyst
Executive Officer of EAMC. She with Arthur Andersen LLP. Ms.
joined Lieber & Company as Falcone has served as the
Senior Portfolio Manager in principal manager of Evergreen
1974, and was a General Partner Small Cap Equity Income Fund
from January 1981 to June 1994. since 1993.
VA Foundation Fund
The day-to-day management of the VA Strategic Income Fund
Fund is handled by Mr. Lieber The day-to-day management of the
and Irene D. O'Neill, CFA. Ms. Fund is handled by Prescott B.
O'Neill has over 19 years of Crocker, Senior Vice President,
investment management experience Senior Portfolio Manager, and
and has been associated with head of the High Yield Bond Team
EAMC and its predecessor since at EIMC. Mr. Crocker joined
1981. Mr. Lieber has managed EIMC in 1997. From 1993 until
Evergreen Foundation Fund since he joined EIMC, he held various
its inception in 1990. positions at Boston Security
Counsellors, including President
VA Global Leaders Fund and Chief Investment Officer,
The day-to-day management of the and was Managing Director and
Fund is handled by Mr. Lieber Portfolio Manager at Northstar
and Edwin D. Miska. Mr. Miska Investment Management. Mr.
has been an analyst with EAMC Crocker has over 25 years of
and its predecessor since 1986. experience in fixed income
In 1995 he was named co- investment management.
portfolio manager, along with
Mr. Lieber, of Evergreen Global
Leaders Fund.
<PAGE>
A Masters Fund The investment advisor
UBJECT TO THE SUPERVISION OF continuously monitors the
IM, EACH SUB-ADVISOR LISTED performance and investment
ELOW MANAGES A SEGMENT OF THE styles of the Fund's sub-
UND'S PORTFOLIO IN ACCORDANCE advisors and from time to time
ITH THE FUND'S INVESTMENT may recommend changes of sub-
BJECTIVE AND POLICIES, MAKES advisors based on factors such
NVESTMENT DECISIONS FOR THE as changes in a sub-advisor 's
EGMENT, AND PLACES ORDERS TO investment style or a departure
URCHASE AND SELL SECURITIES FOR by a sub-advisor from the
HE SEGMENT. THE FUND PAYS NO investment style for which it
IRECT FEES TO ANY OF THE SUB- had been selected, a
DVISORS. THE FOUR SUB-ADVISORS deterioration in a sub-advisor's
OF THE FUND ARE: performance relative to that of
other investment management
EAMC is described on page 22. firms practicing a similar
style, or adverse changes in its
MFS Institutional Advisors, Inc. ownership or personnel.
500 Boylston Street, Boston,
Massachusetts 02116, is One segment may be larger or
America's oldest mutual fund smaller at various times than
organization. As of December other segments, but the
31, 1998, MFS managed more than investment advisor will not
$____ billion on behalf of over reallocate assets among the
___ million investor accounts. segments to reduce these
differences in size until the
OppenheimerFunds, Inc. Two assets allocated to one sub-
World Trade Center, New York, advisor either exceeds 35% or is
New York 10048, has operated as less than 15% of the Fund's
an investment advisor since average daily net assets for a
1959. As of December 31, 1998, period of three consecutive
Oppenheimer and its subsidiaries months. In such event the
managed investment companies
with assets of more than $___ investment advisor may, but is
billion and with more than ___ not obligated to, reallocate
million shareholder accounts. assets among sub-advisors to
provide for a more equal
Putnam Investment Management, distribution of the Fund's
Inc. One Post Office Square, assets.
Boston, Massachusetts 02109, has
been managing mutual funds since CALCULATING THE SHARE PRICE
1937. As of December 31, 1998, The value of one share of a
Putnam and its affiliates Fund, also known as the net
managed more than $____ billion asset value, or NAV, is
of assets. calculated on each day the New
York Stock Exchange is open as
Manager Oversight - EIM has of the time the Exchange closes
appointed a committee of (normally 4:00 p.m. Eastern
investment personnel which is time). We calculate the share
primarily responsible for price for each share by adding
overseeing the sub-advisors of up the total assets of the Fund,
the VA Masters Fund. subtracting all liabilities,
The investment advisor has then dividing the result by the
ultimate responsibility for the total number of shares
investment performance of the outstanding. Each security held
Fund. by a Fund is valued using the
most recent market quote for
that security. If no market
quotation is available for a
given security, we will price
that security at fair value
according to policies
established by the Fund's Board
of Trustees. Short-term
securities with maturities of 60
days or less will be valued on
the basis of amortized cost.
The price per share for a Fund
purchase or the amount received
for a Fund redemption is based
on the next price calculated
after the order is received and
all required information is
provided.
<PAGE>
PARTICIPATING INSURANCE
COMPANIES
THE FUNDS WERE ORGANIZED TO
SERVE AS INVESTMENT VEHICLES FOR PARTICIPATING INSURANCE
SEPARATE ACCOUNTS FUNDING COMPANIES PLACE ORDERS TO
VARIABLE ANNUITY CONTRACTS AND PURCHASE AND REDEEM SHARES OF
VARIABLE LIFE INSURANCE POLICIES THE FUNDS BASED ON, AMONG OTHER
ISSUED BY CERTAIN LIFE INSURANCE THINGS, THE AMOUNT OF PREMIUM
COMPANIES. THE FUNDS DO NOT PAYMENTS TO BE INVESTED AND THE
CURRENTLY FORESEE ANY AMOUNT OF SURRENDER AND TRANSFER
DISADVANTAGES TO THE HOLDERS OF REQUESTS (AS DEFINED IN THE
THE CONTRACTS OR POLICIES PROSPECTUS DESCRIBING THE
ARISING FROM THE FACT THAT THE VARIABLE ANNUITY CONTRACTS OR
INTERESTS OF HOLDERS OF THOSE VARIABLE LIFE INSURANCE POLICIES
CONTRACTS OR POLICIES MAY DIFFER ISSUED BY THE PARTICIPATING
DUE TO THE DIFFERENCE OF TAX INSURANCE COMPANIES) TO BE
TREATMENT AND OTHER EFFECTED ON THAT DAY PURSUANT TO
CONSIDERATIONS. NEVERTHELESS, THE CONTRACTS OR POLICIES.
THE TRUSTEES HAVE ESTABLISHED THE FUNDS DO NOT ASSESS ANY FEES
PROCEDURES FOR THE PURPOSE OF UPON PURCHASE OR REDEMPTION.
IDENTIFYING ANY IRRECONCILABLE HOWEVER, SURRENDER CHARGES,
MATERIAL CONFLICTS THAT MAY MORTALITY AND EXPENSE RISK FEES
ARISE AND TO DETERMINE WHAT AND OTHER CHARGES MAY BE
ACTION, IF ANY, WOULD BE TAKEN ASSESSED BY THE PARTICIPATING
IN RESPONSE THERETO. THE INSURANCE COMPANIES UNDER THE
VARIABLE ANNUITY CONTRACTS AND VARIABLE ANNUITY CONTRACTS OR
VARIABLE LIFE INSURANCE POLICIES VARIABLE LIFE INSURANCE
ARE DESCRIBED IN THE SEPARATE POLICIES. SUCH FEES ARE
PROSPECTUSES ISSUED BY THE DESCRIBED IN THE PROSPECTUS OF
PARTICIPATING INSURANCE SUCH CONTRACTS OR POLICIES.
COMPANIES. THE TRUST ASSUMES NO Timing of Proceeds
RESPONSIBILITY FOR SUCH NORMALLY, WE WILL SEND
PROSPECTUSES. REDEMPTION PROCEEDS ON THE NEXT
HOW TO BUY AND REDEEM SHARES BUSINESS DAY AFTER WE RECEIVE A
INVESTORS MAY NOT PURCHASE OR REQUEST; HOWEVER, WE RESERVE THE
REDEEM SHARES OF THE FUNDS RIGHT TO WAIT UP TO SEVEN
DIRECTLY, BUT ONLY THROUGH BUSINESS DAYS TO REDEEM ANY
VARIABLE ANNUITY CONTRACTS OR INVESTMENTS.
VARIABLE LIFE INSURANCE POLICIES OTHER SERVICES
OFFERED THROUGH SEPARATE Automatic Reinvestment of
ACCOUNTS OF PARTICIPATING Dividends
INSURANCE COMPANIES. INVESTORS For the convenience of
SHOULD REFER TO THE PROSPECTUS investors, all dividends and
OF THE VARIABLE ANNUITY capital gains are distributed to
CONTRACTS OR VARIABLE LIFE the separate accounts of
INSURANCE POLICIES FOR participating insurance
INFORMATION ON HOW TO PURCHASE companies and are automatically
SUCH CONTRACTS OR POLICIES, HOW reinvested, unless requested
TO SELECT SPECIFIC EVERGREEN otherwise.
VARIABLE ANNUITY FUNDS AS
INVESTMENT OPTIONS FOR THE
CONTRACTS OR POLICIES AND HOW TO
REDEEM FUNDS OR CHANGE
INVESTMENT OPTIONS.
THE SEPARATE ACCOUNTS OF THE
<PAGE>
THE TAX CONSEQUENCES OF
INVESTING IN THE FUNDS
Fund Distributions
Each Fund passes along the net addition, a 10% penalty tax on
income or profits it receives distributions before age 59 1/2.
from its investments. The Only the portion of a
Evergreen Variable Annuity Funds distribution attributable to
expect that any distributions to income on the investment in the
separate accounts will be exempt contract is subject to federal
from current federal income income tax. Investors should
taxation to the extent that such consult with competent tax
distributions accumulate in a advisors for a more complete
variable annuity contract or discussion of possible tax
variable life insurance policy. consequences in a particular
situation.
Dividends. The Fund pays a
yearly dividend from the
dividends, interest and other
income on the securities in
which it invests.
Capital Gains. When a mutual
fund sells a security it owns
for a profit, the result is a
capital gain. Evergreen
Variable Annuity Funds
generally distribute capital
gains at least once a year.
For a discussion of the tax
consequences of variable annuity
contracts or variable life
insurance policies, refer to the
prospectus of the variable
annuity contract or variable
life insurance policies offered
by the participating insurance
company. Variable annuity
contracts or variable life
insurance policies 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 variable
annuity contract or variable
life insurance policies,
distributions from the contract
or policy may be subject to
ordinary income tax and, in
<PAGE>
FEES AND EXPENSES OF THE FUNDS investment category. There are
Every mutual fund has fees and three things to remember about
expenses that are assessed expense ratios: 1) your total
either directly or indirectly. return in the Fund is reduced in
This section describes each of direct proportion to the fees;
those fees. 2) expense ratios can vary
greatly between funds and fund
Management Fee families, from under 0.25 % to
The management fee pays for the over 3.0%; and 3) a Fund's
normal expenses of managing the advisor may waive a portion of
fund, including portfolio the Fund's expenses for a period
manager salaries, research of time, reducing its expense
costs, corporate overhead ratio.
expenses and related expenses
and, in the case of VA Masters
Fund, sub-advisory fees.
Other Expenses
Other expenses include
miscellaneous fees from
affiliated and outside service
providers. These may include
legal, audit, custodial and
safekeeping fees, the printing
and mailing of reports and
statements, automatic
reinvestment of distributions
and other conveniences for which
the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the
Fund is called the expense
ratio. As a shareholder, you are
not charged these fees directly;
instead they are taken out
before the Fund's net asset
value is calculated, and are
expressed as a percentage of the
Fund's average daily net assets.
The effect of these fees is
reflected in the performance
results for that share class.
Because these fees are
"invisible," investors should
examine them closely, especially
when comparing one fund with
another fund in the same
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at
the results for one share in the
Funds - how much income it
earned, how much of this income
was passed along as a
distribution and how much the
return was reduced by expenses.
The tables for each Fund have
been derived from financial
information
audited by KPMG Peat Marwick
LLP, the Funds' independent
auditors. For a more complete
picture of the Funds' financial
statements, please see the
Funds' Annual Report as well as
the Statement of Additional
Information.
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
Aggressive Growth Fund 1998 1997*
- ------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year.............. $ 11.10 $ 10.00
------- -------
Income from investment operations
Net investment income#......................... (0.04) (0.06)
Net realized and unrealized gains or losses on
securities.................................... 2.51 1.16
------- -------
Total from investment operations................ 2.47 1.10
------- -------
Net asset value, end of year.................... $ 13.57 $ 11.10
------- -------
Total return (a)................................ 22.25% 11.00%
Ratios/supplemental data
Net assets, end of year (thousands)............. $ 4,039 $ 1,868
Ratios to average net assets:
Expenses....................................... 1.02% 1.06%+
Net investment income.......................... (0.33)% (0.74)%+
Portfolio turnover rate......................... 49% 39%
<CAPTION>
Year Ended December 31,
----------------------------
Evergreen Fund 1998 1997 1996**
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year.............. $ 14.89 $ 11.41 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#......................... 0.07 0.06 0.05
Net realized and unrealized gains or losses on
securities.................................... 0.86 4.15 1.44
------- ------- -------
Total from investment operations................ 0.93 4.21 1.49
------- ------- -------
Less distributions from
Net investment income.......................... 0 (0.05) (0.05)
Net realized gains............................. (0.51) (0.68) (0.03)
------- ------- -------
Total distributions to shareholders............. (0.51) (0.73) (0.08)
------- ------- -------
Net asset value, end of year.................... $ 15.31 $ 14.89 $ 11.41
------- ------- -------
Total return (a)................................ 6.44% 37.16% 14.90%
Ratios/supplemental data
Net assets, end of year (thousands)............. $45,820 $21,600 $10,862
Ratios to average net assets:
Expenses....................................... 1.01% 1.01% 1.00%+
Net investment income.......................... 0.49% 0.42% 0.87%+
Portfolio turnover rate......................... 16% 32% 6%
</TABLE>
+ Annualized.
* For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
** For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
1
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
Foundation Fund 1998 1997 1996*
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year................ $ 13.54 $ 11.31 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#........................... 0.35 0.26 0.16
Net realized and unrealized gains or losses on
securities...................................... 1.07 2.86 1.37
------- ------- -------
Total from investment operations.................. 1.42 3.12 1.53
------- ------- -------
Less distributions from
Net investment income............................ (0.26) (0.24) (0.16)
Net realized gains............................... (0.23) (0.65) (0.06)
------- ------- -------
Total distributions to shareholders............... (0.49) (0.89) (0.22)
------- ------- -------
Net asset value, end of year...................... $ 14.47 $ 13.54 $ 11.31
------- ------- -------
Total return (a).................................. 10.56% 27.80% 15.30%
Ratios/supplemental data
Net assets, end of year (thousands)............... $78,371 $31,840 $15,812
Ratios to average net assets:
Expenses......................................... 1.00% 1.01% 1.00%+
Net investment income............................ 2.44% 2.15% 2.70%+
Portfolio turnover rate........................... 10% 26% 12%
<CAPTION>
Year Ended
December 31,
----------------
Global Leaders Fund 1998 1997**
- -------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year................ $ 10.79 $ 10.00
------- -------
Income from investment operations
Net investment income#........................... 0.10 0.11
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions.................................... 1.94 0.77
------- -------
Total from investment operations.................. 2.04 0.88
------- -------
Less distributions from
Net investment income............................ (0.07) (0.06)
Net realized gains............................... 0 (0.03)
------- -------
Total distributions to shareholders............... (0.07) (0.09)
------- -------
Net asset value, end of year...................... $ 12.76 $ 10.79
------- -------
Total return (a).................................. 18.92% 8.80%
Ratios/supplemental data
Net assets, end of year (thousands)............... $ 9,583 $ 2,899
Ratios to average net assets:
Expenses......................................... 1.04% 1.05%+
Net investment income............................ 0.89% 1.15%+
Portfolio turnover rate........................... 12% 11%
</TABLE>
+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
2
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
Growth And Income Fund 1998 1997 1996*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year....... $ 15.29 $ 11.83 $ 10.00
------- ------- -------
Income from investment operations
Net investment income#.................. 0.16 0.08 0.06
Net realized and unrealized gains or
losses on securities................... 0.56 4.01 1.84
------- ------- -------
Total from investment operations......... 0.72 4.09 1.90
------- ------- -------
Less distributions from
Net investment income................... (0.13) (0.07) (0.06)
Net realized gains...................... (0.30) (0.56) (0.01)
------- ------- -------
Total distributions to shareholders...... (0.43) (0.63) (0.07)
------- ------- -------
Net asset value, end of year............. $ 15.58 $ 15.29 $ 11.83
------- ------- -------
Total return (a)......................... 4.77% 34.66% 19.00%
Ratios/supplemental data
Net assets, end of year (thousands)...... $60,576 $31,088 $14,484
Ratios to average net assets:
Expenses................................ 1.01% 1.01% 1.00%+
Net investment income................... 1.02% 0.59% 1.00%+
Portfolio turnover rate.................. 13% 18% 2%
<CAPTION>
Period Ended
International Growth Fund December 31, 1998**
- -------------------------------------------------------------
<S> <C>
Net asset value, beginning of period..... $ 10.00
-------
Income from investment operations
Net investment income#.................. 0.03
Net realized and unrealized gains or
losses on securities and foreign
currency related transactions.......... (0.64)
-------
Total from investment operations......... (0.61)
-------
Net asset value, end of period........... $ 9.39
-------
Total return (a)......................... (6.10)%
Ratios/supplemental data
Net assets, end of period (thousands).... $ 1,425
Ratios to average net assets:
Expenses................................ 1.02%+
Net investment income................... 1.05%+
Portfolio turnover rate.................. 59%
</TABLE>
+ Annualized.
* For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
** For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
3
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended
Small Cap Equity Income Fund December 31, 1998*
- ----------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period............... $ 10.00
-------
Income from investment operations
Net investment income#............................ 0.15
Net realized and unrealized gains or losses on
securities....................................... (0.45)
-------
Total from investment operations................... (0.30)
-------
Less distributions from
Net investment income............................. (0.11)
Net realized gains................................ (0.01)
-------
Total distributions to shareholders................ (0.12)
-------
Net asset value, end of period..................... $ 9.58
-------
Total return (a)................................... (2.86)%
Ratios/supplemental data
Net assets, end of period (thousands).............. $ 2,282
Ratios to average net assets:
Expenses.......................................... 1.02%+
Net investment income............................. 2.49%+
Portfolio turnover rate............................ 16%
<CAPTION>
Year Ended December 31,
-------------------------
Strategic Income Fund 1998 1997**
- -------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of year................. $ 10.20 $10.00
------- ------
Income from investment operations
Net investment income#............................ 0.64 0.32
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions..................................... (0.04) 0.21
------- ------
Total from investment operations................... 0.60 0.53
------- ------
Less distributions from
Net investment income............................. (0.41) (0.31)
Net realized gains................................ 0 (0.02)
------- ------
Total distributions to shareholders................ (0.41) (0.33)
------- ------
Net asset value, end of year....................... $ 10.39 $10.20
------- ------
Total return (a)................................... 5.91% 5.28%
Ratios/supplemental data
Net assets, end of year (thousands)................ $11,182 $2,204
Ratios to average net assets:
Expenses.......................................... 1.02% 1.02%+
Net investment income............................. 6.05% 5.34%+
Portfolio turnover rate............................ 231% 119%
</TABLE>
+ Annualized.
* For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
** For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
# Net investment income is based on average shares outstanding during the pe-
riod.
(a) Total return does not reflect charges of the separate accounts.
4
<PAGE>
OTHER FUND PRACTICES
The Funds may invest in futures and In addition, the Funds may borrow
options. The Funds may also engage in money and lend their securities.
short sales. Such practices are used Borrowing is a form of leverage that
to hedge a Fund's portfolio to protect may magnify a Fund's gain or loss.
against changes in interest rates and Lending securities may cause the Fund
to adjust the portfolio's duration. to lose the opportunity to sell these
Although this is intended to increase securities at the most desirable price
returns, these practices may actually and, therefore, lose money.
reduce returns or increase volatility.
The Funds generally do not take
The Funds invest in foreign portfolio turnover into account in
securities, which may include foreign making investment decisions. This
currency transactions. As a result, means the Funds could experience a
the value of the Funds' shares will be high rate of portfolio turnover (100%
affected by changes in exchange rates. or more) in any given fiscal year,
To manage this risk, the Funds may resulting in greater brokerage and
enter into currency futures contracts other transactions costs which are
and forward currency exchange borne by the Funds and their
contracts. Although the Funds use shareholders. It may also result in
these contracts to hedge the U.S. the Funds realizing greater net
dollar value of a security they short-term capital gains,
already own, the Fund could lose money distributions from which are taxable
if they fail to predict accurately the to shareholders as ordinary income.
future exchange rates. The Funds may
engage in hedging and cross hedging
with respect to foreign currencies to
protect themselves against a possible
decline in the value of another
foreign currency in which certain of
the Funds' investments are dominated.
A cross hedge cannot protect against
exchange rate risks perfectly, and if
a Fund is incorrect in its judgement
of future exchange rate relationships,
the Fund could be in a less
advantageous position than if such a
hedge had not been established.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Funds, including risks.
<PAGE>
Notes
Tax Strategic Foundation Fund
Evergreen Funds Foundation Fund
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money
Market Fund
Florida Municipal Money Market
Fund
New Jersey Municipal Money
Market Fund
Municipal Bond
Short Intermediate Municipal
Fund
High Grade Municipal Bond Fund
Municipal Bond Fund
California Municipal Bond Fund
Connecticut Municipal Bond Fund
Florida High Income Municipal
Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Municipal Bond
Fund
Missouri Municipal Bond Fund
New Jersey Municipal Bond Fund
New York Municipal Bond Fund
North Carolina Municipal Bond
Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond
Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income
Fund
Short Intermediate Bond Fund
Intermediate Term Government
Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Growth & Income
Utility Fund
Fund for Total Return
Income and Growth Fund
Blue Chip Fund
Value Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Evergreen Fund
Micro Cap Fund
Aggressive Growth Fund
Omega Fund
Small Company Growth Fund
Stock Selector Fund
Strategic Growth Fund
Tax Strategic Equity Fund
Masters Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Variable Annuity
VA Aggressive Growth Fund
VA Fund
VA Foundation Fund
VA Global Leaders Fund
VA Growth and Income Fund
VA International Growth Fund
VA Masters Fund
VA Small Cap Equity Income Fund
VA Strategic Income Fund
www.evergreen-funds.com
<PAGE>
Information Line for Hearing and For express, registered or
Speech Impaired (TTY/TDD) certified mail:
Call 1-800-343-2888 Evergreen Service Company
Each business day, 8 a.m. to 200 Berkeley Street
6 p.m. Eastern time Boston, MA 02116-5039
Write us a letter Contact us on-line:
Evergreen Service Company www.evergreen-funds.com
P.O. Box 2121
Boston, MA 02106-2121
for general correspondence
<PAGE>
For More Information About the Evergreen Variable Annuity Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's holdings as of a specific date, as well as commentary from the
Fund's manager. This Report discusses the market conditions and investment
strategies that significantly affected the Fund's performance during the
most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has
been filed with the Securities and Exchange Commission (SEC) and its
contents are legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
representative. We will mail material within three business days.
Information about these Funds (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov, or, for a duplication fee,
by writing the SEC Public Reference Section, Washington DC 20549-6009. This
material can also be reviewed and copied at the SEC's Public Reference Room
in Washington, DC. For more information, call the SEC at 1-800-SEC-0330.
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
(811-8716)
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1999
Evergreen VA Aggressive Growth Fund ("Aggressive")
Evergreen VA Fund ("Evergreen")
Evergreen VA Foundation Fund ("Foundation")
Evergreen VA Global Leaders Fund ("Global Leaders")
Evergreen VA Growth and Income Fund ("Growth and Income")
Evergreen VA International Growth Fund ("International
Growth")
Evergreen VA Masters Fund ("Masters")
Evergreen VA Small Cap Equity Income Fund ("Small Cap") and
Evergreen VA Strategic Income Fund ("Strategic Income")
Each Fund is a series of Evergreen Variable Annuity Trust (the
"Trust").
This Statement of Additional Information ("SAI") pertains to the Funds
listed above. It is not a prospectus but should be read in conjunction with the
prospectus dated May 1, 1999 for the Fund in which you are interested. The Funds
are offered to separate accounts funding variable annuity and variable life
insurance contracts issued by life insurance companies ("Participating Insurance
Companies"). Copies of the prospectus may be obtained without charge by calling
(800) 343-2898.
Certain information is incorporated by reference to the Funds' Annual
Report dated December 31, 1998. You may obtain a copy of the Annual Report
without charge by calling (800) 343- 2898.
P:/ssdocs/public/brownrm/vasai-pt1.doc
<PAGE>
TABLE OF CONTENTS
PART 1
FUND HISTORY
INVESTMENT POLICIES
OTHER SECURITIES AND PRACTICES
PRINCIPAL HOLDERS OF FUND SHARES
EXPENSES
PERFORMANCE
SERVICE PROVIDERS
FINANCIAL STATEMENTS
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
PURCHASE, REDEMPTION AND PRICING OF SHARES
PERFORMANCE CALCULATIONS
TAX INFORMATION
BROKERAGE
ORGANIZATION
INVESTMENT ADVISORY AGREEMENT
MANAGEMENT OF THE TRUST
CORPORATE AND MUNICIPAL BOND RATINGS
ADDITIONAL INFORMATION
PART 1
FUND HISTORY
The Evergreen Variable Annuity Trust is an open-end management investment
company, which was organized as a Delaware business trust on December 23, 1997.
A copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. The foregoing is qualified
in its entirety by reference to the Declaration of Trust.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
The Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, the 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 United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of issuers
primarily engaged in any particular industry (other than securities that are
issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at market
value, 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).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33-1/3% of its total assets, taken at market
value. Each Fund may also borrow up to 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 such as the redemption of Fund shares. Each
Fund may purchase additional securities as long as outstanding borrowings do not
exceed 5% of its total assets. 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 and engage in short
sales to the extent permitted by applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except insofar as
a Fund may be deemed to be an underwriter in connection with the disposition of
its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the extent
permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on commodities,
except to the extent that a 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.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may lend
its portfolio securities in accordance with applicable law. The acquisition of
investment securities or other investment instruments shall not be deemed to be
the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33-1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give the
Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections under
"Additional Information on Securities and Investment Practices" in Part 2 of
this SAI:
Defensive Investments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions
Repurchase Agreements
Reverse Repurchase Agreements
Options
Futures Transactions
Foreign Securities
Foreign Currency Transactions
Foreign Currency Futures Transactions
High Yield, High Risk Bonds
Illiquid and Restricted Securities
Investment in Other Investment Companies
Short Sales
Payment-in-Kind Securities
Zero Coupon "Stripped" Bonds
Master Demand Notes
Mortgage-Backed or Asset-Backed Securities
Variable or Floating Rate Instruments
Brady Bonds
Convertible Securities
Warrants
Sovereign Debt Obligations
Derivatives
Equipment Trust Certificates
PRINCIPAL HOLDERS OF FUND SHARES
As of January 31, 1999, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each 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 the
outstanding shares of any class of each Fund as of January 31, 1999.
Aggressive
Nationwide Life Insurance 86.981%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance 13.019%
Seed Account
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Evergreen
Nationwide Life Insurance 79.600%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life 11.161%
Insurance Co.
Registered Share Account
Attn Richard Leifels
84 Business Park Drive,
Ste. 303
Armonk, NY 10504-1738
Security Equity Life 5.056%
Insurance Co.
Unregistered Share Account
Attn: Richard Leifels
84 Business Park Drive,
Ste. 303
Armonk, NY 10504-1738
Foundation
None
Global Leaders
Nationwide Life Insurance 86.981%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance 13.019%
Seed Account
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Growth and Income
Nationwide Life Insurance 88.895%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Security Equity Life 7.244%
Insurance Co.
Registered Share Account
Attn: Richard Leifels
84 Business Park Drive,
Ste. 303
Armonk, NY 10504-1738
International Growth
Nationwide Life Insurance 99.400%
Seed Account
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Masters
None
Small Cap
Nationwide Life Insurance 100.000%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Strategic Income
Nationwide Life Insurance 90.422%
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance 9.578%
Seed Account
c/o IPO Portfolio
Accounting
P.O. Box 182029
Columbus, OH 43218-2029
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC") is the investment advisor to
Evergreen, Global Leaders, Growth and Income, and Small Cap. Lieber & Company
acts as sub-advisor to these Funds, and is reimbursed by EAMC for the costs of
providing sub-advisory services. EAMC is entitled to receive from each of these
Funds an annual fee equal to 0.95% of the average daily net assets of each Fund.
EAMC is also the investment advisor to Foundation. EAMC is entitled to
receive from Foundation an annual fee equal to 0.825% of the average daily net
assets of the Fund. Lieber & Company also acts as sub-advisor to this Fund, and
is reimbursed by EAMC for the costs of providing sub-advisory services.
Evergreen Investment Management ("EIM"), formerly the Capital Management
Group of First Union National Bank ("FUNB"), is the investment advisor to
Aggressive. EIM is entitled to receive from Aggressive an annual fee equal to
0.60% of the average daily net assets of the Fund.
EIM is also the investment advisor to Masters. EIM is entitled to receive
from Masters an annual fee equal to 0.95% of the average daily net assets of the
Fund. EIM pays MFS Institutional Advisors, Inc., OppenheimerFunds, Inc. and
Putnam Investment Management, Inc. sub-advisory fees equal in the aggregate up
to .50% of the Fund's average daily net assets. EAMC, an affiliate of EIM,
receives a sub-advisory fee equal to .50% of the first $500 million of the
Fund's average daily net assets managed by EAMC, .40% of the next $500 million
of such net assets, and .35% of such net assets in excess of $1billion.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Strategic Income.
EIMC is entitled to receive from the Fund an annual fee of 2.0% of gross
dividend and interest income based on the average daily net assets, plus the
following which is:
Average Daily Net Fee
Assets
---------------- -----
first $100 0.45%
million
next $100 million 0.40%
next $100 million 0.35%
next $100 million 0.30%
next $100 million 0.25%
over $500 million 0.20%
EIMC is also the investment advisor to International Growth. EIMC is
entitled to receive from the Fund an annual fee based on the average daily net
assets, as follows:
Average Daily Net Fee
Assets
----------------- -----
first $200 0.75%
million
next $200 million 0.65%
next $200 million 0.55%
over $600 million 0.45%
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
Fiscal Advisory Advisory Fees
Period/Fund Fees Paid Waived
Periods Ended
1998
Aggressive $16,941 $14,973
Evergreen $326,123 $42,262
Foundation $467,156 $0
Global Leaders $58,409 $31,587
Growth and $453,431 $69,140
Income
International $3,122 $3,122
Growth(a)
Small Cap(b) $9,742 $9,742
Strategic $39,755 $0
Income
Periods Ended
1997
Aggressive(c) $6,358 $6,280
Evergreen $152,253 $47,286
Foundation $186,702 $20,317
Global $12,787 $12,787
Leaders(c)
Growth and $206,973 $47,995
Income
Strategic $6,441 $6,441
Income(c)
Periods Ended
1996
Evergreen(d) $48,143 $47,843
Foundation(d) $67,460 $49,436
Growth and $61,749 $54,339
Income(d)
(a) For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to
December 31, 1998.
(c) For the period from March 6, 1997 (commencement of operations) to
December 31, 1997.
(d) For the period from March 1, 1996 (commencement of operations)
December 31, 1996.
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber & Company for the last three
fiscal years or periods. For more information regarding brokerage commissions,
see "Brokerage" in Part 2 of this SAI.
Fund/Fiscal Year or Period
Total Paid to Total Paid
All Brokers to Lieber
Year or Period Ended 1998
Aggressive $3,380 $0
Evergreen $53,354 $47,079
Foundation $47,678 $46,786
Global Leaders $13,902 $6,368
Growth and Income $53,618 $53,382
International Growth(a) $6,231 $0
Small Cap(b) $3,934 $2,821
Year or Period Ended 1997
Aggressive(c) $754 $0
Evergreen $19,154 $16,810
Foundation $16,976 $16,976
Global Leaders(c) $6,526 $1,965
Growth and Income $20,369 $17,413
Strategic Income(c) $0 $0
Year or Period Ended 1996
Evergreen(d) $17,474 $16,882
Foundation(d) $17,682 $16,849
Growth and Income(d) $20,587 $17,389
(a) For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from May 1, 1998 (commencement of operations) to
December 31, 1998.
(c) For the period from March 6, 1997 (commencement of operations) to
December 31, 1997.
(d) For the period from March 1, 1996 (commencement of operations) to
December 31, 1996.
Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year or period ended December 31,
1998, (1) the percentage of aggregate brokerage commissions paid by each
applicable Fund to Lieber & Company and (2) the percentage of each applicable
Fund's aggregate dollar amount of commissionable transactions effected through
Lieber & Company. For more information, see "Selection of Brokers" under
"Brokerage" in Part 2 of this SAI.
Percentage of
Percentage of Commissionable
Fund Commissions Transactions
to Lieber & through Lieber
Company & Company
Evergreen 88% 86%
Foundation 98% 97%
Global Leaders 46% 45%
Growth and Income 99% 98%
Small Cap 72% 63%
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually and
by the Trust and the eight other trusts in the Evergreen Fund complex for the
twelve months ended December 31, 1998. The Trustees do not receive pension or
retirement benefits from the Funds. For more information, see "Management of the
Trust" in Part 2 of this SAI.
Aggregate Total
Trustee Compensation Compensation
from Trust from Trust and
Fund Complex
Paid to
Trustees*
Laurence B. $39 $75,500
Ashkin
Charles A. $27 $75,500
Austin, III
K. Dun Gifford $24 $73,000
James S. Howell $36 $84,900
Leroy Keith Jr. $24 $73,000
Gerald M. $27 $75,500
McDonnell
Thomas L. $32 $86,500
McVerry
William Walt $25 $68,000
Pettit
David M. $27 $73,300
Richardson
Russell A. $27 $79,000
Salton, III
Michael S. $24 $79,500
Scofield
Richard J. $24 $73,000
Shima
*Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended December 31, 1998. The
amounts listed below will be payable in later years to the respective
Trustees:
Austin $11,325
Howell $65,000
McDonnell $75,000
McVerry $86,500
Petit $68,000
Salton $79,000
PERFORMANCE
Total Return
Below are the average annual total returns for the Funds as of December 31,
1998. The returns for International Growth and Small Cap are cumulative. For
more information, see "Total Return" under "Performance Calculations" in Part 2
of this SAI.
Ten Years
Fund One Year Five or Since Inception
Years Inception Date
Aggressive 22.25% N/A 18.24% 3/6/97
Evergreen 6.44% N/A 20.00% 3/1/96
Foundation 10.56% N/A 18.77% 3/1/96
Global 18.92% N/A 15.19% 3/6/97
Leaders
Growth and 4.77% N/A 20.05% 3/1/96
Income
International N/A N/A -6.10% 8/17/98
Growth
Small Cap N/A N/A -2.86% 5/1/98
Strategic 5.91% N/A 6.16% 3/6/97
Income
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
the Funds, subject to the supervision and control of the Trust's Board of
Trustees. EIS provides the Funds with facilities, equipment and personnel and is
entitled to receive a fee from the Funds based on the total assets of all mutual
funds for which EIS serves as administrator and a First Union Corporation
subsidiary serves as advisor. The fee paid to EIS is calculated in accordance
with the following schedule:
Assets Fee
-------- ------
first $7 0.050%
billion
next $3 0.035%
billion
next $5 0.030%
billion
next $10 0.020%
billion
next $5 0.015%
billion
over $30 0.010%
billion
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Funds pay ESC annual fees as follows:
Annual Fee Annual Fee
Per Open Per
Account* Closed
Fund Type Account**
------------- ---------- ------------
Monthly $25.50 $9.00
Dividend Funds
Quarterly $24.50 $9.00
Dividend Funds
Semiannual $23.50 $9.00
Dividend Funds
Annual Dividend $23.50 $9.00
Funds
Money Market $25.50 $9.00
Funds
* For shareholder accounts only. The Fund pays ESC cost plus 15% for
broker accounts.
** Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110, audits
the financial statements of each Fund.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its
address is 1025 Connecticut Avenue, NW, Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts 02106-
2121.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the securities
in which it primarily invests. The following describes other securities the Fund
may purchase and investment strategies it may use. Some of the information below
will not apply to the Fund in which you are interested. Unless specifically
stated, each Fund may invest in or use the strategies listed below.
Defensive Investments
The Fund may invest up to 100% of its assets in high quality short-term
obligations, such as notes, commercial paper, certificates of deposit, banker's
acceptances, bank deposits or U.S. government securities if, in the opinion of
the investment advisor, market conditions warrant a temporary defensive
investment strategy.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. government. Examples of such agencies 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;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Fund may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. government securities, they may be less effective as a
means of locking in attractive long- term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery basis
and may purchase or sell securities on a forward commitment basis. Settlement of
such transactions normally occurs within a month or more after the purchase or
sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued, delayed
delivery or forward commitment basis the Fund will hold liquid assets worth at
least the equivalent of the amount due. The liquid assets will be monitored on a
daily basis and adjusted as necessary to maintain the necessary value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the 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.
The use of reverse repurchase agreements may enable the 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 the
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
An option is a right to buy or sell a security for a specified price within
a limited time period. The option buyer pays the option seller (known as the
"writer") for the right to buy, which is a "call" option, or the right to sell,
which is a "put" option. Unless the option is terminated, the option seller must
then buy or sell the security at the agreed-upon price when asked to do so by
the option buyer.
The Fund may buy or sell (i.e., write) put and call options on
securities it holds or intends to acquire and may also purchase put and call
options for the purpose of offsetting previously written put and call options of
the same series. The Fund may also buy and sell options on financial futures
contracts. The Fund will use options as a hedge against decreases or increases
in the value of securities it holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If the Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions (excluding Aggressive, Evergreen and Foundation)
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract
is sold by the Fund, the value of the contract will tend to rise when the value
of the underlying securities declines and to fall when the value of such
securities increases. Thus, the Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather the Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions. Initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities (excluding Evergreen, Foundation, Growth and Income and
Small Cap)
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
Foreign Currency Transactions (only Global Leaders, International
Growth, Masters and Strategic Income)
As one way of managing exchange rate risk, the Fund may enter into forward
currency exchange contracts (agreements to purchase or sell currencies at a
specified price and date). The exchange rate for the transaction (the amount of
currency the Fund will deliver and receive when the contract is completed) is
fixed when the Fund enters into the contract. The Fund usually will enter into
these contracts to stabilize the U.S. dollar value of a security it has agreed
to buy or sell. The Fund intends to use these contracts to hedge the U.S. dollar
value of a security it already owns, particularly if the Fund expects a decrease
in the value of the currency in which the foreign security is denominated.
Although the Fund will attempt to benefit from using forward contracts, the
success of its hedging strategy will depend on the investment advisor's ability
to predict accurately the future exchange rates between foreign currencies and
the U.S. dollar. The value of the Fund's investments denominated in foreign
currencies will depend on the relative strengths of those currencies and the
U.S. dollar, and the Fund may be affected favorably or unfavorably by changes in
the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates also may affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund. The Fund may also purchase and sell
options related to foreign currencies in connection with hedging strategies.
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.
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 gain. If the offsetting sale price is less than
the purchase price, the Fund 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 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.
High Yield, High Risk Bonds (only International Growth and Strategic Income)
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch or below Baa by Moody's, commonly known as "junk
bonds," offer high yields, but also high risk. While investment in junk bonds
provides opportunities to maximize return over time, they are considered
predominantly speculative with respect to the ability of the issuer to meet
principal and interest payments. Investors should be aware of the following
risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or perceived
adverse economic or political events than is the case for higher quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond Ratings"
below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books. The 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 the 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
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks 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, the 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 the Fund.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The 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. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
Payment-in-kind Securities (only International Growth and Strategic Income)
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer flexibility in
managing cash flow. Several PIKs are senior debt. In other cases, where PIKs are
subordinated, most senior lenders view them as equity equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities -- is
that interest payments are automatically compounded (reinvested) at the stated
coupon rate, which is not the case with cash-paying securities. However, PIKs
are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest). Their
price is expected to reflect an amount representing accredit interest since the
last payment. PIKs generally trade at higher yields than comparable cash-paying
securities of the same issuer. Their premium yield is the result of the lesser
desirability of non-cash interest, the more limited audience for non-cash paying
securities, and the fact that many PIKs have been issued to equity investors who
do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds (only International Growth and Strategic Income)
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Coupon zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the rights
and privileges of owners of the underlying coupon obligations or principal
obligations. Owners of zero coupon 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.
For federal income tax purposes, a purchaser of principal zero coupon bonds
or coupon zero coupon bonds (either initially or in the secondary market) is
treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured obligations
that permit the investment of fluctuating amounts by the Fund at varying rates
of interest pursuant to direct arrangements between the Fund, as lender, and the
issuer, as borrower. Master demand notes may permit daily fluctuations in the
interest rate and daily changes in the amounts borrowed. The Fund has the right
to increase the amount under the note at any time up to the full amount provided
by the note agreement, or to decrease the amount. The borrower may repay up to
the full amount of the note without penalty. Master demand notes permit the Fund
to demand payment of principal and accrued interest at any time (on not more
than seven days' notice). Notes acquired by the Fund may have maturities of more
than one year, provided that (1) the Fund is entitled to payment of principal
and accrued interest upon not more than seven days' notice, and (2) the rate of
interest on such notes is adjusted automatically at periodic intervals, which
normally will not exceed 31 days, but may extend up to one year. The notes are
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the demand notice period. Because these types
of notes are direct lending arrangements between the lender and borrower, such
instruments are not normally traded and there is no secondary market for these
notes, although they are redeemable and thus repayable by the borrower at face
value plus accrued interest at any time. Accordingly, the Fund's right to redeem
is dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, the Fund`s
investment advisor considers, under standards established by the Board of
Trustees, earning power, cash flow and other liquidity ratios of the borrower
and will monitor the ability of the borrower to pay principal and interest on
demand. These notes are not typically rated by credit rating agencies. Unless
rated, the Fund may invest in them only if at the time of an investment the
issuer meets the criteria established for commercial paper discussed in this
statement of additional information (which limits such investments to commercial
paper rated A-1 by S&P, Prime-1 by Moody's or F-1 by Fitch.
Mortgage-Backed or Asset-Backed Securities (only Strategic Income)
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
services were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments (only Global Leaders, International
Growth, Masters, Small Cap and Strategic Income)
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for each Fund. The investment
advisor will monitor, on an ongoing basis, the earning power, cash flow, and
liquidity ratios of the issuers of such instruments and will similarly monitor
the ability of an issuer of a demand instrument to pay principal and interest on
demand.
Brady Bonds (only Strategic Income and International Growth)
Each Fund 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.
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.
Convertible Securities
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 (excluding 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, 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 (only Global Leaders, International Growth and
Strategic Income)
Each Fund 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.
Derivatives
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.
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 the Funds' investment advisers 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.
* 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.
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
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.
Calculation of Net Asset Value
The Fund calculates its Net Asset Value ("NAV") once daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or on the NMS prior to
the time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean of
the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than sixty days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS if,
in the Fund's opinion, the last sales price does not reflect a current
market value; and other assets are valued at prices deemed in good faith to
be fair under procedures established by the Board of Trustees.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods. The following
is the formula used to calculate average annual total return:
n
P(1 + T) = ERV
P= initial payment of $1,000
T= average total return
n= number of years
ERV= ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield quotations
are expressed in annualized terms and may be quoted on a compounded basis.
Yields based on these calculations do not represent the Fund's yield for any
future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30- day yield in
advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
6
Yield=2[(a - b + 1) - 1
-----
cd
Where:
a = Dividends and 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
7-Day Current and Effective Yields
If the Fund invests primarily in money market instruments, it may quote its
7-day current yield or effective yield in advertisements or in reports or other
communications to shareholders.
The current yield is calculated by determining the net change, excluding
capital changes and income other than investment income, in the value of a
hypothetical, pre-existing account having a balance of one share at the
beginning of the 7- day base period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
365/7
Effective Yield = [(base period return)] + 1) ] - 1
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
Tax Equivalent Yield = Yield
-------------------
1 - Income Tax Rate
The quotient is then added to that portion, if any, of the Fund's yield that is
not tax exempt. Depending on the Fund's objective, the income tax rate used in
the formula above may be federal or a combination of federal and state.
Non-Standardized Performance
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 or any other commonly quoted index of 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.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable to
regulated investment companies ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, the Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, the Fund is not subject to federal income tax if
it timely distributes its investment company taxable income and any net realized
capital gains. For a discussion of the tax consequences of variable annuity
contracts or variable life insurance policies, refer to the prospectus of the
variable annuity contracts and variable life insurance policies offered by the
participating insurance company. Variable annuity contracts and variable life
insurance policies 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 an individual
owner. Different rules apply to corporations, taxable trusts, or other entities
which own variable annuity contracts. Depending on the variable annuity contract
or variable life insurance policy, distributions from the contract or policy 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 or policy 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 Fund 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 annuity
contracts and/or variable life insurance policies.
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts and variable life insurance
policies held. The Code provides that variable annuity contracts and/or variable
life insurance policies shall not be treated as an annuity contract or life
insurance policy 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 contract or policy
as an annuity contract or life insurance policy would result in immediate
imposition of federal income tax on variable annuity contracts and variable life
insurance policy owners with respect to earnings allocable to the contract or
policy (including, upon disqualification, accumulated earnings), and the tax
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 annuity contracts and variable life insurance policies
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.
section 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 and variable life
insurance policies set forth in Section 817(h) of the Code and provide an
alternative to the safe harbor provision described above. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of such value is represented by any two
investments; (3) no more than 80% of such value is represented by any three
investments; and (4) no more than 90% of such value is represented by any four
investments. For purposes of these Regulations all securities of the same issuer
are treated as a single investment. The Regulations provide that, in the case of
a regulated investment company whose shares are available to the public only
through variable insurance contracts which meet certain other requirements, the
diversification tests are applied by reference to the underlying assets owned by
the regulated investment company rather than by reference to the shares of the
regulated investment company owned under the annuity contract. Each Fund intends
to meet the requirements for application of the diversification tests on this
look-through basis. The Code provides that for purposes of determining whether
or not the diversification standards imposed on the underlying assets of
variable insurance contracts by Section 817(h) of the Code have been met, each
U.S. 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 the Fund.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisors regarding specific questions relating to federal,
state and local tax consequences of investing in shares of the Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S. and foreign tax consequences of ownership of shares of the
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell them
through brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and sell
them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Selection of Brokers
When buying and selling portfolio securities, the investment advisor seeks
brokers who can provide the most benefit to the Fund. When selecting a broker,
an investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the
Fund;
2. efficiency in handling trades;
3. ability to trade large blocks
of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as
(a) reports and analyses concerning issuers, industries, securities
and economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it with
research services, as defined in item 6, above. Pursuant to Section 28(e) of the
Securities Exchange Act of 1934, this practice is permitted if the commission is
reasonable in relation to the brokerage and research services provided. Research
services provided by a broker to the investment advisor do not replace, but
supplement, the services the investment advisor is required to deliver to the
Fund. It is impracticable for the investment advisor to allocate the cost, value
and specific application of such research services among its clients because
research services intended for one client may indirectly benefit another.
When selecting a broker for portfolio trades, the investment advisor may
also consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
If the Fund is advised by Evergreen Asset Management Corp. ("EAMC"), Lieber
& Company, an affiliate of EAMC and a member of the New York and American Stock
Exchanges, will to the extent practicable effect substantially all of the
portfolio transactions effected on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for an investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of the Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining shares
voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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 Trust. 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 its 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
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund
investment advisory, management and administrative services, office facilities,
and equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The investment advisor pays for all of the
expenses incurred in connection with the provision of its services. The Fund
pays for all charges and expenses, other than those specifically referred to as
being borne by the investment advisor, 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
registration and qualification of the Fund and its shares with the SEC or under
state or other securities laws; (10) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of the
Fund; (11) expenses of shareholders' and Trustees' meetings; (12) charges and
expenses of legal counsel for the Fund and for the Independent Trustees on
matters relating to the Fund; (13) charges and expenses of filing annual and
other reports with the SEC and other authorities; and (14) all extraordinary
charges and expenses of the Fund. For information on advisory fees paid by the
Fund, see "Expenses" in Part 1 of this SAI.
The 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 the
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 cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement 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. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, and Messrs. Scofield and Salton, each of whom is an
Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and 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
the other Trusts in the Evergreen Fund complex.
Name Position Principal Occupations for Last
with Trust Five Years
Laurence B. Trustee Real estate developer and
Ashkin construction consultant; and
(DOB: 2/2/28) President of Centrum Equities and
Centrum Properties, Inc.
Charles A. Trustee Investment Counselor to Appleton
Austin III Partners, Inc.; former Director,
(DOB: 10/23/34) Executive Vice President and
Treasurer, State Street Research
& Management Company (investment
advice); Director, The Andover
Companies (Insurance); and
Trustee, Arthritis Foundation of
New England
K. Dun Gifford Trustee Trustee, Treasurer and Chairman
(DOB: 10/12/38) of the Finance Committee, Cam
bridge 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; and
former Chairman, Gifford, Drescher &
Associates (environmental consult ing).
James S. Howell Chairman of Former Chairman of the
(DOB: 8/13/24) the Board of Distribution Foundation for the
Trustees Carolinas; and former Vice
President of Lance Inc. (food
manufacturing).
Leroy Keith, Trustee Chairman of the Board and Chief
Jr. Executive Officer, Carson
(DOB: 2/14/39) 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. Trustee Sales Representative with Nucor-
McDonnell Yamoto, Inc. (steel producer).
(DOB: 7/14/39)
Thomas L. Trustee Former Vice President and
McVerry Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and former
Director of Carolina Cooperative
Federal Credit Union.
William Walt Trustee Partner in the law firm of
Pettit William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Trustee Vice Chair and former Executive
Richardson Vice President, DHR Interna
(DOB: 9/14/41) tional, Inc. (executive recruit
ment); 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.
Russell A. Trustee Medical Director, U.S. Health
Salton, III MD Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care
Consultant; and former President,
Primary Physician Care.
Michael S. Trustee Attorney, Law Offices of Michael
Scofield S. Scofield.
(DOB: 2/20/43)
Richard J. Trustee Former Chairman, Environmental
Shima Warranty, Inc. (insurance
(DOB: 8/11/39) agency); Executive Consultant,
Drake Beam Morin, Inc. (executive
outplacement); Director of Connecticut
Natural Gas Corpora tion, Hartford Hospital,
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 Corpora tion; former Trustee,
Kingswood-Oxford School; and former Managing
Director and Consultant, Russell Miller,
Inc.
William J. President Executive Vice
Tomko* and President/Operations, BISYS Fund
(DOB:8/30/58) Treasurer Services.
Nimish S. Vice Vice President, Tax, BISYS Fund
Bhatt* President Services; former Assistant Vice
(DOB: 6/6/63) and President, EAMC/First Union Bank;
Assistant former Senior Tax
Treasurer Consulting/Acting Manager,
Investment Companies Group,
Pricewaterhouse-Coopers LLP, New
York.
Bryan Haft* Vice Team Leader, Fund Administration,
(DOB: 1/23/65) President BISYS Fund Services.
Michael H. Secretary Senior Vice President and
Koonce Assistant General Counsel, First
(DOB: 4/20/60) Union Corporation; former Senior
Vice President and General
Counsel, Colonial Management
Associates, Inc.
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE BOND RATINGS
The Fund relies on ratings provided by independent rating services to help
determine the credit quality of bonds and other obligations the Fund intends to
purchase or already owns. A rating is an opinion of an issuer's ability to pay
interest and/or principal when due. Ratings reflect an issuer's overall
financial strength and whether it can meet its financial commitments under
various economic conditions.
If a security held by the Fund loses its rating or has its rating reduced
after the Fund has purchased it, the Fund is not required to sell or otherwise
dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The `Credit Quality'
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
MOODY`S S&P FITCH Credit Quality
Aaa AAA AAA Excellent Quality (lowest
risk)
Aa AA AA Almost Excellent Quality
(very low risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some
risk)
Ba BB BB Questionable Quality
(definite risk)
B B B Low Quality (high risk)
Caa/Ca/ CCC/CC/ CCC/CC/ In or Near Default
C C C
D DDD/DD/ In Default
D
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
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
edged.' 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 fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the 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 some time 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. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
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.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC,
and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation. CC An
obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred-- and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and
is not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Plus (+) or minus (-) 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.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is
currently a low expectation of credit risk. The capacity for
timely payment of financial commitments is considered adequate,
but adverse changes in circumstances and in economic conditions
are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the
Prime rating categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and
is not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added `+' to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(b) By-Laws Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(c) Provisions of instruments Incorporated by reference to
defining the rights of holders Registrant's Post-Effective
of the securities being registered Amendment No. 7 filed on June 5, 1998.
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
(d)(1) Investment Advisory and Management Incorporated by reference to
Agreement between the Registrant Registrant's Post-Effective
and First Union National Bank Amendment No. 5 filed on March 20, 1998
(d)(2) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Asset Amendment No. 5 filed on March 20, 1998
Management Corp.
(d)(3) Sub-Advisory Agreement between Incorporated by reference to
Evergreen Asset Management Corp. Registrant's Post-Effective
and Lieber & Company Amendment No. 8 filed on October 19, 1998.
(d)(4) Portfolio Management
Agreement between sub-advisors
to Evergreen VA Masters Fund and
First Union National Bank.
(d)(5) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Amendment No. 7 filed on June 5, 1998.
Investment Management Company
(formerly Keystone Investment
Management Company), as
supplemented
(e)(1) Participation Agreement between
Registrant and Kemper Investors Life
Insurance Company
(e)(2) Participation Agreement between
Registrant and PFL Life Insurance
Company
(f) Not applicable
(g) Custodian Agreement between the Incorporated by reference to
Registrant and State Street Bank Registrant's Post-Effective
and Trust Company Amendment No. 6 filed on April 28, 1998
(h)(1) Administration Agreement Incorporated by reference to
between Evergreen Investment Registrant's Post-Effective
Services, Inc. and the Amendment No. 5 filed on March 20, 1998
Registrant
(h)(2) Transfer Agent Agreement Incorporated by reference to
between the Registrant and Registrant's Post-Effective
Evergreen Service Company Amendment No. 6 filed on April 28, 1998
(i) Opinion and Consent of Sullivan Incorporated by reference to
& Worcester LLP Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998
(j) Consent of KPMG Peat Marwick LLP
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Financial Data Schedules
(o) Not applicable
(p) Powers of Attorney Incorporated by reference to
Registrant's Post-Effective
Amendment No. 6 filed on April 28, 1998
</TABLE>
Item 24. Persons Controlled by or Under Common Control with
Registrant.
None
Item 25. Indemnification
Registrant has obtained from a major insurance carrier and trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustee and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors
are contained in their respective 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.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust
Company, the Registrant's custodian, are contained in the Custodian Agreement
between State Street Bank and Trust Company and the Registrant.
Item 26. 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
Anthony P. Terracciano President, First Union Corporation; President
First Union National Bank
John R. Georgius Vice Chairman, First Union Corporation;
Vice Chairman, 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 Evergreen
Investment Management Company (formerly Keystone Investment Management Company)
is incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc., acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen
Distributor, Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive Officer
Dennis Sheehan Director, Chief Financial 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.
The Registrant has not paid, directly or indirectly, any commissions or
other compensation to the Prinicipal Underwriter in the last fiscal year.
Item 28. 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
Evergreen Investment Management Company (formerly 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 29. Management Services.
Not Applicable
Item 30. 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 26th day of
February, 1999.
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 26th day of February, 1999.
<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 Trustee Trustee
(Principal 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 Chairman of the Board Trustee
and Trustee
/s/ Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ---------------------- --------------------- ----------------------
Gerald M. McDonnell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ---------------------- ---------------------------- ----------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee Trustee
/s/ Richard J. Shima
- -------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Beth Werths
- --------------------------------
Beth Werths
Attorney-in-Fact
*Beth Werths, 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
- ------- -------
(d)(4) Portfolio Management Agreement
between sub-advisors to Evergreen
VA Masters Fund and First Union National Bank.
(e)(1) Participation Agreement between
Registrant and Kemper Investors Life
Insurance Company
(e)(2) Participation Agreement between
Registrant and PFL Life Insurance Company
(j) Consent of KPMG Peat Marwick LLP
(n) Financial Data Schedules
February 1, 1999
Lieber & Company
2500 Westchester Avenue
Purchase, New York 10577
Ladies and Gentlemen:
We have entered into an agreement with First Union National Bank a
national banking association (the "Adviser"), pursuant to which we act as
investment manager to a portion of the Evergreen VA Masters Fund (the "Fund") a
series of the Evergreen Variable Annuity Trust (the "Trust") as described in the
Fund's registration statement filed with the Securities and Exchange Commission.
We hereby agree with you as follows:
1. You agree for the duration of this Agreement that you will provide us
with office facilities and, through your research personnel, furnish us
with all such factual information and investment recommendations and such
other services as we shall reasonably request. We shall expect of you, and
you shall give us, the benefit of your best judgment and efforts in
rendering these services to us, and we agree as an inducement to your
undertaking these services that you shall not be liable to us under this
paragraph for any mistake of judgment or in any event whatsoever, except
for lack of good faith. However, nothing herein shall be deemed to protect
or purport to protect you against any liability to the Fund or its
shareholders to which you would otherwise be subject by reason of wilful
misfeasance, bad faith, or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and
duties hereunder.
2. We agree to reimburse you on the basis of your direct and indirect costs
of performing the services set forth in paragraph 1 above. Indirect costs
shall be allocated on a basis mutually satisfactory to you and us.
3. As used in this Agreement, the terms "assignment" and "vote of a
majority of the outstanding voting securities" shall have the meanings
given to them by Sections 2(a) (4) and 2(a) (42), respectively, of the
Investment Company Act of 1940, as amended (the "Act").
This Agreement will terminate automatically in the event of its
assignment, or upon termination of the above-mentioned agreement between the
Adviser and the undersigned.
This Agreement may be terminated at any time, without the payment of
any penalty, (a) by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Fund or by the undersigned, on sixty days'
written notice addressed to you at your principal place of business; and (b) by
you, without payment of any penalty, on sixty days' written notice addressed to
the Fund and the undersigned.
This Agreement shall be for two years from the date of this Agreement.
This Agreement
<PAGE>
shall continue in effect from year to year thereafter so long as such
continuance is specifically approved at least annually by a majority of the
Trustees of the Trust who are not interested persons (as such term is defined in
the Act) of any party to this Agreement, voting in person at a meeting called
for the purpose of voting on such approval, and by a vote of the Trustees of the
Trust or a majority of the outstanding voting securities of the Fund.
You agree to advise us of any change in your partnership within a
reasonable time after such a change.
4. This Agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you.
5. It is expected that you will provide brokerage services to the Fund.
Accordingly, you agree to comply with Section 11(a)(1) of the Securities
Exchange Act of 1934 and any rules prescribed by the Securities and
Exchange Commission thereunder, as amended from time to time, with respect
to brokerage transactions effected and/or executed by you on behalf of the
Fund. In addition, you shall furnish at least annually to us a statement
setting forth the total amount of all compensation retained by you in
connection with effecting and/or executing transactions for the account
during the period covered by the statement, as required by Section
11(a)(1).
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart hereof and return the same to us.
Very truly yours,
EVERGREEN ASSET MANAGEMENT CORP.
By: /s/ Nola Maddox Falcone
--------------------------
Name: Nola Maddox Falcone
Title:
The foregoing Agreement is
hereby accepted as of the
date first above written
LIEBER & COMPANY
By: /s/ Stephen A. Lieber
-----------------------
Name: Stephen A. Lieber 25212
Title:
September 1, 1998
Mr. James Hohmann
President - Financial SBU
Kemper Investor Life Insurance Company
1 Kemper Drive
Long Grove, IL 60049-0001
Dear Mr. Hohmann:
We are please that Kemper Investors Life Insurance Company (the "Company") has
entered into an agreement dated September 1, 1998, with Evergreen Variable
Annuity Trust (the "Trust") providing for the purchase by the Company of shares
of the Trust for certain of the Company's separate accounts to fund benefits for
Variable Insurance Products (the "Participation Agreement"). This letter sets
forth the agreement between the Company and Evergreen Asset Management Corp.,
First Union National Bank of North Carolina and Keystone Investment Management
Company (collectively the "Advisers" and individally the "Adviser") concerning
certain administrative services the Company will provide the Trust and its
Portfolios.
1. Adminstrative Services and Expenses. Administrative services for the
separate accounts of the Company (the "Accounts") which invest in one or
more portfolios (collectively, the "Portfolios") of the Trust pursuant to
the Participation Agreement, and for purchaserso of certain Variable
Insurance Products issued through the Accounts, are the responsibility of
the Company. Administrative services for the Portfolios, in which the
Account invests, and for purchasers of shares of the Porfolios, are the
responsibility of the Trust. Notwithstanding the foregoing, however, the
Company will provide to the Trust and its Portfolios certain administrative
services, as set forth below and which may be amended from time to time,
including, but not limited to, the following:
a) Aggregate allocation, transfer, and liquidation orders of the Account.
b) Print and mail to owners of Variable Insurance Products copies of the
Portfolios' prospectuses and other materials that the Trust is
required by law or otherwise to provide to its shareholders, but that
the Company is not otherwise required to provide to owners of Variable
Insurance Products.
c) Provide financial consultants with advice with respect to inquiries
related to the Portfolios (not including information related to
sales).
d) Provided such other administrative support for the Trust as mutually
agreed to by the Company and the Advisers to the extent permitted or
requiredunder applicable statutes, and relieve the Trust of other
usual or incidental adminsitrative services provided o individual
owners of Variable Insurance Products.
2. Servie fee. In consideration of the anticiapated administrative expense
savings resulting to the Trust from the Company's services, the Advisers
agree to pay the Company at the end of each calendar month a fee ("Service
Fee") which will accrue daily at an annual rate of 25 basis points (.25%)
of the first $50,000,000 of the aggregate net asset value of all of the
issued and outstanding shares of the Portfolios held in the subaccounts of
the Accounts, reduced to 20 basis points (.20%) per annum of such aggregate
net asset value in excess of $50,000,000 up to $100,000,000 and further
reduced to eighteen basis points (.18%) of such aggreate net asset value in
excess of $100,000,000.
3. Nature of Payments. The parties to this letter agreement recognize and
agree that the Advisers' payments to the Company relate to administrative
services only and do not constitute payment in any mannder for
adminstrative seervices provided by the Company to the Account or to the
Variable Insurance Products, for investment advisory services or for costs
of distribution of Variable Insurance Products or of shares of the Portfo-
lios and that these payments are not otherwise related to investment advi-
sory or distribution services or expenses.
4. Representations and Warranties:
a) Each Adviser represents and ewarrants that in the event the Trustees
of the Trust approve the payment of all or any portion of the Service
Fee by the Trust, the Trust will calculate in the same manner the
Service Fee to all insurance companies that have entered into Service
Fee arrangements with the Adviser and/or the Trust (the "Participating
Insurance Companies").
b) The Company represents and warrants that: (1) it and its employees and
agents meet the requirements of applicable law, including but not
limited to federal and state securities law and state law, for the
performance of services contemplated herein; and (2) it will not
purchase Trust shares of the Portfolios with Account assets derived
from tax-qualified retirement pland except indirectly, through
Variable Insurance Prodicts purchsed in connection with such plans and
that the Service Fee does not include any payment to the Company that
is prohibited under the Employee Retirement Income Securities Act of
1974 ("ERISA") with respect to any assets of an owner of a Variable
Insurance Product invested in a Varibale Insurance Product using the
Portfolios as investment vehicles.
c) The Company represents, warrants and agrees that: (1) the payment of
the Service Fee by the Advisers is designed to reimburse the Company
for providing administrative services to the Trust that the Trust
would customarily pay and does not represent reimbursement to the
Company for providing administrative services to the Varibale
Insurance Products or Accounts; (2) no portion of the Service Fee will
be rebated by the Company to any owners of Variable Insurance
Products; and (3) if the Company or the Adviser, with advice of
counsel, determines that it is required or appropriate under
applicable law, the Company will disclose to each owner of a Variable
Insurance Product the existence of the Service Fee received by the
Company pursuant to this letter agreement and will disclose the amount
of the Service Fee, if any, that is paid by the Trust.
5. Indemnification.
a) The Company agrees to indemnify and hold harless the Advisers and
their directors, officers, and employees from any and all loss,
liability and expense resulting from any gross negligence or willful
wrongful act of the Company in performing its services under this
letter agreement, from the inaccuracy or breach of any representation
made in this letter agreement, or from a breach of a material
provision of this letter agreement, except to the extent such loss,
liability or expence is the result of the Advisers' willful
misfeasance, bad faith or gross negligence in the performance of
their duties.
b) The Advisers agree to indemnify and hold harmless the Company and its
directos, officers, agents and employees from any and all loss,
liability and expense resulting from any gross negliegence or willfil
wrongful act of the Advisers in performing their services under this
letter agreement, from the inaccuracy or breach of any provision of
this letter agreement, except to the extent such loss, liability or
expense is the result of the Company's willfull misfeasance, bad faith
or gross negligence in the performance of its duties. The Advisers
also agree to indemnify and hold harmless the Company and its
directors, officers, agents, and employees from any and all loss,
liability and expense resulting from the Trust's failure, whether
unintentional or in good faith or otherwise, to 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.
6. Termination.
a) Any party may terminate this letter agreement, without penalty, on
sixty (60) days' written notice to the other parties.
b) This letter agreement will terminate at the option of any party in the
event of the termination of the Participation Agreemnet.
c) This letter agreement will terminate immediately upon the
determination of any party, with the advice of counsel, that the
payment of the Service Fee is in conflict with applicable law.
7. Amendment. This letter agreement may be amended only upon mutual agreement
of the parties hereto in writing.
8. Confidentiality. The terms of this letter agreement will be treated as
confidential and will not be disclosed to the public or any outside party
except with each party's prior written consent, as required by law or
judicial process or as process or as provided in paragraph 4c herein.
9. Assignement. This letter agreement may not be assigned (as that term is
defined in the Investment Company Act of 1940) by any party without the
prior written approval of the other parties, which approval will not be
unreasonably withheld, except that the Advisers may assign their
bligations under this letter agreement, including the payment of all or any
portion of the Service Fee, to the Trust or to an entity under common
control with the Advisers or that serves as a successor investment adviser
to the Trust, in each case upon thirty (30)days' written notice to the
Company.
10. Governing Law. This letter agreement will be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of
Illinois.
11. Counterparts. This letter agreement may be executed in counterparts, each
of which will be deemed an original but all of which will together
constitute one and the same instrument.
If you agreem to the foregoing, please sign the enclosed copy of this letter and
return it to Michael H. Koonce, The Evergreen Fund, 200 Berkeley Street, Boston,
MA 02116.
Sincerely,
Evergreen Asset Management Corp. Keystone Investment Management Company
By: /s/ Nola M. Falcone By: /s/ Albert H. Elfner
------------------------ -------------------------
Name: Nola M. Falcone Name: Albert H. Elfner
Title: President Title: President
AGREED
First Union National Bank Kemper Investors Life Insurance
of North Carolina Company
By: /s/ David C. Francis By: /s/ Otis R. Heldman, Jr.
------------------------ ---------------------------
Name: David C. Francis Name: Otis R. Heldman, Jr.
Title: Senior Vice President Title: Marketing Officer
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of September, 1998 between EVERGREEN
VARIABLE ANNUITY TRUST, an open-end management investment company organized as a
Delaware business trust (the "Trust"), and Kemper Investors Life Insurance
Company, a life insurance company organized under the laws of the State of
Illinois (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 10:00 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
asset 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.
The Company agrees to provide the Trust or its designee with such information as
may be resaonably requested by the Trust to asure that the Trust's expenses do
not include the cost of printing any prospectuses or statements of additional
information other than those actually distributed to existing owners of the
Contracts.
2.4. The Company agrees and acknowledges 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 an investment adviser to the Trust is 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 memorandums, in which the Trust or its
investment adviser is 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. With respect to Contracts sold under private placement offerings, the
Company shall vote shares held by it inaccordance with Section 3.4 of this
Agreement. Other wise , 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 Illinois 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, unless an exemption from
registration is available, 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, unless an exemption from
registration is available, 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. With respect to the Accounts which are exempt from registration under
the 1940 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) The principal underwritrer for each such unregistered Account and any
subaccount thereof is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended;
(b) Trust Shares are and will continue to be the only investment
securities held by the corresponding Account subaccount(s); and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding Account subaccount, will;
(1) vote such shares held by it in the same portion as the vote of
all other holders of such shares; and
(2) refrain from substituting shares of another security for such
shares unless the Securities and Exchange Commission has approved
such substitution in the manner provided in Section 26 of the
1940 Act.
3.5. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.6. 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.
3.7. 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. 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. 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 2.9 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:
One Kemper Drive
Long Grove, Illinois 60049
Attention: General Counsel
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 State of Illinois.
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 in this 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.
KEMPER INVESTORS LIFE INSURANCE COMPANY EVERGREEN VARIABLE ANNUITY TRUST
By: /s/ Otis R. Heldman By: /s/ D'Ray Moore
Name: Otis R. Heldman Name: D'Ray Moore
Title: Marketing Officer Title: Secretary
<PAGE>
A-1
SCHEDULE A
Separate Accounts, Contracts and Associated Portfolios
Name of Separate Accounts and Date
Established by Board of Directors
1. KILICO Variable Separaate Account - 2
(KV SA-2) (est.06/17/97)
2 KILICO Variable Series III Separate Account (Series III SA) (est 01/30/97)
3. KILICO Variable Series VI Separate Account
(Series VI SA) (est. 01/30/98)
Contracts Funded by Separate Account
1. First Fondation VUL (KV SA-2)
2. Series IV VUL (Individual) (Series III SA)
3. Series VII VUL (Survivorship) (Series VI SA)
Designated Portfolios
1. First Foundation VUL
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 Evergreen VA International Growth Fund
2. Series IV VUL 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
3. Series VII VUL 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
May 1, 1998
PFL Life Insurance Company
4333 Edgewood Raod NE
Cedar Rapids, Iowa 52499
Re: Indemnification Agreement - Evergreen Variable Annuity Trust
Gentlemen:
This letter constitutes our agreement to indemnify you with respect to
certain representations and warranties made by Evergreen Variable Annuity Trust
(the "Trust) in a Participation Agreementdated May 1, 1998 between you and the
Trust (the "Agreement").
Pursuant to Sections 3.6 and 3.7 of the Agreement, the Trust represents and
warrants, amonther things, that it intends to qualify as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code of 1996, as amended
(the "Code"), and to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that the Trust will comply with Section
817(h) of the Code and all regulations issued hereunder.
We hereby agree to indemnify PFL Life Insurance Comapny (the "Company") and
each person who controls or is affiliated with the Company (within the meaning
of such terms under the federal securities laws), and any officer, director,
employee or agent of the Company, against any and all losses, claims, damages or
liabilities, joint or several, including any investigative, legal and other
expenses reasonably incurred in connection with and any amounts paid (with our
consent) in settlement of, any action, suit or proceeding or any claim asserted,
to which they or any of them may become subject under any statute or regulation,
at common law or otherwise, insofar as such losses, claims, damaes, liabilities
or settlements arise out of:
(i) the Trust's failure to qualify and/or continue to qualify as a
Regulated Investment Company under Subchapter M of the Code (or any successor or
similar provision); or
(ii) The Trust's failure to comply with Section 817(h) of the Code and the
regulations issued thereunder.
You shall not be entitled to indemnification oif such loss, claim, damage,
or liability is due to your willfull misfeasance, bad faith, gross negligenceor
reckless disregard of duty. The indemnification procedures set forth in
Sections 5.4 and 5.5 of the Agreement shall apply to any actions for which we
are indemnifying you in this letter.
Sincerely yours,
FIRST UNION NATIONAL BANK EVERGREEN ASSET MANAGEMENT CORP.
By: /s/ David C. Francis By: /s/ Nola Maddox Falcone
--------------------- -------------------------
Name: David C. Francis Name: Nola Maddox Falcone
Title: Senior Vice President Title: President
KEYSTONE INVESTMENT MANAGEMENT COMPANY
By: /s/ Albert H. Elfner
----------------------
Name: Albert H. Elfner
Title: President
Accepted by:
PFL LIFE INSURANCE COMPANY
By: /s/ William Busler
-----------------------------
Name: William Busler
Title: President
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of May, 1998 between EVERGREEN VARIABLE
ANNUITY TRUST, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and PFL LIFE INSURANCE COMPANY, a life insurance
company organized under the laws of the State of Iowa (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; 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 shall provide or cause to be provided to the Company with as
many printed copies of the Trust's current prospectus and statement of
additional information as the Company may reasonably request. If requested by
the Company in lieu thereof, the Trust shall provide camera-ready film
containing the Trust's prospectus and statement of additional information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or statement of additional
information for the Trust is amended during the year) to have the prospectus for
the Contracts and the Trust's prospectus printed together in one document, and
to have the statement of additional information for the Trust and the statement
of additional information for the Contracts printed together in one document.
Alternatively, the Company may print the Trust's prospectus and/or statement of
additional information in combination with other fund companies' prospectuses
and statements of additional information. Except as provided in the following
three sentences, all expenses of printing and distributing Trust prospectuses
and statements of additional information shall be the expense of the Company.
For prospectuses and statements of additional information provided by the
Company to its existing owners of Contracts in order to update disclosure
annually as required by the 1933 Act and/or the 1940 Act, the cost of printing
shall be borne by the Trust. If the Company chooses to receive camera-ready film
in lieu of receiving printed copies of the Trust's prospectus, the Trust will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Trust's per unit cost of typesetting and printing the Trust's prospectus.
The same procedures shall be followed with respect to the Trust's statement of
additional information.
The Company agrees to provide the Trust or its designee with such
information as may be reasonably requested by the Trust to assure that the
Trust's expenses do not include the cost of printing any prospectuses or
statements of additional information other than those actually distributed to
existing owners of the Contracts.
2.3 The Trust's prospectus shall state that the statement of additional
information for the Trust is available from the Trust or the Company (or in the
Trust's discretion, the Prospectus shall state that such statement is available
from the Trust).
2.4 The Trust, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and statements of additional information, which are covered in
Section 2.2) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
2.5. 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 2.6., 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; provided, however, that as long as any Contracts
are invested in a portfolio, the Endeavor Mark may be used in connection with
the provision of historical information on the Contracts.
2.6. 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.
2.7. 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.
2.8. 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.
2.9. 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.
2.10. 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 Iowa 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 that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
3.7. 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 Code and the rules and regulations thereunder. The Trust shall
provide the Company, or cause to be provided, a letter from the appropriate
officer 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 3.7 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 from 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
(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 and such material
adverse change or material adverse publicity will have an adverse impact upon
the business and operations of the Trust; 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
and such material adverse change or material adverse publicity will have an
adverse impact upon the business and operations of the Company; 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 2.2.
6.3. The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.9 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:
Evergreen Variable Annuity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Attention: Legal Department
If to the Company:
PFL Life Insurance Company
Financial Markets Division
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499-0001
Attention: FMD Legal Department
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.
PFL LIFE INSURANCE COMPANY EVERGREEN VARIABLE ANNUITY TRUST
By: /s/ William Busler By: /s/ D'Ray Moore
Name: William Busler Name: D'Ray Moore
Title: President Title: Secretary
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
Name of Separate Account Policies Funded by Portfolios Applicable to
and Date of Established by Separate Account Policies
Board of Directors
PFL Retirement Builder PFL Life Insurance Evergreen VA Fund
Variable Annusity Account Company Policy Form Evergreen VA Foundation Fund
March 29, 1998 No. AV288-101-95-796 Evergreen VA Growth & Income
(including successor Fund
forms, addenda and
endorsements - may
vary by state under
marketing names:
"Retirement Income
Builder Variable
Annuity"
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Variable Annuity Trust
We consent to the use of our report dated January 29, 1999 for
Evergreen VA Aggressive Growth Fund, Evergreen VA Fund, Evergreen VA Foundation
Fund, Evergreen VA Global Leaders Fund, Evergreen VA Growth and Income Fund,
Evergreen VA International Growth Fund, Evergreen VA Small Cap Equity Income
Fund and Evergreen VA Strategic Income Fund incorporated herein by reference,
and to the references to our firm under the captions "Financial Highlights" in
the prospectus and "Independent Auditors" in the Statement of Additional
Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 26, 1998
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 AGGRESSIVE GROWTH FUND
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,052,801
<INVESTMENTS-AT-VALUE> 4,029,359
<RECEIVABLES> 284
<ASSETS-OTHER> 13,750
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,043,393
<PAYABLE-FOR-SECURITIES> 104
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,451
<TOTAL-LIABILITIES> 4,555
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,222,476
<SHARES-COMMON-STOCK> 297,619
<SHARES-COMMON-PRIOR> 248,691
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (253)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (159,943)
<ACCUM-APPREC-OR-DEPREC> 976,558
<NET-ASSETS> 4,038,838
<DIVIDEND-INCOME> 4,581
<INTEREST-INCOME> 14,437
<OTHER-INCOME> 0
<EXPENSES-NET> (28,233)
<NET-INVESTMENT-INCOME> (9,215)
<REALIZED-GAINS-CURRENT> (122,678)
<APPREC-INCREASE-CURRENT> 820,212
<NET-CHANGE-FROM-OPS> 688,319
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 184,977
<NUMBER-OF-SHARES-REDEEMED> (55,735)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,170,524
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (4,226)
<OVERDIST-NET-GAINS-PRIOR> (123,554)
<GROSS-ADVISORY-FEES> (16,941)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (43,883)
<AVERAGE-NET-ASSETS> 2,823,541
<PER-SHARE-NAV-BEGIN> 11.10
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 2.51
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.57
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
[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 FUND
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 41,562,865
[INVESTMENTS-AT-VALUE] 46,545,448
[RECEIVABLES] 122,676
[ASSETS-OTHER] 152
[OTHER-ITEMS-ASSETS] 9,013
[TOTAL-ASSETS] 46,677,289
[PAYABLE-FOR-SECURITIES] 758,277
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 98,653
[TOTAL-LIABILITIES] 856,930
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 40,605,528
[SHARES-COMMON-STOCK] 2,993,757
[SHARES-COMMON-PRIOR] 1,450,979
[ACCUMULATED-NII-CURRENT] 156,544
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 75,704
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 4,982,583
[NET-ASSETS] 45,820,359
[DIVIDEND-INCOME] 276,453
[INTEREST-INCOME] 233,376
[OTHER-INCOME] 0
[EXPENSES-NET] (343,288)
[NET-INVESTMENT-INCOME] 166,541
[REALIZED-GAINS-CURRENT] 1,153,050
[APPREC-INCREASE-CURRENT] 407,756
[NET-CHANGE-FROM-OPS] 1,727,347
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] (1,412,932)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,696,668
[NUMBER-OF-SHARES-REDEEMED] (250,312)
[SHARES-REINVESTED] 96,422
[NET-CHANGE-IN-ASSETS] 24,220,197
[ACCUMULATED-NII-PRIOR] (985)
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (326,123)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (390,265)
[AVERAGE-NET-ASSETS] 34,328,766
[PER-SHARE-NAV-BEGIN] 11.10
[PER-SHARE-NII] (0.04)
[PER-SHARE-GAIN-APPREC] 2.51
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 13.57
[EXPENSE-RATIO] 0.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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 FOUNDATION
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 70,238,371
[INVESTMENTS-AT-VALUE] 78,209,525
[RECEIVABLES] 561,236
[ASSETS-OTHER] 89,661
[OTHER-ITEMS-ASSETS] 9,371
[TOTAL-ASSETS] 78,869,793
[PAYABLE-FOR-SECURITIES] 420,545
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 78,291
[TOTAL-LIABILITIES] 498,836
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 70,131,196
[SHARES-COMMON-STOCK] 5,414,433
[SHARES-COMMON-PRIOR] 2,351,230
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (5,588)
[ACCUMULATED-NET-GAINS] 274,195
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 7,971,154
[NET-ASSETS] 78,370,957
[DIVIDEND-INCOME] 661,863
[INTEREST-INCOME] 1,279,396
[OTHER-INCOME] 0
[EXPENSES-NET] (559,493)
[NET-INVESTMENT-INCOME] 1,381,766
[REALIZED-GAINS-CURRENT] 1,192,308
[APPREC-INCREASE-CURRENT] 2,722,636
[NET-CHANGE-FROM-OPS] 5,296,710
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (1,361,829)
[DISTRIBUTIONS-OF-GAINS] (1,143,134)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 3,066,890
[NUMBER-OF-SHARES-REDEEMED] (178,716)
[SHARES-REINVESTED] 175,029
[NET-CHANGE-IN-ASSETS] 46,530,594
[ACCUMULATED-NII-PRIOR] (5,485)
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (467,156)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (559,493)
[AVERAGE-NET-ASSETS] 56,726,362
[PER-SHARE-NAV-BEGIN] 13.54
[PER-SHARE-NII] 0.35
[PER-SHARE-GAIN-APPREC] 1.07
[PER-SHARE-DIVIDEND] (0.26)
[PER-SHARE-DISTRIBUTIONS] (0.23)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 14.47
[EXPENSE-RATIO] 0.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DECEMBER-31-1998
[PERIOD-START] JANUARY-01-1998
[PERIOD-END] DECEMBER-31-1998
[INVESTMENTS-AT-COST] 8,585,768
[INVESTMENTS-AT-VALUE] 9,666,011
[RECEIVABLES] 58,585
[ASSETS-OTHER] 22
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 9,724,618
[PAYABLE-FOR-SECURITIES] 67,045
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 74,273
[TOTAL-LIABILITIES] 141,318
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 8,569,969
[SHARES-COMMON-STOCK] 750,951
[SHARES-COMMON-PRIOR] 268,669
[ACCUMULATED-NII-CURRENT] 1,761
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (68,852)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 1,080,422
[NET-ASSETS] 9,583,300
[DIVIDEND-INCOME] 84,779
[INTEREST-INCOME] 31,344
[OTHER-INCOME] 0
[EXPENSES-NET] 61,483
[NET-INVESTMENT-INCOME] 54,640
[REALIZED-GAINS-CURRENT] (68,172)
[APPREC-INCREASE-CURRENT] 1,018,021
[NET-CHANGE-FROM-OPS] 1,004,489
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (53,046)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 507,154
[NUMBER-OF-SHARES-REDEEMED] (29,069)
[SHARES-REINVESTED] 4,197
[NET-CHANGE-IN-ASSETS] 6,683,836
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 39,755
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 69,427
[AVERAGE-NET-ASSETS] 6,148,216
[PER-SHARE-NAV-BEGIN] 10.79
[PER-SHARE-NII] 0.10
[PER-SHARE-GAIN-APPREC] 1.94
[PER-SHARE-DIVIDEND] (0.07)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.76
[EXPENSE-RATIO] 0.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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 & INCOME FUND
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DECEMBER-31-1998
[PERIOD-START] JANUARY-01-1998
[PERIOD-END] DECEMBER-31-1998
[INVESTMENTS-AT-COST] 55,048,890
[INVESTMENTS-AT-VALUE] 61,240,393
[RECEIVABLES] 57,655
[ASSETS-OTHER] 9,513
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 61,307,561
[PAYABLE-FOR-SECURITIES] 603,004
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 128,366
[TOTAL-LIABILITIES] 731,370
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 54,057,578
[SHARES-COMMON-STOCK] 3,888,759
[SHARES-COMMON-PRIOR] 2,032,687
[ACCUMULATED-NII-CURRENT] (1,909)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 329,019
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 6,191,503
[NET-ASSETS] 60,576,191
[DIVIDEND-INCOME] 460,366
[INTEREST-INCOME] 504,851
[OTHER-INCOME] 0
[EXPENSES-NET] (477,364)
[NET-INVESTMENT-INCOME] 487,853
[REALIZED-GAINS-CURRENT] 1,366,195
[APPREC-INCREASE-CURRENT] (455,127)
[NET-CHANGE-FROM-OPS] 1,398,921
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (484,359)
[DISTRIBUTIONS-OF-GAINS] (1,110,182)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,929,361
[NUMBER-OF-SHARES-REDEEMED] (177,543)
[SHARES-REINVESTED] 104,254
[NET-CHANGE-IN-ASSETS] 29,488,273
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 453,431
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 551,853
[AVERAGE-NET-ASSETS] 47,729,617
[PER-SHARE-NAV-BEGIN] 15.29
[PER-SHARE-NII] 0.16
[PER-SHARE-GAIN-APPREC] 0.56
[PER-SHARE-DIVIDEND] (0.13)
[PER-SHARE-DISTRIBUTIONS] (0.30)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 15.58
[EXPENSE-RATIO] 0.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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 INTERNATIONAL GROWTH FUND
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 1,311,864
[INVESTMENTS-AT-VALUE] 1,442,925
[RECEIVABLES] 8,154
[ASSETS-OTHER] 17,010
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,468,089
[PAYABLE-FOR-SECURITIES] 6,132
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 37,359
[TOTAL-LIABILITIES] 43,491
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,419,279
[SHARES-COMMON-STOCK] 151,668
[SHARES-COMMON-PRIOR] 0
[ACCUMULATED-NII-CURRENT] 1,276
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (121,523)
[ACCUM-APPREC-OR-DEPREC] 125,566
[NET-ASSETS] 1,424,598
[DIVIDEND-INCOME] 3,865
[INTEREST-INCOME] 4,668
[OTHER-INCOME] 0
[EXPENSES-NET] (4,163)
[NET-INVESTMENT-INCOME] 4,370
[REALIZED-GAINS-CURRENT] (162,719)
[APPREC-INCREASE-CURRENT] 125,566
[NET-CHANGE-FROM-OPS] (32,783)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 154,555
[NUMBER-OF-SHARES-REDEEMED] (2,887)
[SHARES-REINVESTED] 0
[NET-CHANGE-IN-ASSETS] 1,424,598
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] (3,122)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (34,376)
[AVERAGE-NET-ASSETS] 1,109,128
[PER-SHARE-NAV-BEGIN] 10
[PER-SHARE-NII] 0.03
[PER-SHARE-GAIN-APPREC] (0.64)
[PER-SHARE-DIVIDEND] 0
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 9.39
[EXPENSE-RATIO] 1.02
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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 SMALL CAP EQUITY INCOME FUND
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] JUN-30-1999
[PERIOD-START] JUL-01-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 2,316,559
[INVESTMENTS-AT-VALUE] 2,337,835
[RECEIVABLES] 10,976
[ASSETS-OTHER] 56,649
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 2,405,460
[PAYABLE-FOR-SECURITIES] 112,759
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 10,974
[TOTAL-LIABILITIES] 123,733
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 2,282,988
[SHARES-COMMON-STOCK] 238,173
[SHARES-COMMON-PRIOR] 139,842
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (22,537)
[ACCUM-APPREC-OR-DEPREC] 21,276
[NET-ASSETS] 2,281,727
[DIVIDEND-INCOME] 28,086
[INTEREST-INCOME] 7,663
[OTHER-INCOME] 0
[EXPENSES-NET] (10,255)
[NET-INVESTMENT-INCOME] 25,494
[REALIZED-GAINS-CURRENT] (19,832)
[APPREC-INCREASE-CURRENT] 21,276
[NET-CHANGE-FROM-OPS] 26,938
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (26,284)
[DISTRIBUTIONS-OF-GAINS] (2,958)
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 241,643
[NUMBER-OF-SHARES-REDEEMED] (6,669)
[SHARES-REINVESTED] 3,199
[NET-CHANGE-IN-ASSETS] 2,281,727
[ACCUMULATED-NII-PRIOR] 4,278
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (163)
[GROSS-ADVISORY-FEES] (9,742)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (35,603)
[AVERAGE-NET-ASSETS] 1,527,819
[PER-SHARE-NAV-BEGIN] 10.00
[PER-SHARE-NII] 0.15
[PER-SHARE-GAIN-APPREC] (0.45)
[PER-SHARE-DIVIDEND] (0.11)
[PER-SHARE-DISTRIBUTIONS] (0.01)
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 9.58
[EXPENSE-RATIO] 1.02
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[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 STRATEGIC INCOME FUND
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-START] JAN-01-1998
[PERIOD-END] DEC-31-1998
[INVESTMENTS-AT-COST] 11,102,639
[INVESTMENTS-AT-VALUE] 11,072,038
[RECEIVABLES] 154,572
[ASSETS-OTHER] 6,883
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 11,233,493
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 51,664
[TOTAL-LIABILITIES] 51,664
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 11,266,075
[SHARES-COMMON-STOCK] 1,076,292
[SHARES-COMMON-PRIOR] 216,179
[ACCUMULATED-NII-CURRENT] 0
[OVERDISTRIBUTION-NII] (255)
[ACCUMULATED-NET-GAINS] 0
[OVERDISTRIBUTION-GAINS] (53,963)
[ACCUM-APPREC-OR-DEPREC] (30,028)
[NET-ASSETS] 11,181,829
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 480,344
[OTHER-INCOME] 0
[EXPENSES-NET] (66,734)
[NET-INVESTMENT-INCOME] 413,610
[REALIZED-GAINS-CURRENT] (54,784)
[APPREC-INCREASE-CURRENT] (40,343)
[NET-CHANGE-FROM-OPS] 318,483
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (421,077)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 919,993
[NUMBER-OF-SHARES-REDEEMED] (100,550)
[SHARES-REINVESTED] 40,670
[NET-CHANGE-IN-ASSETS] 8,977,454
[ACCUMULATED-NII-PRIOR] 1,266
[ACCUMULATED-GAINS-PRIOR] 0
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] (1,626)
[GROSS-ADVISORY-FEES] (39,755)
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] (66,734)
[AVERAGE-NET-ASSETS] 6,832,488
[PER-SHARE-NAV-BEGIN] 10.20
[PER-SHARE-NII] 0.64
[PER-SHARE-GAIN-APPREC] (0.04)
[PER-SHARE-DIVIDEND] (0.41)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.39
[EXPENSE-RATIO] 1.02
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
