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Evergreen
Variable Annuity Trust
Annual Report
December 31, 1998
[LOGO OF EVERGREEN FUNDS/SM/ APPEARS HERE]
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Table of Contents
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Portfolio Manager Commentary:
Evergreen VA Aggressive Growth Fund......................................... 1
Evergreen VA Fund........................................................... 3
Evergreen VA Foundation Fund................................................ 4
Evergreen VA Global Leaders Fund............................................ 6
Evergreen VA Growth and Income Fund......................................... 8
Evergreen VA International Growth Fund...................................... 10
Evergreen VA Small Cap Equity Income Fund................................... 11
Evergreen VA Strategic Income Fund.......................................... 13
Historical Performance and Long Term Growth................................. 14
Financial Highlights........................................................ 16
Schedule of Investments..................................................... 20
Statement of Assets and Liabilities......................................... 37
Statement of Operations..................................................... 39
Statement of Changes in Net Assets.......................................... 41
Combined Notes to Financial Statements...................................... 45
Independent Auditor's Report................................................ 51
Additional Information...................................................... 52
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Evergreen Variable Annuity Trust
EVERGREEN VA AGGRESSIVE GROWTH FUND
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A Report From Your Portfolio Manager
Harold J. Ireland, Jr.
Performance
As of December 31, 1998, Evergreen VA Aggressive Growth Fund had a net asset
value of $13.57 and $4,038,838 in net assets. The Fund returned 10.5% for the
most recent six-month period and 22.25% for the 12 months ended December 31,
1998. This compares favorably to the Morningstar Mid-Cap Growth Fund average
which returned 3.9% and 18.0%, for the same six- and 12-month periods. The S &
P 400 Mid-Cap Index returned 8.9% and 18.3% for the same periods.
1998 in Review
1998 was both the best of times and the worst of times for investors, because
market activity included drastic swings of sentiment throughout the year. For
those who bought quality growth stocks and held them throughout the year,
however, the results were gratifying. One of the most dramatic and less
favorable aspects of the market's performance in 1998 was the wide disparity
between the performance of large-cap stocks, or blue chips, versus mid- and
small-cap issues, which include the vast majority of stocks. Using the S&P 500
Index as a proxy for the large-cap sector and the Russell 2000 Index for the
mid- to small- cap stocks, these two indices were fairly close in performance
during the post-1994 bull market cycle until April of 1998. Since then, the
S&P 500 has moved onto new highs following its 19% July-August decline,
registering a 29% gain for 1998. On the other hand, the Russell 2000 has
regained only about half its April-October 37% drop and registered a 3% loss
for 1998. Clearly the market has turned in very mixed performance in 1998. The
DJIA and the S&P 500 Index halted their 1998 intra-year decline just short of
20% (the threshold which usually defines a Bear Market), making it difficult
to argue that a bear market correction occurred. The Value Line Index
(geometric), Russell 2000 and the S&P 600 Small Cap Index, however, returned a
negative 2% to 4% for the year after declining between 32% and 38% from their
April highs to their October lows. This negative performance is well into bear
market territory.
We are pleased to report that even though Evergreen VA Aggressive Growth Fund
declined during the year in line with its peer group, it rebounded to finish
8% above its April 1998 high. The Fund's energy-related holdings kept a great
year for the Fund from becoming a spectacular year. Clearly the most
disappointing industry sector for the entire market in 1998 was the energy
sector. At 10.4% of the Fund's assets at year end, these holdings rebounded
strongly in October, but then declined again in the last two months of the
year. Warmer than normal weather along with excessive inventories was again
the major culprit, followed by concerns about slower global economic growth in
1999.
Investment Themes:
Successful companies in the Fund's portfolio fall into several investment
themes:
The "Graying of America" is a major long-term trend in our economy, driving
increased healthcare needs and spending. The U.S. now has the largest
population of retirees in history and the leading edge of the "baby boom"
generation is just reaching its fifties. Both age groups use a
disproportionate amount of healthcare products and services. Three of the
largest holdings are Medtronic, the leader in pacemakers and other implantable
cardiovascular devices; Renal Care Group, a company that provides medical care
for individuals suffering from kidney diseases and diabetes; and VISX, the
leading laser vision correction company.
"Outsourcing" is another theme. For several years U.S. corporations have been
striving for greater productivity and cost-cutting by outsourcing critical
business functions. Holdings in the portfolio that reflect the outsourcing
theme are: Paychex, the largest provider of payroll and accounting services to
mid-sized businesses; Fiserv, a leading provider of financial data processing
services to banks and financial institutions; Analyst International, a
computer software services and technical support company; and MedQuist, a
provider of information services to health care organizations. Major oil
companies are increasingly outsourcing exploration, drilling and service
functions. Halliburton, Schlumberger and Petroleum Geo-Services are companies
in the portfolio that provide broad-based, one-stop shopping for Oil Field
Services.
"Specialty Retailers" that save customers time by providing a high level of
customized service and/or convenience are also a portfolio theme. Such
companies have a competitive edge in the marketplace. Even though consumers
have more money than ever to spend, they seem to have less and less time.
Holdings in Office Depot, Staples, Bed Bath & Beyond, Fastenal and Family
Dollar Stores reflect this theme. One of the Fund's most successful holdings
in this sector is Home Depot whose growth continues to exceed 25% annually.
The company provides the highest level of service in the do-it-yourself, home
improvement market.
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Evergreen Variable Annuity Trust
EVERGREEN VA AGGRESSIVE GROWTH FUND
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"Information technology" is a major theme. Information rather than materials
is the major "stuff" of economic activity. The backbone of information
technology is computer software, communications and networking equipment
supporting the Internet and corporate intranets. Cisco Systems, Microsoft, EMC
Corporation and MCI WorldCom are major holdings and dominant developers of
products and services in these areas. Sterling Commerce, the largest provider
of applications for electronic commerce and electronic payments in the U.S.,
is helping corporate and government organizations save on procurement,
acquisition and accounting costs.
Outlook
The possibility of an economic slowdown in 1999 and the continued lack of
pricing power of companies could cause a moderation in corporate earnings.
These possibilities may continue to fuel market volatility. Stock market
preferences are likely to be determined by a company's ability to produce unit
and profit growth in a deflationary and moderating environment. This could be
a factor in phasing out the dominance, of recent years, of large-cap
multinational investments. Money flow should gravitate towards the mid-cap and
small-cap growth universe. Even though relative valuations remain near
historic lows for these issues, their prospects for future earnings growth
remain bright. As an example, the 40 companies held in the mid-cap Evergreen
VA Aggressive Growth Fund are expected to grow 25% a year during the next five
years while the S&P 500 grows 5%./1/ More importantly, on a price-to-growth
basis, emerging growth stocks are selling at less of a price premium than
almost any time in the past.
Despite short-term market gyrations, the events of the past year have driven
home the importance of earnings growth and the exceptional valuation that is
often given to companies that have both current earnings growth and the
"franchise value" characteristics that promise continued profitability and
growth of earnings long into the future. Some of the characteristics of
franchise value companies that we own and that we are looking for are:
pervasive management culture of excellence; innovation and industry
leadership; strong revenue and earnings growth; very high profit margins and
returns on capital; branded, proprietary products; excess or free cash flow
and exceptional future growth opportunities.
Recent economic releases, such as revised 3rd Quarter GDP, November sales of
new homes, December confidence and the November leading indicators, have been
stronger than expected. We believe that 1999 may show somewhat better economic
growth than previously expected. Inflation and interest rates should continue
to be restrained, benefiting from continued higher productivity from heavy
investment in technology and from low-cost, imported raw materials and
manufactured goods from Asia and the less developed world. We are confident,
as 1998 again illustrated, that growth investing will be very rewarding over
the long term.
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/1/Source: Baseline Financial Services, Inc. and FirstCall
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Evergreen Variable Annuity Trust
EVERGREEN VA FUND
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A Report From Your Portfolio Manager
Stephen A. Lieber
The Evergreen VA Fund provided a 6.44% return in 1998, as compared with the -
2.55% return for the Russell 2000 Index, used as a benchmark for
comparability. A significant portion of the Fund's equity holdings provided
exceptionally strong returns. The largest increases were in the shares of
VISX, Inc. +287.4%; Sonic Automotive, Inc. +151.3%; Cicso Systems,
Inc. +149.0%; Perkin-Elmer Corp. +117.4%; Sun Microsystems, Inc. +114.8%; and
Lowe's Companies, Inc., +114.5%. The top twenty performers provided gains of
over 37%. They represented a diverse group of industries, five in health care,
three in computer systems and communications, and two in retail.
A number of significant gains were realized during the year, ranging up to
308.0% for the holdings in Arterial Vascular Engineering, Inc., and 187.6% for
the holdings in Merrill Lynch & Co., Inc. The top ten gains taken in the Fund
ranged from 33.3% to 308.0%. The five largest losses realized ranged between
7.4% in the case of Reliability, Inc. and 69.5% for the shares of ADFlex
Solutions, Inc.
Issues purchased during the year which provided outstanding unrealized gains
included the aforementioned VISX, Inc., and Sonic Automotive, Inc., as well as
Maxxim Medical, Inc., Molex Inc., Eagle Hardware & Garden, Inc., Kaufman &
Broad Home Corp., and Fair, Isaac & Co., Inc., all of which provided gains
between 34.4% and 66.4%.
The sharp decline in stock prices in the third quarter provided excellent
opportunities for the Fund to both add to its diversification and increase
holdings on a favorable basis. Issues purchased during this sell-off included
Kaufman & Broad Home Corp., up 34.4% by year end; Teleflex, Inc., up 25.0%;
Ethan Allen Interiors, Inc., up 23.4%; and Amp, Inc., up 22.9%; while no
holding purchased September 1 to year-end declined more than 2%.
Mergers and acquisitions provided capital appreciation among the Fund's
holdings. During the calendar year, eleven transactions were either initiated
or completed, with an average return to the end of the fiscal year on
completed acquisitions of 82.8%. The largest gain on completed acquisitions
was in the shares of Continental Homes Holding Corp., which provided a 153.0%
increase in 14 months as a result of the acquisition bid by D.R. Horton, Inc.
Of those pending at year end, the largest gain was in the shares of SunAmerica
Inc., which is to be bought by American International Group, Inc., and
provided a 226.1% gain to year end from purchase in April, 1997, based on the
December 31, 1998, closing price of American International Group, Inc. Two of
these transactions will show a negative result upon completion, a 9.2% loss in
Bankers Trust Corp., with a bid from Deutsche Bank AG, and a 30.7% loss in
St. John Knits, Inc., with a buyout by management.
The investment strategy in the Fund has continued to be one of positioning in
undervalued growth stock opportunities. In line with the long-held strategy of
the Evergreen Fund, we have focused on entrepreneurial growth companies. This
implies predominantly smaller companies in the portfolio, but also includes
participation in important technological growth opportunities. Among the
larger companies held are positions in Hewlett- Packard Co., Lowe's Companies,
Inc., MBIA Inc., McKesson Corp., Mellon Bank Corp., Merck & Co., Inc., and
Union Pacific Corp. Many of the small-to-medium sized companies in the
portfolio represent leadership positions in specialty technologies, such as
Stryker Corp., a manufacturer of replacement surgical implants for arthritic
and other body motion problems; Parametric Technology Corp., a developer of
manufacturing software; Kaydon Corp., manufacturer of miniature precision
bearings; Fair, Isaac & Co., Inc., provider of software and systems for
consumer credit analysis; and Analytical Surveys, Inc., developer and
manufacturer of global positioning surveying and mapping systems.
We have continued to position the Fund to benefit from an environment of low
inflation, modest credit ease, and expansion of financial institutions. During
the year, five of the Fund's holdings among financial institutions and
organizations received acquisition bids: First of America Bank Corp., First
Palm Beach Bancorp, Inc., Interstate Johnson Lane Inc., Bankers Trust Corp and
SunAmerica Inc. New positions added during the fiscal year in financial
institutions included BankBoston Corp., Horace Mann Educators Corp.,
LandAmerica Financial Group, Inc., Mellon Bank Corp., Morgan Keegan, Inc.,
MGIC Investment Corp., and Paine Webber Group, Inc. We believe that each of
these issues provides growth opportunities, comparative undervaluation, and a
favorable potential for participation in the industry's consolidation. Such
expectations typify the combinations we look for in the Fund's holdings as we
anticipate the development of improving valuation for our holdings. 1998 was a
year of considerable volatility for the markets. In many cases, particularly
in the financial institutions group, mid-year gains were wiped out in the
latter part of the year. We believe, however, that the structure of the
portfolio contains the ingredients for superior results in 1999, and the years
ahead.
3
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Evergreen Variable Annuity Trust
EVERGREEN VA FOUNDATION FUND
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A Report From Your Portfolio Manager
Stephen A. Lieber
The Evergreen VA Foundation Fund returned 10.56% for the 12 months ended
December 31, 1998. The Fund's investment strategy is based on the balanced
concept, actively allocating assets between common stocks, U.S. Treasury
obligations, and cash equivalents. Throughout the year, the majority of the
Fund's investments have been in common stocks. At year end, the allocation was
64% in common stocks, 26% in U.S. Treasury obligations, and 10% in cash
equivalents. While the bulk of the Fund's increase in net asset value was
provided by the common stock positions, the fixed income section provided both
yield and appreciation. This reflected the declining trend of interest rates
in 1998, and the positioning of the fixed income portfolio in long-term bonds
to achieve the maximum benefit from declining rates.
The portfolio benefited from a number of outstanding equity performers. 19 of
the Fund's holdings provided gains of 30% or more. The top ten in total return
for the year were as follows:
<TABLE>
<CAPTION>
Holding Gain
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<S> <C>
Cisco Systems, Inc. .................................................... +140.9%
Sun Microsystems, Inc. ................................................. +114.8%
Lowe's Companies, Inc. ................................................. +114.5%
Time Warner Inc. ....................................................... +82.4%
AFLAC, Inc. ............................................................ +80.2%
International Business Machines Corp. .................................. +78.4%
Intel Corp. ............................................................ +70.7%
Centex Corp. ........................................................... +63.7%
Medtronic, Inc. ........................................................ +52.2%
Lilly (Eli) & Co. ...................................................... +47.7%
</TABLE>
While the outstanding issues in terms of performance provided far above
average gains for the year, there were also significant groups in the
portfolio which lagged the leaders and the overall market. The largest sector
of Fund investments with this lagging characteristic was banks and financial
companies. The overall return on the 15 banks held in the Fund's portfolio was
just under 1%. This limited performance reflected the consequences of the
financial crisis which occurred after the Russian default in August, and was
further aggravated by the Long-Term Capital hedge fund crisis. Bank stocks,
which had been very strong performers for the Fund, were negatively impacted,
although most recovered their losses for the year by year end. We not only
held our bank positions, but we added to them during periods of severe
decline, convinced that great opportunity still lies ahead in the improving
efficiency and product broadening of the banking industry, as well as
continuing consolidation. Within this group, reflecting these expectations,
the outstanding performer was Crestar Financial Corp., which moved up in value
after an acquisition bid from Sun Trust Banks, Inc.
The Fund's sizable, 21-issue commitment in insurance and financial service
companies was also negatively affected by the financial industry shock in the
fall. Its performance for the year was 7.1%. While most had significant
recoveries, and a few reached new highs by year end, the overall performance
was below our usual expectations.
Capital goods and Chemical and Agricultural Products were also negatively
impacted by world economic conditions, with a particular decline in the shares
of Deere & Co., as agricultural demand fell in Asia and Latin America. Price
competition, in part resulting from declining oil prices, had a negative
effect on chemical and agricultural products.
Among the most powerful groups for the Fund were Health Care Products and
Services, where our ten issues provided a 39.3% total return for the year. The
commitments in Information Services and Technology, Hewlett-Packard Co.,
International Business Machines Corp., Intel Corp., and Sun Microsystems, Inc.
combined, produced a 42.5% return for the Fund. Another powerful group was
Utilities--Telephone, where the five companies held produced a combined 35.5%
return.
The Fund's performance was enhanced by an active program of utilizing cash
reserves for new purchases during the period of acute stock market weakness.
From the end of August to November, striking gains from new purchases were
achieved: Centex Corp., 63.8%, Avon Products, Inc., 55.1%, Northern Trust
Corp., 54.3%, American International Group, Inc., 47.6%, Medtronic, Inc.,
43.3%, and Merrill Lynch & Co., Inc., 41.8%, were the top performers in this
group of third quarter purchases.
The equity performance of the Fund also benefited from favorable merger and
acquisition developments. Nine issues either had completed acquisitions or had
acquisitions pending at year-end, with an average return of 56.7%. Banks were
the predominant group, with First of America Bank Corp., Citigroup, Inc.,
Crestar Financial Corp., and Bankers Trust Corp., all involved in such
transactions. The others ranged from the electrical components industry with
Amp, Inc., up 23.3%, to telephone systems, GTE Corp., up 45.9%, based on the
4
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Evergreen Variable Annuity Trust
EVERGREEN VA FOUNDATION FUND
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value of the deal at December 31, 1998, to retailing, Mercantile Stores Co.,
Inc., up 40.6%, and apartment REIT, Oasis Residential, Inc., up 7.2%.
The Fund's fixed income percentage was sustained through purchases of U.S.
Treasury obligations of long maturity during periods of bond market weakness.
We added to the position in U.S. Treasury 6% due 2/15/26. This obligation is
now the largest single position in the Fund, exceeding 20.9% of net assets.
Such a large position is taken because of the huge breadth and liquidity of
the Treasury bond market, its risk free characteristics, and its sensitivity
to interest rate changes.
We believe the Fund is well positioned for continued net asset value increases
in the 1999 economic environment. Our anticipation is for a more slowly
growing economy where it will be necessary to focus equity investments on high
quality, well-sustained growth opportunities, and further capital gains in the
highest quality, fixed income investments.
5
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Evergreen Variable Annuity Trust
EVERGREEN VA GLOBAL LEADERS FUND
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A Report From Your Portfolio Manager
Edwin D. Miska
Performance
Evergreen VA Global Leaders Fund performed well during a challenging year,
returning 18.92% for the 12 months ended December 31, 1998. During the same
period, the average fund in the Lipper VA Global Funds universe returned
16.19% for the year, while the MSCI World Index returned 24.34% for the year.
The Fund's conservative investment discipline and risk assessment, which
included limited exposure to the volatile emerging markets and a long-term
practice to limit weightings in individual countries, led to it
underperforming the MSCI World Index, but significantly outperforming its peer
group.
Economic Overview
The past 12 months presented the Fund with a very volatile and challenging
environment. By late July, turmoil in Asian, Russian, and other emerging
markets, increased investor concerns about the possibility of a global
contagion spreading to the developed world. This uncertainty supplanted the
investor optimism that had dominated the United States and Western Europe for
the first half of the year. U.S. corporate profit performance continued to
show growth, although at a slower rate. In Europe, companies were spurred on
by a confluence of favorable factors, including the European Union and common
currency, the euro; corporate restructuring and increased merger activity; and
low interest rates. These factors led to improved profits and gains in
productivity across the continent. More recently, during the last quarter of
1998, growing problems within financial institutions, including banks,
brokerages and hedge funds, have exacerbated market uncertainty. Only a
concerted effort by the world's central banks to lower interest rates was able
to stave off asset flight and stabilize world markets by injecting significant
liquidity. This has had the effect of inflating stock prices around the globe,
pushing valuations to new levels.
Strategy
The Fund has continued to follow its long-term investment mission, seeking to
invest in the best 100 companies in the world. We use a strong quantitative,
fundamental and valuation review, combined with an active management
discipline to sell those stocks that no longer meet our stringent criteria.
Our geographical emphasis has remained consistent throughout the year. We have
emphasized areas where economic growth is expected to continue, largely North
America and Europe, while avoiding those areas experiencing the most dramatic
turmoil, notably the Far East. As of the fiscal year end, December 31, 1998,
the Fund had 44% invested in the United States and Canada, and 45% allocated
to 13 European nations. The Far East, comprising Japan, Hong Kong and
Malaysia, made up only 5%. The remainder is primarily in cash and short-term
investments.
Performance within our U.S. allocation was strong--up 31% for 1998--handily
outperforming the S&P 500 index which rose 28.72% for the year. We continued
our long-term strategy of investing in leading companies throughout the
economy, emphasizing both quality and diversification. Our best performers
were as follows:
<TABLE>
<CAPTION>
Holding Gain
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Gap, Inc................................................................ +139.5%
Cisco Systems, Inc...................................................... +132.4%
Microsoft Corp.......................................................... +115.1%
Home Depot, Inc......................................................... +112.0%
Schwab (Charles) & Co., Inc. ........................................... +111.4%
Wal Mart Stores, Inc.................................................... +111.0%
</TABLE>
Among foreign issues, the Fund also performed well--up 12.2%--largely in line
with international indices. Top performing country allocations included:
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Country Gain
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Belgium.................................................................. +65.0%
Spain.................................................................... +40.5%
Netherlands.............................................................. +19.2%
Italy.................................................................... +18.4%
France................................................................... +17.3%
</TABLE>
Top international issues included:
<TABLE>
<CAPTION>
Holding (Country) Business Gain
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<S> <C> <C>
Vodafone Group Plc, ADR (UK)................ Wireless Telecommunications +122.0%
Nokia Corp., ADR (Finland).................. Wireless Telecommunications +94.4%
Hennes & Mauritz AB cl. B (Sweden).......... Retailer +84.2%
Sodexho Alliance Sa (France)................ Global Food Services +78.9%
UCB SA (Belgium)............................ Pharmaceuticals +76.2%
Rentokil Initial Plc (UK)................... Services Provider +71.7%
Synthelabo Sa (France)...................... Pharmaceuticals +69.0%
Astra AB, ADS (Sweden)...................... Pharmaceuticals +19.3%
</TABLE>
6
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Evergreen Variable Annuity Trust
EVERGREEN VA GLOBAL LEADERS FUND
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Poor performers were concentrated in the Far East, notably Hong Kong, -8.7%,
and Malaysia, -9.7%. Several individual firms, notably UK industrial and
engineering outfits TI Group -33.1%; Morgan Crucible -33.8%; and LaPorte Plc -
29.5%, were hurt by a strong British pound, vis a vis other currencies,
impairing their export driven business models.
Outlook
In the coming year, we believe selectivity among individual companies and
geographic markets will be the keys to high performance. A slowdown in the
rate of economic growth looms on the horizon for many of the markets in which
the Fund invests. The rising tide of money flow, which has supported the
prices of stocks worldwide, appears to be abating. Catalysts, such as the
European Union and the launch of the euro, are strong macro forces; however,
we do not believe they will be sufficient to overcome weak profit reports. We
believe companies that consistently demonstrate sustained profit leadership
and project visible growth in any economic environment will be the likely
candidates for strong performance. In an environment of uncertainties, the
companies with superior management and strong financial balance sheets will be
better able to capitalize on market opportunities. We intend to identify those
companies and include them in the Fund's portfolio. Despite the demanding
environment of the past year, we are satisfied with the Fund's overall
performance and remain confident. We believe we are prudently and
opportunistically positioned for the challenges ahead.
International investing involves special risks, such as fluctuating currency
exchange rates and political and economic instability. There is no guarantee
that any fund will continue to hold a particular security. Holdings are
subject to change.
7
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Evergreen Variable Annuity Trust
EVERGREEN VA GROWTH AND INCOME FUND
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A Report From Your Portfolio Manager
Stephen A. Lieber
The Evergreen VA Growth and Income Fund provided a 4.77% return in 1998, as
compared with the 18.3% return for the S&P Mid Cap 400 Index, used as a
benchmark for comparability. A significant portion of the Fund's equity
holdings provided exceptionally strong returns. The largest increases were in
the shares of Compuware Corp. up 143.7%; Lowe's Companies, Inc. up 114.5%;
Jabil Circuit, Inc. up 109.4%; Atlas Air, Inc. up 103.4%; Time Warner, Inc. up
99.5%; Schering-Plough Corp. up 77.0%; AFLAC, Inc. up 75.3%; AirTouch
Communications, Inc. up 73.2%; Perkin Elmer Corp. up 61.2%; and Keebler Foods
Co. up 56.4%. The top twenty performers provided gains of over 43%. They
represented a diverse group of industries, dominated by information and
technology companies.
The Fund's largest commitment is in the financial sector. Banks and Finance &
Insurance stocks were up 17.5% and 8.1%, respectively. Historically, this has
been a high concentration of our portfolio and although showing a positive
return for 1998, these stocks lagged the markets overall. The second largest
concentration, Health Care Products & Services, was up 22.6% for the year. Oil
Field Services and Energy stocks significantly underperformed in 1998, down
67.5% and 23.3%, respectively (5.2% of portfolio combined). Real Estate stocks
also underperformed, down 39.9% (2.3% of portfolio at year end). Building,
Construction & Furnishings were up 42.4% and Telephone and Electric Utilities
were also strong performers in 1998 but were only 1.6% of the portfolio at
year-end. The remaining strong performers, Food & Beverage Products (up
39.2%), and Advertising & Related Services (up 29.4%) were all less than 4% of
the portfolio at year end.
A number of significant gains were realized during the year, ranging up to
102.5% from the acquisition of American Radio Systems Corp., and 95.8% from
the acquisition of Metromail Corp. The top ten gains taken in the Fund ranged
from 22.1% to 102.5%. The five largest losses realized ranged between 10.9% in
the case of Vencor, Inc., and 79.6% from the shares of Perceptron, Inc.
Issues purchased during the year which provided outstanding unrealized gains
included Jabil Circuit, Inc., up 113.8%; AFLAC, Inc., up 67.5%; Perkin-Elmer
Corp., up 67.1%; Keebler Foods Co., up 56.8%; SunAmerica, Inc., up 55.4%;
Chase Manhattan Corp., up 53.2%; Ryland Group, Inc., up 37.1%; and Jacobs
Engineering Group, Inc., up 34.7%, all of which provided unrealized gains
between 34.7% and 113.8%.
The sharp decline in stock prices in the third quarter provided excellent
opportunities for the Fund both to add to its diversification and to increase
holdings on a favorable basis. Issues purchased during this sell-off included
Ethan Allen Interiors, Inc., up 21.2% by year-end; AFLAC, Inc., up 67.5%;
Chase Manhattan Corp., up 53.2%; MBIA Inc., up 26.9%; and SunAmerica, Inc., up
55.4%; while no holding purchased September 1 to year-end declined more than
5%.
Mergers and acquisitions provided capital appreciation among the Fund's
holdings. During the calendar year, ten transactions were either initiated or
completed, with an average return to the end of the fiscal year on completed
acquisitions of 73.0%. The largest gain on completed acquisitions was in the
shares of Carson Pirie Scott & Co., which provided a 163.3% increase in two
years as a result of the acquisition bid by Proffitt's, Inc. Of those pending
at year-end, the largest gain was in the shares of Jacor Communications, Inc.,
which is to be bought by Clear Channel Communications, Inc., and provided a
172.2% gain to year-end from purchase in June, 1996, and based on the December
31, 1998, closing price of Clear Channel Communications, Inc. One of these
transactions will show a negative result upon completion, an 18.3% loss in
Bankers Trust Corp., with a bid from Deutsche Bank AG.
The investment strategy in the Fund has continued to be one of positioning in
undervalued growth stock opportunities, in line with the long-held strategy of
the Evergreen Growth and Income Fund. We have continued to position the Fund
to benefit from an environment of low inflation, modest credit ease, and
expansion of financial institutions. During the year, four of the Fund's
holdings among communication companies received acquisition bids: Lin
Television Corp., American Radio Systems Corp., Metromail Corp., and Jacor
Communications, Inc. Such expectations typify the combinations we look for in
the Fund's holdings as we anticipate the development of improving valuation
for our holdings. While 1998 was a year of considerable volatility for the
markets, in many cases, we believe that the structure of the portfolio
contains the ingredients for superior results in 1999, and the years ahead.
8
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Evergreen Variable Annuity Trust
EVERGREEN VA GROWTH AND INCOME FUND
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Please note that on January 20, 1999, Phillip Foreman, CFA, assumed management
responsibility of the Evergreen VA Growth and Income Fund. Mr. Foreman joined
Evergreen Funds as senior vice president and senior portfolio manager, and
brings more than 13 years' experience to Evergreen as an investment analyst
and portfolio manager. He came to Evergreen from Washington Mutual Advisors,
where he managed the $1 billion in assets Washington Mutual Trust Growth and
Income Fund for the last eight years. While at Washington Mutual, Foreman was
head of research for the firm and leader of the firm's equity team. He spent
eleven years at SAFECO and the Boeing Co., before his tenure at Washington
Mutual. Mr. Foreman graduated from the University of Washington with a B.S.
degree in Economics, and from the University of Puget Sound with a M.B.A. He
became a Chartered Financial Analyst in 1993.
9
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA INTERNATIONAL GROWTH FUND
- -------------------------------------------------------------------------------
A Report From Your Portfolio Manager
Gilman Gunn
The Evergreen VA International Growth Fund was launched on August 17, 1998.
This report covers the period from August 17 through December 31, 1998, an
unusual period that saw foreign markets first fall dramatically and then rise
sharply. Reflecting this unusual backdrop, the Evergreen VA International
Growth Fund had a total return of -6.10% for the August 17 through December
31, 1998 period, although the return during the final three months of 1998 was
positive, at 9.8%.
The Fund began investing in the midst of a dramatic downdraft in international
stock prices, caused by concerns that economic problems in emerging markets
would slow global economic growth. This decline, which began in July,
continued until mid-October. The Morgan Stanley International Europe,
Australasia and Far East (EAFE) Index, for example, fell from about 1275 in
mid-August to about 1100 by mid-October. When the U.S. Federal Reserve Board
reduced short-term interest rates for the second time, on October 16, the
markets sharply turned direction, with the EAFE climbing to about 1400 by
December 31.
Defensive Positioning
Throughout this volatile period, with dramatic market movements down and up,
the Fund pursued a primarily defensive strategy that included:
. emphasizing stocks of European companies;
. de-emphasizing stocks of Japanese companies and of companies in emerging
markets, including Asia, Latin America and Eastern Europe;
. investing a relatively high portion of net assets, from 10% to 15%, in cash.
At year-end, approximately 67% of Fund assets were invested in Europe, with
the largest European weightings in France (16%), the United Kingdom (15%) and
Switzerland (11%). Japan was underweighted compared to the EAFE Index, 14% of
net assets vs. 20%. Emerging market investments constituted just 1% of net
assets on December 31. Although some of these markets did recover somewhat in
the final two months of 1998, we continued to believe they presented an
inappropriate risk for this portfolio, at that time.
Outlook
Looking toward the future, we have a positive outlook, particularly for
Europe. Although stock prices in Europe are not cheap, a number of trends have
combined to present opportunities:
1. Interest rates in Europe are at historically low levels--lower even than in
the United States.
2. Corporations throughout Europe are re-structuring to place greater emphasis
on their core businesses and become more competitive.
3. The introduction of the euro--a common currency for 11 European nations--
creates opportunities. Companies now will be able to do business in 11
different countries comprising one market, rather than in 11 different
markets.
4. An increase in merger-and-acquisition activity potentially enhances the
value of many European companies, both large and small. Prominent examples
of this trend were Daimler-Benz' acquisition of Chrysler Corp. in the
automobile industry and the recently announced merger of Hoeschst and
Rhone-Poulenc in the pharmaceutical industry.
5. More European companies are buying back their stock shares, supporting the
value of those shares.
6. More opportunities for European individuals to invest in retirement plans
that purchase stocks are emerging. These opportunities come at a time when
stocks are as attractive as they have been in 20 years because of the
relatively low yields offered by bonds and cash.
For all these reasons, we expect to continue to focus on Europe. Outside
Europe, the outlook is not as positive. The Japanese economy continues to
struggle. In addition, we believe the volatility of emerging markets makes
them inappropriate for this Fund at this time.
International investing involves special risks, such as fluctuating currency
exchange rates and political and economic instability. There is no guarantee
that any fund will continue to hold a particular security. Holdings are
subject to change.
10
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA SMALL CAP EQUITY INCOME FUND
- -------------------------------------------------------------------------------
A Report From Your Portfolio Manager
Nola Maddox Falcone, CFA
The VA Small Cap Equity Income Fund invests in entrepreneurial companies with
promising growth prospects that are undervalued in relation to a company's
earnings, cash flow or asset value. In addition to an attractive valuation,
the Fund focuses on companies that provide a dividend yield and have a market
capitalization of less than $1 billion. In industries, such as technology and
health care, where stocks traditionally have not paid dividends, the Fund may
invest in convertible bonds and other equity equivalents. We believe that over
the long run, the emphasis on undervalued securities with yield will provide
the Fund the opportunity to generate strong performance with more price
protection in periods of market volatility than the average small cap fund.
Performance
The Fund outperformed the Wilshire Small Cap Value Index, its benchmark, in a
difficult environment for small cap investing. Since its inception on May 1,
1998, the Fund was down 2.86%, compared with a decline of 11.95% for Wilshire
Small Cap Value Index and a decline of 11.75% for the Russell 2000 for the
same time period. We believe that this performance demonstrates the defensive
characteristics of the Fund.
Strong performers for the Fund included Craftmade International, +67.1%;
International Multifoods Corp., +61.0%; American Woodmark Corp., +47.2%; Hach
Co., +33.3%; and Boston Acoustics, +23.4%. Many of the issues added to the
Fund during the second half of the year were in companies that were expected
to benefit from the continued strength of the U.S. economy and/or had little
exposure to Asia or other emerging market countries. For example, Craftmade
International designs and markets ceiling fans and lighting fixtures for the
remodeling and new home construction markets in the U.S. The company is
benefiting from the strong housing market and is expected to generate earnings
growth of more than 70% this year. Similarly, American Woodmark Corp., a
manufacturer and distributor of kitchen and bathroom cabinets, was helped by
the strength of the remodeling and residential construction markets. The
company, which reported a 22% increase in earnings in fiscal 1998, is expected
to see earnings growth accelerate to an average of 30% annually over the next
two years. Despite the rise in the stock, we believe it is undervalued at 13
times next year's earnings.
International Multifoods Corp. is a foodservice distributor in the U.S. and a
food manufacturer in the U.S. and Canada. We added the stock to the portfolio
in early October because we believed it was trading at a very attractive
valuation and because the company's restructuring under new management should
position it for consistent and stronger earnings growth over the next several
years. At the time of our purchase, the stock had a yield of 5.0% and was
trading at approximately 5 times cash flow. We expect continued progress with
the restructuring to provide a strong catalyst for the stock over the next 12
months. Another good performer for the Fund was Boston Acoustics, a
manufacturer of speaker systems for stereo and home theater equipment. The
company is benefiting from new contracts with a computer manufacturer to
supply speakers for personal computers. We expect Boston Acoustics to generate
annual earnings growth in the mid-teens over the next two years, and we
believe the stock is attractively valued at 11 times next year's earnings.
Hach Co. is a manufacturer of water testing equipment. The company's core
business has been consistently profitable, and earnings this year are expected
to benefit from the acquisition of Environmental Testing Service, a company
with strong ties to the consumer market.
The industry groups providing the strongest performance for the Fund were:
Retailing & Wholesale; Electrical Equipment & Services; Building, Construction
& Furnishings; Chemical & Agricultural Products; and Food & Beverage Products.
The Retailing & Wholesale and the Building, Construction & Furnishings groups
benefited from the continued strength of the U.S. economy. Merger and
acquisition activity was also a positive factor for the Fund. During the year,
there was one takeover completed in the Fund and an announced acquisition. The
takeovers included Learonal, Inc., which agreed to be acquired by Rohm & Haas
Co., and May & Speh, Inc., which was acquired by Acxiom Corp. The Energy and
Oil Field Services industry groups, as well as individual issues in the
Aerospace and Machinery industries, hurt performance for the period. Banks
also underperformed, but we believe this is temporary because of the outlook
for further consolidation in the industry.
Outlook
Looking ahead, we believe the outlook is very positive for strong small-cap
stock performance in 1999. The very low valuations of small cap stocks
relative to large caps are prompting a significant amount of stock buybacks
and we have seen a higher percentage of
11
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA SMALL CAP EQUITY INCOME FUND
- -------------------------------------------------------------------------------
buybacks announced by small cap companies relative to announcements by large
companies in recent months. In addition, the attractive valuations of many of
the smaller companies should lead to an acceleration of merger and acquisition
activity, as large companies can use cash or fully priced stock to buy
undervalued small-cap companies. The reduction in the discount rate by the
Federal Reserve should also be a positive, as small caps have tended to
outperform in the past following such action by the Federal Reserve. We are
very optimistic about the outlook for the Fund given the low valuations and
strong positive earnings outlook for many of the companies in the portfolio.
Small capitalization investing typically carries additional risks since small
companies generally have a higher risk failure. Although it may offer the
potential for greater long term results, it may also result in greater price
volatility.
12
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA STRATEGIC INCOME FUND
- -------------------------------------------------------------------------------
A Report From Your Portfolio Manager
Prescott B. Crocker, CFA
We are pleased to report on the events and strategies that shaped the
performance of Evergreen VA Strategic Income Fund for the 12 months ending
December 31, 1998.
Performance
Evergreen VA Strategic Income Fund produced a total return of 5.91% for the 12
months ended December 31, 1998. We attribute the Fund's performance to its
thorough research, careful selection of securities and prudent, active, asset-
allocation management. As of that date, the Fund was invested as follows: U.S.
Treasury securities--47%; domestic corporate bonds--27%; foreign bonds--19%;
and cash equivalents--7%. Foreign bonds included the governments of Canada,
Denmark, Germany and New Zealand. There were no foreign corporate bond
holdings and no Asian or emerging market debt during the period.
Economic Environment
U.S. Treasury prices rose significantly over the past year, benefiting from a
"flight-to-quality" prompted by the international financial crisis. The yield
on the 30-year U.S. Treasury bond closed 1998 at 5.09%, falling from 5.92% on
December 31, 1997. Early in the year, investors were concerned that the
nation's vibrant economic growth would cause a resumption of future inflation.
These concerns reversed course in the summer of 1998 when a series of events
triggered a massive "flight-to-quality" that drove the yield on the 30-year
U.S. Treasury bond to a low yield of 4.75%. To keep U.S. economic growth
strong enough to re-energize world economies, the Federal Reserve Board cut
interest rates three times in the fall of 1998. This was followed by 46
coordinated foreign central bank interest rate cuts by year end. The efforts
helped stabilize global economies and financial markets, and the "flight-to-
quality" unwound. As a result, U.S. Treasuries gave up a substantial part of
their gains by year end. Yields rose, but remained at levels that were low by
historical standards.
Intermediate term European bonds rallied approximately 5% last year. Early in
the year, investors focused on expectations of currency conversion to the
European Monetary Union--the common currency uniting 11 European countries--as
well as the economic and fiscal health of those countries entering into the
consortium. The European bond market also responded favorably to anticipated
slower global economic growth and the implications for lower inflation.
Investment Strategy
We actively managed the Fund's asset allocation throughout the 12-month
period. Early in the year, we gave an equal weighting to U.S. Treasuries and
high yield bonds. We then reduced our allocation to the high yield sector,
reinvesting assets in U.S. Treasuries. At that time, conditions in the high
yield bond sector deteriorated. The Fund's emphasis on U.S. Treasuries
benefited total return when the international crisis spurred the "flight-to-
quality."
Late in the year, we increased the Fund's high yield position as opportunities
developed, taking advantage of the substantial increase in yield advantages in
the high yield sector. We selected bonds that, in our opinion, represented
attractive relative value, focusing on the "BB"-rated and "B"-rated sectors.
We also emphasized a combination of relative value and interest rate outlook
with the Fund's international holdings. Carrying the "full faith and credit"
of the Danish government, the Fund's investment in Danish mortgage-backed
securities provided a substantial yield premium over U.S. Treasuries. The
Fund's Government of New Zealand bonds represented opportunity for price
appreciation from anticipated slower economic growth and a strong currency.
Further, while U.S. Treasury prices had fallen considerably from their recent
highs, long-term German bonds had reached new highs as of December 31, 1998.
Outlook
Going forward, we anticipate slower, but still positive, economic growth in
both the U.S. and European economies and a continued favorable interest rate
environment. The "crisis mentality" that gripped the financial markets in 1998
appears to be abating. Investors appear to be responding to negative world
news with greater confidence, which could reduce both the magnitude and the
duration of future price fluctuations. This increased investor confidence
could bode well for non-U.S. Treasury securities, as investors feel more
comfortable increasing their risk exposure. In that environment, we would
expect yield advantages to decrease, pushing the prices of non-U.S. Treasuries
higher relative to their U.S. government counterparts, and considerable
potential for price appreciation in the Fund's high yield holdings.
13
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Historical Performance and Long Term Growth
<TABLE>
<CAPTION>
Average Annual Returns
------------------------
Since
Fund/Inception Date 1 yr. Inception
- -------------------------------------------------------------------------------
<S> <C> <C>
Evergreen VA Aggressive Growth Fund (3/6/97) 22.25% 18.24%
Evergreen VA Fund (3/1/96) 6.44% 20.00%
Evergreen VA Foundation Fund (3/1/96) 10.56% 18.77%
Evergreen VA Global Leaders Fund (3/6/97) 18.92% 15.19%
Evergreen VA Growth and Income Fund (3/1/96) 4.77% 20.05%
Evergreen VA International Growth Fund (8/17/98) n/a -6.10%
Evergreen VA Small Cap Equity Income Fund (5/1/98) n/a -2.86%
Evergreen VA Strategic Income Fund (3/6/97) 5.91% 6.16%
</TABLE>
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost.
EVERGREEN VA AGGRESSIVE GROWTH FUND
[LINE GRAPH APPEARS HERE]
VA Aggressive Consumer Price NASDAQ
Date Growth Fund Index - US Value Industries Value
---- ----------- ---------------- ----------------
3/97 10,000 10,000 10,000
6/97 10,270 10,019 11,821
12/97 11,099 10,081 12,918
6/98 12,280 10,188 15,633
12/98 13,569 10,263 18,134
Comparison of a $10,000 investment in Evergreen VA Aggressive Growth Fund versus
a similar investment in the Nasdaq Industrials and the Consumer Price Index
(CPI)*
EVERGREEN VA FUND
[LINE GRAPH APPEARS HERE]
VA Consumer Price NASDQ Russell
Date Evergreen Fund Index - US Value Composite Value 2000 Value
---- -------------- ---------------- --------------- ----------
3/96 10,000 10,000 10,000 10,000
6/96 10,590 10,120 10,788 10,714
12/96 11,487 10,247 11,779 11,310
6/97 13,530 10,357 13,194 12,463
12/97 15,755 10,421 14,418 13,838
6/98 17,163 10,531 17,448 14,520
12/98 16,772 10,609 20,240 13,486
Comparison of a $10,000 investment in Evergreen VA Fund versus a similar
investment in the Nasdaq Composite, the Russell 2000 and the Consumer Price
Index (CPI).*
EVERGREEN VA FOUNDATION FUND
[LINE GRAPH APPEARS HERE]
Date VA Foundation Fund Consumer Price Index - US S&P 500 Composite
---- ------------------ ------------------------- -----------------
3/96 10,000 10,000 10,000
6/96 10,070 10,120 10,549
12/96 11,527 10,247 11,782
6/97 13,056 10,357 14,209
12/97 14,733 10,421 15,712
6/98 15,755 10,531 18,495
12/98 16,299 10,609 20,202
Comparison of a $10,000 investment in Evergreen VA Foundation Fund versus a
similar investment in the S&P 500 and the Consumer Price Index (CPI)*
EVERGREEN VA GLOBAL LEADERS FUND
[LINE GRAPH APPEARS HERE]
Consumer Price
Date VA Global Leaders Fund Index - US Value MSCI World Value
---- ---------------------- ---------------- ----------------
3/97 10,000 10,000 10,000
6/97 11,020 10,019 11,517
12/97 10,879 10,081 11,577
6/98 12,382 10,188 13,528
12/98 12,939 10,263 14,447
Comparison of a $10,000 investment in Evergreen VA Global Leaders Fund versus a
similar investment in the Morgan Stanley Capital International World Index
(MSCIWI) and the Consumer Price Index (CPI).*
14
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
EVERGREEN VA GROWTH AND INCOME FUND
[LINE GRAPH APPEARS HERE]
VA Growth & Consumer Price S&P 400 S&P 500
Date Income Fund Index - US Value Midcap Value Composite Value
---- ----------- ---------------- ------------ ---------------
3/96 10,000 10,000 10,000 10,000
6/96 10,710 10,120 10,411 10,549
12/96 11,900 10,247 11,361 11,782
6/97 13,881 10,357 12,839 14,209
12/97 16,023 10,421 15,004 15,712
6/98 17,238 10,531 16,293 18,495
12/98 16,788 10,609 17,852 20,202
Comparison of a $10,000 investment in Evergreen VA Growth and Income Fund versus
a similar investment in the S&P 400, the S&P 500 and the Consumer Price Index
(CPI).*
EVERGREEN VA INTERNATIONAL GROWTH FUND
[LINE GRAPH APPEARS HERE]
Date VA Intl. Growth Fund Consumer Price Index - US MSCI EAFE Value
---- -------------------- ------------------------- ---------------
8/98 10,000 10,000 10,000
9/98 9,130 10,012 9,696
10/98 8,770 10,024 10,709
11/98 9,120 10,049 11,261
12/98 9,390 10,049 11,708
Comparison of a $10,000 investment in Evergreen VA International Growth Fund
versus a similar investment in Morgan Stanley Capital International Europe,
Australia and Far East Index (MSCI EAFE) and the Consumer Price Index (CPI).*
EVERGREEN VA SMALL CAP EQUITY INCOME FUND
[LINE GRAPH APPEARS HERE]
VA Small Cap Wilshire Small Russell CPI -
Date Equity Fund Cap Value 2000 Value US Value
---- ----------- --------- ---------- --------
5/98 10,000 10,000 10,000 10,000
6/98 9,810 9,564 9,481 10,031
7/98 9,510 8,867 8,714 10,043
8/98 8,440 7,810 7,022 10,055
9/98 8,710 8,041 7,571 10,068
10/98 8,920 8,333 7,880 10,080
11/98 9,324 8,573 8,293 10,105
12/98 9,714 8,825 8,806 10,105
Comparison of a $10,000 investment in Evergreen VA Small Cap Equity Income Fund
versus a similar investment in the Russell 2000, the Wilshire Small Cap Value
Index and the Consumer Price Index (CPI).*
EVERGREEN VA STRATEGIC INCOME FUND
[LINE GRAPH APPEARS HERE]
VA Strategic CPI - Lehman Brothers Lehman Brothers
Date Income Fund US Value Long Gov't Value Aggregate Value
---- ----------- -------- ---------------- ---------------
3/97 10,000 10,000 10,000 10,000
6/97 10,120 10,019 10,559 10,368
12/97 10,529 10,081 11,892 11,027
6/98 10,941 10,188 12,644 11,460
12/98 11,150 10,263 13,398 11,984
Comparison of a $10,000 investment in Evergreen VA Strategic Income fund versus
a similar investment in the Lehman Brothers Government Bond Index (LBGBI), the
Lehman Brothers Aggregate Bond Index (LBABI) and the Consumer Price Index
(CPI).*
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost.
* The Nasdaq, Russell 2000, S&P 500, S&P 400, MSCIWI, MSCI EAFE, LBGBI and the
LBABI are unmanaged market indices and do not include transaction costs
associated with buying and selling securities or any management fees.
The CPI is a commonly used measure of inflation and does not represent an
investment return. It is not possible to invest directly in an index.
15
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
<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%+
Expenses, after fee credits.................... 1.00% 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements................................ 1.55% 3.02%+
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%+
Expenses, after fee credits.................... 1.00% 1.00% 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements................................ 1.14% 1.31% 2.38%+
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.
See Combined Notes to Financial Statements.
16
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
<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%+
Expenses, after fee credits...................... 0.99% 1.00% 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements.................................. 1.00% 1.10% 1.72%+
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%+
Expenses, after fee credits...................... 1.00% 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements.................................. 1.56% 2.89%+
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.
See Combined Notes to Financial Statements.
17
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
<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%+
Expenses, after fee credits............. 1.00% 1.00% 1.00%+
Expenses, excluding fee credits, waivers
and reimbursements..................... 1.16% 1.23% 2.05%+
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%+
Expenses, after fee credits............. 1.00%+
Expenses, excluding fee credits, waivers
and reimbursements..................... 8.26%+
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.
See Combined Notes to Financial Statements.
18
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each year)
<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%+
Expenses, after fee credits....................... 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements................................... 3.47%+
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%+
Expenses, after fee credits....................... 0.98% 1.00%+
Expenses, excluding fee credits, waivers and
reimbursements................................... 1.02% 2.67%+
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.
See Combined Notes to Financial Statements.
19
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA AGGRESSIVE GROWTH FUND
- -------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--95.1%
Business Services--10.1%
<S> <C> <C>
1,700 Analysts International Corporation....................... $ 32,725
2,300 *Fiserv, Inc............................................. 118,306
2,800 Paychex, Inc............................................. 144,025
2,500 *Sterling Commerce, Inc. ................................ 112,500
-----------
407,556
-----------
Communication Systems & Services--14.4%
2,400 *American Power Conversion Corp.......................... 116,250
2,850 *Cisco Systems, Inc. .................................... 264,516
2,800 *MCI WorldCom, Inc....................................... 200,900
-----------
581,666
-----------
Educational Services--0.8%
1,000 *Sylvan Learning Systems, Inc............................ 30,500
-----------
Financial--4.0%
2,000 SunAmerica, Inc. ........................................ 162,250
-----------
Healthcare--15.5%
1,700 *Health Management Associates, Inc....................... 36,763
1,700 *MedQuist, Inc. ......................................... 67,150
2,500 Medtronic, Inc........................................... 185,625
2,600 *Renal Care Group, Inc................................... 74,912
4,200 *Rexall Sundown, Inc. ................................... 58,800
2,300 *VISX, Inc............................................... 201,106
-----------
624,356
-----------
Oil/Gas--Drilling--5.5%
1,400 Diamond Offshore Drilling, Inc........................... 33,162
2,000 ENSCO International, Inc. ............................... 21,375
2,000 *Global Marine, Inc. .................................... 18,375
2,400 *Marine Drilling Companies, Inc.......................... 18,450
2,400 *Noble Drilling Corporation.............................. 31,050
3,000 *Patterson Energy, Inc................................... 12,188
3,700 *R & B Falcon Corporation................................ 28,213
2,200 Transocean Offshore, Inc................................. 58,987
-----------
221,800
-----------
Oil/Gas--Equipment & Services--4.9%
4,400 *Global Industries Ltd................................... 26,950
1,100 Halliburton Company...................................... 32,588
4,000 *Petroleum Geo-Services ADR.............................. 63,000
800 Schlumberger Ltd......................................... 36,900
2,000 *Weatherford International, Inc. ........................ 38,750
-----------
198,188
-----------
Retail (Specialty)--19.4%
2,300 *Action Performance Companies, Inc. .................. $ 81,362
2,600 *Bed Bath & Beyond, Inc. ............................. 88,725
2,700 Family Dollar Stores, Inc............................. 59,400
1,000 Fastenal Company...................................... 44,000
3,600 Home Depot, Inc. ..................................... 220,275
6,200 *Office Depot, Inc. .................................. 229,012
1,400 *Staples, Inc......................................... 61,163
-----------
783,937
-----------
Software/Technology--20.5%
3,600 *BMC Software, Inc. .................................. 160,425
1,100 *Citrix Systems, Inc. ................................ 106,769
2,600 *EMC Corporation...................................... 221,000
1,400 *Microsoft Corporation................................ 194,162
2,200 *Network Associates, Inc. ............................ 145,750
-----------
828,106
-----------
Total Common Stocks
(cost $2,861,801).................................... $3,838,359
-----------
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
SHORT-TERM INVESTMENTS--4.7%
Repurchase Agreement--4.7%
$191,000 State Street Bank & Trust Company Repurchase Agreement
purchased 12/31/98, 4.00%, maturing 1/4/99, maturity
value $191,085
(cost $191,000) (a).................................. $ 191,000
-----------
Total Investments--
(cost $3,052,801)................................ 99.8% 4,029,359
Other Assets and
Liabilities--net................................. 0.2 9,479
------ ----------
Net Assets........................................ 100.0% $4,038,838
====== ==========
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was fully collateralized
by: $191,000 U.S. Treasury Notes, 6.25%, 10/31/01, value including accrued
interest--$199,928.
Summary of Abbreviations:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
20
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--91.4%
Banks--6.5%
<S> <C> <C>
10,000 Associated Banc Corp. ................................. $ 341,875
10,000 BankBoston Corp........................................ 389,375
4,000 Bankers Trust Corp. ................................... 341,750
15,000 Cape Cod Bank & Trust Co. ............................. 270,000
25,000 Cardinal Financial Corp................................ 159,375
6,000 Comerica, Inc.......................................... 409,125
4,000 F&M National Corp. .................................... 119,750
4,000 Hibernia Corp. Cl. A................................... 69,500
2,000 Mellon Bank Corp. ..................................... 137,500
3,600 National City Corp..................................... 261,000
25,164 Republic Security Financial Corp. ..................... 305,113
6,000 Seacoast Banking Corp. of
Florida Cl. A......................................... 170,250
-----------
2,974,613
-----------
Building, Construction & Furnishings--14.0%
15,000 *Beazer Homes USA, Inc................................. 375,000
26,250 Cavalier Homes, Inc.................................... 298,594
28,125 Clayton Homes, Inc..................................... 388,477
51,500 D.R. Horton, Inc....................................... 1,184,500
15,000 *Eagle Hardware & Garden, Inc. ........................ 487,500
20,000 *Genlyte Group, Inc. .................................. 375,000
10,000 *Knoll, Inc. .......................................... 296,250
23,000 Lennar Corp............................................ 580,750
16,000 M/I Schottenstein Homes, Inc........................... 352,000
10,000 *Morgan Products, Ltd. ................................ 35,000
24,700 Oakwood Homes Corp..................................... 375,131
3,000 *Palm Harbor Homes, Inc................................ 75,562
27,500 *Presley Companies Cl. A............................... 12,891
10,000 Ryland Group, Inc. .................................... 288,750
10,000 TJ International, Inc.................................. 256,875
12,000 *Toll Brothers, Inc.................................... 270,750
23,500 *US Home Corp. ........................................ 781,375
-----------
6,434,405
-----------
Business Equipment & Services--0.5%
12,031 *Paxar Corp............................................ 107,527
5,000 *Zebra Technologies Corp. Cl. A........................ 143,750
-----------
251,277
-----------
Chemical & Agricultural Products--0.3%
1,000 Schulman (A.), Inc..................................... 22,687
4,000 Sigma-Aldrich Corp. ................................... 117,500
-----------
140,187
-----------
Communication Systems & Services--2.2%
7,625 *Andrew Corp. ......................................... 125,813
2,250 *Cisco Systems, Inc.................................... 208,828
10,000 *Coherent Communications Systems Corp., Inc............ 124,375
6,000 Inter-Tel, Inc......................................... 140,250
5,000 *Powertel, Inc......................................... 67,813
5,000 Tellabs, Inc. ......................................... 342,812
-----------
1,009,891
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--continued
Consumer Products & Services--4.2%
<S> <C> <C>
2,700 Cendant Corp........................................... $ 51,469
15,000 Commonwealth Industries, Inc........................... 140,625
8,000 Harman International Industries, Inc................... 305,000
15,000 K2, Inc................................................ 154,688
13,700 Lancaster Colony Corp. ................................ 440,112
10,000 Noble Affiliates, Inc.................................. 246,250
7,000 Russ Berrie & Co., Inc................................. 164,500
8,000 St. John Knits, Inc. .................................. 208,000
13,000 Stride Rite Corp. ..................................... 113,750
3,000 Toro Co. .............................................. 85,500
-----------
1,909,894
-----------
Electronic Equipment & Services--3.0%
8,489 AMP, Inc............................................... 441,959
10,000 *Dupont Photomasks, Inc................................ 424,375
5,000 *Hadco Corp............................................ 175,000
12,000 *SMART Modular Technologies, Inc....................... 333,000
-----------
1,374,334
-----------
Finance & Insurance--14.4%
3,000 AMBAC Financial Group, Inc............................. 180,563
10,000 American Bankers Insurance Group, Inc.................. 483,750
4,000 Countrywide Credit Industries, Inc. ................... 200,750
14,000 Dain Rauscher Corp..................................... 413,000
10,500 Edwards (A.G.), Inc.................................... 391,125
10,000 Enhance Financial Services Group, Inc.................. 300,000
9,500 First American Financial Corp.......................... 305,187
2,500 Freedom Securities Corp. .............................. 37,813
6,000 Horace Mann Educators Corp. ........................... 171,000
13,600 Interstate/Johnson Lane, Inc. ......................... 425,850
9,000 Landamerica Financial Group, Inc. ..................... 502,312
7,800 MBIA, Inc.............................................. 511,387
18,000 Mercury General Corp................................... 788,625
2,600 Merrill Lynch & Co., Inc............................... 173,550
5,000 MGIC Investment Corp................................... 199,063
15,500 Morgan Keegan, Inc..................................... 291,594
16,000 Paine Webber Group, Inc................................ 618,000
7,500 SunAmerica, Inc........................................ 608,437
-----------
6,602,006
-----------
Healthcare Products & Services--10.8%
15,000 *ADAC Laboratories..................................... 299,531
3,000 *Alcide Corp........................................... 45,375
3,000 Arrow International, Inc............................... 94,125
10,000 Beckman Coulter, Inc. ................................. 542,500
15,000 *Boston Scientific Corp................................ 402,187
2,850 Columbia / HCA Healthcare Corp......................... 70,538
10,000 *Hologic, Inc.......................................... 121,250
10,000 *Idexx Laboratories, Inc............................... 269,063
4,300 *Maxxim Medical, Inc................................... 127,925
2,000 McKesson Corp. ........................................ 158,125
2,000 Merck & Co., Inc. ..................................... 295,375
</TABLE>
(continued)
21
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
COMMON STOCKS--continued
<S> <C> <C>
Healthcare Products & Services--continued
6,000 Stryker Corp. ....................................... $ 330,375
25,000 *VISX, Inc........................................... 2,185,937
-----------
4,942,306
-----------
Industrial Specialty Products & Services--6.6%
12,000 AptarGroup, Inc...................................... 336,750
10,000 Furon Co. ........................................... 170,625
30,000 *Gaylord Container Corp. Cl. A....................... 183,750
5,700 Heilig-Meyers Co..................................... 38,119
15,000 *Input/Output, Inc................................... 109,688
19,400 Kaydon Corp.......................................... 777,212
1,000 Nacco Industries, Inc. Cl. A......................... 92,000
4,000 Robbins & Myers, Inc. ............................... 88,500
4,250 Snap-on, Inc......................................... 147,953
6,000 Spartech Corp........................................ 132,000
18,000 Teleflex, Inc........................................ 821,250
6,000 *UCAR International, Inc. ........................... 106,875
-----------
3,004,722
-----------
Information Services & Technology--8.0%
27,500 *Analytical Surveys, Inc. ........................... 847,344
10,000 *Etec Systems, Inc................................... 400,000
6,000 Fair Issac & Co., Inc................................ 277,125
8,000 *Gateway 2000, Inc................................... 409,500
6,000 Hewlett-Packard Co................................... 409,875
2,000 InfoUSA, Inc. Cl. A.................................. 9,750
2,000 InfoUSA, Inc. Cl. B.................................. 10,500
15,000 *Micros Systems, Inc................................. 493,125
28,000 *Parametric Technology Corp.......................... 458,500
4,000 *Sun Microsystems, Inc. ............................. 342,500
-----------
3,658,219
-----------
Oil/Energy--0.6%
10,000 Transocean Offshore, Inc............................. 268,125
-----------
Oil Field Services--0.0% (a)
500 *Dril Quip, Inc...................................... 8,875
-----------
Paper & Packaging--0.7%
14,100 St. Joe Corp......................................... 330,469
-----------
Printing, Publishing, Broadcasting & Entertainment--2.7%
20,400 Belo (A.H.) Corp. Ser. A............................. 406,725
37,800 Bowne & Co., Inc. ................................... 675,675
3,000 *Chancellor Media Corp............................... 143,625
-----------
1,226,025
-----------
Real Estate--5.1%
4,500 *Alexander's, Inc. REIT.............................. 351,844
3,500 Equity Residential Properties Trust REIT............. 141,531
52,000 *Execustay Corp...................................... 676,000
9,700 Newhall Land & Farming Co............................ 252,200
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS--continued
Real Estate--continued
<S> <C> <C>
30,000 RFS Hotel Investors, Inc. REIT........................ $ 367,500
14,000 Starwood Hotels & Resorts Trust REIT.................. 317,625
25,000 Sunstone Hotel Investors, Inc. REIT................... 235,937
-----------
2,342,637
-----------
Retailing & Wholesale--4.9%
3,000 Avnet, Inc. .......................................... 181,500
3,000 *Borders Group Inc.................................... 74,813
8,000 *Cole National Corp. Cl. A............................ 137,000
5,000 *Costco Companies, Inc................................ 360,937
15,000 Ethan Allen Interiors, Inc............................ 615,000
10,000 Lowe's Companies, Inc................................. 511,875
10,000 *Sonic Automotive, Inc................................ 344,375
-----------
2,225,500
-----------
Telecommunication Services &
Equipment--0.0% (a)
1,000 *Aspect Telecommunications Corp....................... 17,250
-----------
Thrift Institutions--1.0%
10,000 Mech Financial, Inc................................... 277,500
11,550 York Financial Corp................................... 182,634
-----------
460,134
-----------
Transportation--4.2%
13,500 *Airnet Systems, Inc. ................................ 194,063
5,000 ASA Holdings, Inc. ................................... 152,500
12,000 Florida East Coast Indiana, Inc. ..................... 422,250
3,000 *Heartland Express, Inc. ............................. 52,500
7,500 *Midwest Express Holdings, Inc........................ 197,344
20,250 Southwest Airlines Co................................. 454,359
10,000 Union Pacific Corp.................................... 450,625
-----------
1,923,641
-----------
Utilities--Telephone--1.7%
10,000 Cincinnati Bell, Inc. ................................ 378,125
4,000 Sprint Corp. ......................................... 336,500
2,000 *Sprint Corp. (PCS Group)............................. 46,250
-----------
760,875
-----------
Total Common Stocks
(cost $36,947,283)................................... $41,865,385
-----------
WARRANTS--0.3%
Manufacturing--Distributing--0.3%
20,665 Perkin Elmer Corp. Cl. G, $65.73, expiring 9/11/03
(cost $85,340)....................................... 149,821
-----------
</TABLE>
(continued)
22
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--9.9%
Commercial Paper--2.7%
<S> <C> <C>
$ 875,000 Island Finance Puerto Rico, Inc. 5.55%, 1/22/99
(LOC: Norwest Corp.).............................. $ 872,167
380,000 Park Avenue Recreation Corp.
5.75%, 1/22/99.................................... 378,726
-----------
1,250,893
-----------
U.S. Government Agency Obligations--7.2%
Federal Home Loan Bank Discount Notes
320,000 5.08%, 1/15/99..................................... 319,368
1,000,000 5.12%, 1/20/99..................................... 997,298
Federal Home Loan Mortgage Discount Notes
240,000 5.10%, 1/15/99..................................... 239,524
150,000 5.14%, 1/14/99..................................... 149,721
1,575,000 Federal National Mortgage Association Discount
Notes
5.10%, 1/8/99..................................... 1,573,438
-----------
3,279,349
-----------
Total Short-Term Investments
(cost $4,530,242)................................. $ 4,530,242
-----------
Total Investments--
(cost $41,562,865)............................ 101.6% 46,545,448
Other Assets and
Liabilities--net.............................. (1.6) (725,089)
------ -----------
Net Assets..................................... 100.0% $45,820,359
====== ===========
</TABLE>
* Non-income producing securities.
(a) Less than one-tenth of one percent.
Summary of Abbreviations:
LOC Letter of Credit
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
23
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FOUNDATION FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--64.0%
<S> <C> <C>
Aerospace & Defense--0.4%
10,000 Boeing Co............................................. $ 326,250
-----------
Automotive Equipment & Manufacturing--0.9%
6,235 Daimler Chrysler AG Stuttgart......................... 598,950
2,300 Goodyear Tire & Rubber Co............................. 116,006
-----------
714,956
-----------
Banks--8.5%
14,250 AmSouth Bancorp....................................... 650,156
21,000 BankBoston Corp....................................... 817,687
5,000 Bankers Trust Corp.................................... 427,187
13,600 Cape Cod Bank & Trust Co.............................. 244,800
4,500 Comerica, Inc......................................... 306,844
10,000 Compass Bancshares, Inc............................... 380,625
10,000 Crestar Financial Corp................................ 720,000
2,000 F&M National Corp..................................... 59,875
10,000 Fleet Financial Group, Inc............................ 446,875
600 M & T Bank Corp....................................... 311,363
10,000 Mellon Bank Corp...................................... 687,500
8,500 Mercantile Bancorp, Inc............................... 392,063
5,400 National City Corp.................................... 391,500
25,000 Pacific Century Financial Corp........................ 609,375
8,000 Seacoast Banking Corp. of Florida Cl. A............... 227,000
-----------
6,672,850
-----------
Building, Construction & Furnishings--4.9%
16,000 Armstrong World Industries, Inc....................... 965,000
20,000 Carlisle Companies, Inc............................... 1,032,500
6,200 Centex Corp........................................... 279,387
42,750 D.R. Horton, Inc...................................... 983,250
24,004 Lennar Corp........................................... 606,101
-----------
3,866,238
-----------
Business Equipment & Services--0.4%
6,200 *Crescent Operating, Inc.............................. 29,450
15,000 Steelcase, Inc........................................ 246,563
-----------
276,013
-----------
Capital Goods--1.4%
10,000 Caterpillar, Inc...................................... 460,000
20,000 Deere & Co............................................ 662,500
-----------
1,122,500
-----------
Chemical & Agricultural Products--3.0%
20,000 Du Pont (E. I.) De Nemours & Co....................... 1,061,250
10,000 Monsanto Co........................................... 475,000
7,000 Morton International, Inc............................. 171,500
8,000 PPG Industries, Inc................................... 466,000
8,500 Schulman (A.), Inc.................................... 192,844
-----------
2,366,594
-----------
Communication Systems & Services--0.5%
4,500 *Cisco Systems, Inc................................... 417,656
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
COMMON STOCKS--continued
<S> <C> <C>
Consumer Products & Services--1.3%
5,947 Cendant Corp........................................ $ 113,365
9,300 Harman International Industries, Inc................ 354,562
14,000 Newell Co........................................... 577,500
-----------
1,045,427
-----------
Electronic Equipment & Services--0.9%
6,106 AMP, Inc............................................ 317,894
13,100 *Analog Devices, Inc................................ 411,012
-----------
728,906
-----------
Electrical Equipment & Services--4.1%
6,000 Applied Power, Inc. Cl. A........................... 226,500
7,000 Emerson Electric Co................................. 423,500
6,400 General Electric Co................................. 653,200
6,000 Honeywell, Inc...................................... 451,875
15,000 Perkin Elmer Corp................................... 1,463,437
-----------
3,218,512
-----------
Finance & Insurance--14.5%
7,600 AFLAC, Inc.......................................... 334,400
5,600 Allstate Corp....................................... 216,300
7,000 American International Group, Inc................... 676,375
210 Berkshire Hathaway, Inc. Cl. B...................... 493,500
8,000 Chubb Corp.......................................... 519,000
15,000 Citigroup, Inc...................................... 742,500
4,000 Countrywide Credit Industries, Inc.................. 200,750
5,200 Dain Rauscher Corp.................................. 153,400
3,000 Edwards (A.G.), Inc................................. 111,750
2,043 Exel Limited Hamilton............................... 153,225
7,300 *Farm Family Holdings, Inc.......................... 248,200
15,000 Federal National Mortgage Association............... 1,110,000
20,000 Horace Mann Educators Corp.......................... 570,000
11,500 John Nuveen Co. Cl. A............................... 426,937
16,732 Legg Mason, Inc..................................... 528,104
8,000 Lehman Brothers Holdings, Inc....................... 352,500
5,000 Lincoln National Corp............................... 409,062
15,000 Merrill Lynch & Co., Inc............................ 1,001,250
5,000 MGIC Investment Corp................................ 199,063
10,500 NAC RE Corp......................................... 492,844
20,400 Paine Webber Group, Inc............................. 787,950
11,250 Raymond James Financial, Inc........................ 237,656
14,000 Torchmark Corp...................................... 494,375
15,000 UNUM Corp........................................... 875,625
455 Waddell & Reed Financial, Inc. Cl. A................ 10,778
1,959 Waddell & Reed Financial, Inc. Cl. B................ 45,547
-----------
11,391,091
-----------
Healthcare Products & Services--3.1%
9,000 Abbott Laboratories................................. 441,000
12,000 American Home Products Corp......................... 675,750
4,050 Columbia / HCA Healthcare Corp...................... 100,237
750 *Covance, Inc....................................... 21,844
12,000 First Health Group Corp............................. 198,750
</TABLE>
(continued)
24
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FOUNDATION FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
COMMON STOCKS--continued
Healthcare Products & Services--continued
<S> <C> <C>
4,000 Lilly (Eli) & Co.................................... $ 355,500
4,000 Medtronic, Inc...................................... 297,000
2,100 Merck & Co., Inc.................................... 310,144
375 *Quest Diagnostics, Inc............................. 6,680
-----------
2,406,905
-----------
Industrial Specialty Products & Services--1.7%
12,087 Autoliv, Inc........................................ 449,485
3,000 Corning, Inc........................................ 135,000
10,000 Parker Hannifin Corp................................ 327,500
6,000 Snap-on, Inc........................................ 208,875
8,000 Timken Co........................................... 151,000
2,000 *Unova, Inc......................................... 36,250
-----------
1,308,110
-----------
Information Services & Technology--3.5%
8,000 Computer Sciences Corp.............................. 515,500
7,000 Hewlett-Packard Co.................................. 478,187
4,000 Intel Corp.......................................... 474,250
5,000 International Business Machines Corp................ 923,750
4,000 *Sun Microsystems, Inc.............................. 342,500
-----------
2,734,187
-----------
Oil/Energy--0.9%
5,000 Chevron Corp........................................ 414,688
3,200 Consolidated Natural Gas Co......................... 172,800
1,000 Exxon Corp.......................................... 73,125
-----------
660,613
-----------
Oil Field Services--0.5%
8,000 Schlumberger Ltd.................................... 369,000
-----------
Printing, Publishing, Broadcasting & Entertainment--0.9%
900 Disney (Walt) Co.................................... 27,000
6,000 New York Times Co................................... 208,125
7,000 Time Warner, Inc.................................... 434,438
-----------
669,563
-----------
Real Estate--4.0%
8,000 Apartment Investment & Management Co. Cl. A REIT.... 297,500
5,000 Brandywine Realty Trust REIT........................ 89,375
1,442 Camden Property Trust REIT.......................... 37,492
7,000 Capstead Mortgage Corp. REIT........................ 28,875
20,000 CarrAmerica Realty Corp. REIT....................... 480,000
12,000 Crescent Real Estate Equities, Inc. REIT............ 276,000
12,000 Crown American Realty Trust REIT.................... 93,000
1,000 Equity Residential Properties Trust REIT............ 40,438
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS--continued
Real Estate--continued
20,000 FelCor Lodging Trust Inc. REIT........................ $ 461,250
334 Horizon Group Properties, Inc. REIT................... 1,294
11,400 *Konover Property Trust, Inc. REIT.................... 80,512
12,000 Marriott International, Inc. Cl. A.................... 348,000
40,000 Meditrust Co. REIT.................................... 605,000
6,230 Post Property, Inc. REIT.............................. 239,466
4,776 Prime Retail, Inc..................................... 46,865
1,500 *Sodexho Marriott Services, Inc....................... 41,531
-----------
3,166,598
-----------
Retailing & Wholesale--1.5%
4,000 Avnet, Inc............................................ 242,000
8,000 Lowe's Companies, Inc................................. 409,500
13,000 W.W. Grainger, Inc.................................... 541,125
-----------
1,192,625
-----------
Thrift Institutions--1.2%
10,000 Golden West Financial Corp............................ 916,875
-----------
Transportation--1.4%
10,000 GATX Corp............................................. 378,750
15,000 Union Pacific Corp.................................... 675,938
-----------
1,054,688
-----------
Utilities--Electric--0.5%
15,000 Eastern Utilities Associates.......................... 423,750
-----------
Utilities--Gas--0.6%
15,000 Keyspan Energy........................................ 465,000
-----------
Utilities--Telephone--3.4%
20,000 Cincinnati Bell, Inc.................................. 756,250
20,000 Frontier Corp......................................... 680,000
5,000 GTE Corp.............................................. 325,000
9,000 Sprint Corp........................................... 757,125
4,500 *Sprint Corp. (PCS Group)............................. 104,062
-----------
2,622,437
-----------
Total Common Stocks
(cost $43,826,013)................................... $50,137,344
-----------
CONVERTIBLE PREFERRED--0.6%
Real Estate--0.0% (a)
1,600 Prime Retail, Inc. 8.50% Series B 3/31/99............. 26,600
-----------
Transportation--0.6%
10,000 Union Pacific Capital Trust 4/01/28, 144A............. 465,000
-----------
Total Convertible Preferred
(cost $544,766)...................................... $ 491,600
-----------
</TABLE>
(continued)
25
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA FOUNDATION FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
U.S. GOVERNMENT & AGENCY OBLIGATIONS--26.0%
U.S. Treasury Notes & Bonds--26.0%
U.S. Treasury Bonds
$15,000,000 6.00%, 2/15/26....................................... $16,373,445
2,000,000 6.25%, 8/15/23....................................... 2,238,126
1,000,000 7.125%, 2/15/23...................................... 1,234,063
500,000 U.S. Treasury Notes
6.50%, 8/15/05...................................... 549,531
-----------
Total U.S. Government & Agency
Obligations (cost $18,682,176)...................... $20,395,165
-----------
SHORT-TERM INVESTMENTS--9.2%
Commercial Paper--8.7%
1,050,000 Fleet Funding Corp.
5.30%, 1/29/99...................................... 1,045,672
1,880,000 Island Finance Puerto Rico, Inc. 5.55%, 1/22/99,
(LOC: Norwest Corp.)................................ 1,873,913
1,020,000 Marsh & Mc Clennan Inc
5.40%, 1/20/99...................................... 1,017,093
310,000 Park Avenue Recreation Corp.
5.75%, 1/22/99...................................... 308,960
1,370,000 Power Authority St. New York
5.37%, 1/13/99...................................... 1,367,548
</TABLE>
*Non-income producing securities.
144A Securities that may be resold to "qualified institutional buyers under
Rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under guidelines established by the Board of Trustees.
Summary of Abbreviations:
LOCLetter of Credit
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM INVESTMENTS--continued
Commercial Paper--continued
Republic Industries Funding Corp.
$270,000 5.52%, 1/11/99...................................... $ 269,586
825,000 5.60%, 1/13/99...................................... 823,460
110,000 Texas Dept of Commerce
5.40%, 1/6/99...................................... 109,918
-----------
6,816,150
-----------
U.S. Government Agency Obligations--0.5%
370,000 Federal Home Loan Mortgage Discount Notes
5.10%, 1/15/99..................................... 369,266
-----------
Total Short-Term Investments
(cost $7,185,416).................................. $ 7,185,416
-----------
Total Investments--
(cost $70,238,371)............................ 99.8% 78,209,525
Other Assets and
Liabilities--net.............................. 0.2 161,432
------ -----------
Net Assets..................................... 100.0% $78,370,957
====== ===========
</TABLE>
See Combined Notes to Financial Statements.
26
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA GLOBAL LEADERS FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--95.3%
Australia--1.2%
1,500 National Australia Bank, Ltd........................... $ 111,656
----------
Belgium--2.2%
150 Barco NV............................................... 42,089
25 *Colruyt SA............................................ 20,827
25 UCB SA................................................. 153,312
----------
216,228
----------
Canada--4.6%
14,000 Bombardier, Inc., Cl. B................................ 201,505
2,000 *Canadian Natural Resources, Ltd....................... 30,095
4,000 Du Pont Canada, Inc., Cl. A............................ 112,528
1,500 Magna International, Inc. Cl. A........................ 93,000
----------
437,128
----------
Denmark--1.1%
900 Coloplast AS........................................... 107,474
----------
Finland--1.3%
1,000 Nokia Corp. ADR........................................ 120,437
----------
France--4.5%
25 Carrefour SA........................................... 18,865
1,250 Hermes International................................... 101,279
1,500 Societe Technip........................................ 141,120
680 Sodexho Alliance....................................... 152,030
100 Synthelabo............................................. 21,159
----------
434,453
----------
Germany--9.1%
900 Adidas AG.............................................. 97,744
2,150 Altana AG.............................................. 167,707
120 Hugo Boss AG........................................... 201,608
3,600 RWE AG................................................. 197,108
100 SAP AG................................................. 43,202
225 Suedzucker AG.......................................... 101,929
200 VEW AG................................................. 60,002
----------
869,300
----------
Hong Kong--2.9%
6,000 Cheung Kong Holdings, Ltd.............................. 43,175
61,584 First Pacific Ltd. .................................... 29,411
7,000 Henderson Land Development Co., Ltd. .................. 36,231
47,000 Hong Kong & China Gas.................................. 59,754
3,000 Hong Kong Telecommunications, Ltd. ADS................. 52,687
75,000 National Mutual Asia Ltd............................... 56,146
600 Wing Lung Bank......................................... 2,083
----------
279,487
----------
Ireland--0.9%
5,021 CRH Plc, London Exchange............................... 85,088
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Italy--4.7%
3,724 Benetton Group SpA ADS................................. $ 148,029
7,000 *Industrie Natuzzi SpA ADS............................. 174,125
11,000 Luxottica Group SpA ADS................................ 132,000
----------
454,154
----------
Japan--2.2%
1,000 Kyodo Printing Co...................................... 4,379
1,300 Nintendo Co., Ltd...................................... 125,918
1,000 Seven-Eleven Japan Co. Ltd............................. 80,495
----------
210,792
----------
Malaysia--0.1%
1,400 AMMB Holdings Berhad................................... 1,155
2,000 *Malayan Banking Berhad................................ 2,836
2,000 Malaysian Oxygen Berhad................................ 2,652
2,000 Perusahaan Otomobil Nasional Berhad 2,118
1,000 RHB Capital Berhad..................................... 391
2,000 United Engineers Ltd. Berhad........................... 1,020
----------
10,172
----------
Netherlands--7.0%
605 CSM NV................................................. 34,908
1,500 CSM NV, Certificates................................... 86,549
1,801 Getronics NV........................................... 89,154
3,222 IHC Caland NV.......................................... 133,771
3,299 Numico Kon NV.......................................... 157,162
2,400 VNU.................................................... 90,445
376 Wolters Kluwer NV...................................... 80,416
----------
672,405
----------
Norway--0.5%
3,000 Orkla SA............................................... 44,811
----------
Spain--3.2%
10,000 Endesa SA, ADS......................................... 270,000
3,100 Prosegur, CIA de Seguridad SA.......................... 36,100
----------
306,100
----------
Sweden--2.8%
7,766 Astra AB ADS........................................... 160,659
3,500 Ericsson LM Telephone Co., ADR......................... 83,781
250 Hennes & Mauritz Cl. B................................. 20,370
----------
264,810
----------
Switzerland--0.7%
25 Schweizerische Rueckversicherungs-Gesellschaft......... 65,171
----------
United Kingdom--7.0%
4,200 Granada Group Plc...................................... 73,617
2,500 Laporte Plc............................................ 19,480
300 Legal & General Group Plc.............................. 3,913
6,000 Lloyds TSB Group Plc................................... 85,429
9,000 Morgan Crucible Co. Plc................................ 41,269
</TABLE>
(continued)
27
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA GLOBAL LEADERS FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
United Kingdom--continued
5,000 Next Plc............................................... $ 40,954
2,500 Pearson Publishing Plc................................. 49,712
6,200 Rentokil Initial Plc................................... 46,868
1,800 SmithKline Beecham Plc, ADR............................ 125,100
4,200 Smiths Industries Plc.................................. 60,219
7,000 TI Group Plc........................................... 37,652
300 Vodafone Group Plc, ADR................................ 48,337
6,245 Williams Plc........................................... 35,692
----------
668,242
----------
United States--39.3%
1,200 AlliedSignal, Inc...................................... 53,175
1,900 Armstrong World Industries, Inc........................ 114,594
2,200 Avon Products, Inc..................................... 97,350
1,500 Campbell Soup Co....................................... 82,500
2,300 Carnival Corp. Cl. A................................... 110,400
1,300 Caterpillar, Inc....................................... 59,800
2,175 *Cisco Systems, Inc.................................... 201,867
4,000 Citigroup, Inc......................................... 198,000
500 Coca Cola Co........................................... 33,438
1,600 Compaq Computer Corp................................... 67,100
3,100 Computer Associates International, Inc................. 132,137
1,800 Disney (Walt) Co....................................... 54,000
1,000 Du Pont (E. I.) De Nemours & Co........................ 53,062
2,000 Federal National Mortgage Association.................. 148,000
900 Gannett Co., Inc....................................... 58,050
750 Gap, Inc............................................... 42,188
900 General Electric Co.................................... 91,856
1,100 Halliburton Co......................................... 32,588
1,800 Home Depot, Inc........................................ 110,137
1,300 Intel Corp............................................. 154,131
3,000 Marriott International, Inc. Cl. A..................... 87,000
2,550 Marsh & McLennan Co., Inc.............................. 149,016
1,500 Maytag Corp. .......................................... 93,375
4,575 MBNA Corp. ............................................ 114,089
900 Merck & Co., Inc....................................... 132,919
1,000 *Microsoft Corp........................................ 138,687
1,500 Morgan Stanley, Dean Witter, Discover & Co............. 106,500
1,050 *Oracle Systems Corp. ................................. 45,281
2,900 *Parametric Technology Corp. .......................... 47,488
1,200 Sap AG................................................. 43,275
1,200 Schering-Plough Corp................................... 66,300
2,025 Schwab (Charles) & Co., Inc............................ 113,780
1,700 SLM Holding Corp....................................... 81,600
2,225 *Sodexho Marriott Services, Inc........................ 61,605
1,600 SunAmerica, Inc........................................ 129,800
1,600 Sundstrand Corp........................................ 83,000
3,500 TJX Co., Inc........................................... 101,500
800 Tribune Co............................................. 52,800
1,800 Wal-Mart Stores, Inc................................... 146,587
2,000 Wells Fargo Co. New.................................... 79,875
----------
3,768,850
----------
Total Common Stocks
(cost $8,046,581)..................................... $9,126,758
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- -------------------------------------------------------------------------------
<C> <S> <C>
WARRANTS--0.0% (a)
Hong Kong--0.0% (a)
1,000 Hong Kong & China Gas warrants expire 9/30/99 (cost
$0).................................................. $ 66
----------
<CAPTION>
Principal
Amount
----------
<C> <S> <C>
SHORT-TERM INVESTMENTS--5.6%
United States--5.6%
$ 205,000 Federal Home Loan Bank
Discount Notes
5.08%, 1/15/99....................................... $ 204,595
Federal Home Loan Mortgage Discount Notes
235,000 4.55%, 1/8/99........................................ 234,792
100,000 5.15%, 1/15/99........................................ 99,800
----------
Total Short-Term Investments
(cost $539,187)...................................... $ 539,187
----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments--
(cost $8,585,768)............................. 100.9 % 9,666,011
Other Assets and
Liabilities--net.............................. (0.9) (82,711)
------- ----------
Net Assets..................................... 100.0 % $9,583,300
======= ==========
</TABLE>
* Non-income producing securities
(a) Less than one-tenth of one percent
Summary of Abbreviations:
ADRAmerican Depository Receipts
ADSAmerican Depository Shares
At December 31, 1998, the Fund held long-term investments in the following in-
dustries:
<TABLE>
<CAPTION>
Percent of
Value Portfolio Assets
- ------------------------------------------------------------------------------
<S> <C> <C>
Finance & Insurance............................... $1,167,167 12.8%
Healthcare Products & Services.................... 1,066,630 11.7%
Information Services & Technology................. 962,323 10.5%
Food & Beverage Products.......................... 648,516 7.1%
Textile & Apparel................................. 548,660 6.0%
Industrial Specialty Products & Services.......... 501,393 5.5%
Retailing & Wholesale............................. 491,266 5.4%
Consumer Products & Services...................... 490,768 5.4%
Utilities - Electric.............................. 467,108 5.1%
Building, Construction & Furnishings.............. 451,959 5.0%
Printing, Publishing, Broadcasting &
Entertainment.................................... 413,707 4.5%
Telecommunication Services & Equipment............ 305,244 3.3%
Banks............................................. 282,270 3.1%
Electrical Equipment & Services................... 234,859 2.6%
Real Estate....................................... 228,010 2.5%
Chemical & Agricultural Products.................. 168,243 1.8%
Energy............................................ 163,866 1.8%
Diversified Companies............................. 127,397 1.4%
Leisure & Tourism................................. 110,400 1.2%
Automotive Equipment & Manufacturing.............. 95,118 1.0%
Other............................................. 201,920 2.3%
---------- ------
$9,126,824 100.0%
========== ======
</TABLE>
See Combined Notes to Financial Statements.
28
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--86.1%
Advertising & Related Services--0.3%
5,000 *Young & Rubicam, Inc............................. $ 161,875
-----------
Aerospace & Defense--0.5%
20,000 Bombardier, Inc., Cl. B........................... 287,864
-----------
Automotive Equipment & Manufacturing--2.2%
15,000 CSK Auto Corp..................................... 400,312
6,235 Daimler Chrysler AG Stuttgart..................... 598,950
15,000 Meritor Automotive, Inc........................... 317,813
-----------
1,317,075
-----------
Banks--12.3%
3,000 AmSouth Bancorp................................... 136,875
9,047 Bank One Corp..................................... 461,962
19,000 BankBoston Corp................................... 739,813
4,000 Bankers Trust Corp................................ 341,750
24,156 BB & T Corp....................................... 973,789
23,000 Chase Manhattan Corp.............................. 1,565,437
10,000 KeyCorp........................................... 320,000
13,900 Marshall & Ilsley Corp............................ 812,281
12,000 Mellon Bank Corp.................................. 825,000
20,000 Pacific Century Financial Corp.................... 487,500
2,000 SouthTrust Corp................................... 73,875
6,975 Susquehanna Bancshares, Inc....................... 142,770
20,000 Webster Financial Corp............................ 548,750
-----------
7,429,802
-----------
Building, Construction & Furnishings--4.2%
14,000 *Furniture Brands International, Inc.............. 381,500
10,000 *Jacobs Engineering Group, Inc.................... 407,500
15,000 Lennar Corp....................................... 378,750
6,000 Lone Star Industries, Inc......................... 220,875
10,000 Ryland Group, Inc................................. 288,750
26,500 *US Home Corp..................................... 881,125
-----------
2,558,500
-----------
Business Equipment & Services--5.3%
16,500 Air Express International Corp.................... 358,875
2,000 *Atlas Air, Inc................................... 97,875
15,000 Circle International Group, Inc. ................. 307,500
10,000 *Compuware Corp................................... 781,250
17,000 Petroleum Helicopters, Inc........................ 274,125
14,000 Pittston Burlington Group......................... 155,750
20,000 *Platinum Technology Corp......................... 382,500
12,000 *Policy Management Systems Corp................... 606,000
10,000 Reynolds & Reynolds Co., Cl. A.................... 229,375
-----------
3,193,250
-----------
Capital Goods--0.8%
10,000 Caterpillar, Inc.................................. 460,000
-----------
Chemical & Agricultural Products--3.3%
2,600 Air Products & Chemicals, Inc..................... 104,000
20,000 Du Pont (E. I.) De Nemours & Co. ................. 1,061,250
10,000 Engelhard Corp.................................... 195,000
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Chemical & Agricultural Products--continued
6,000 *Grace (W.R.) & Co.................................... $ 94,125
8,500 Morton International, Inc............................. 208,250
6,000 Nalco Chemical Co..................................... 186,000
3,000 Pioneer Hi-Bred International, Inc.................... 81,000
2,000 Solutia, Inc.......................................... 44,750
-----------
1,974,375
-----------
Communication Systems & Services--0.8%
4,000 *AirTouch Communications, Inc......................... 288,500
7,650 *American Tower Systems Corp.......................... 226,153
-----------
514,653
-----------
Consumer Products & Services--3.2%
5,500 Black & Decker Corp................................... 308,344
7,500 Harman International Industries, Inc.................. 285,938
5,500 Hillenbrand Industries, Inc........................... 312,812
9,500 Newell Co............................................. 391,875
10,000 Premark International, Inc............................ 346,250
7,000 Russ Berrie & Co., Inc................................ 164,500
13,000 Stride Rite Corp...................................... 113,750
-----------
1,923,469
-----------
Diversified Companies--0.4%
9,000 Harnischfeger Industries, Inc......................... 91,688
4,000 ITT Industries, Inc................................... 159,000
-----------
250,688
-----------
Electronic Equipment & Services--1.8%
9,000 Jabil Circuit, Inc.................................... 671,625
8,000 *KLA-Tencor Corp...................................... 347,000
11,000 Sensormatic Electronics Corp.......................... 76,313
-----------
1,094,938
-----------
Electrical Equipment & Services--3.2%
6,000 Honeywell, Inc........................................ 451,875
9,000 Perkin Elmer Corp..................................... 878,062
14,000 Thomas & Betts Corp................................... 606,375
-----------
1,936,312
-----------
Finance & Insurance--7.6%
8,000 AFLAC, Inc............................................ 352,000
5,000 American Bankers Insurance Group, Inc................. 241,875
7,500 Edwards (A.G.), Inc................................... 279,375
4,086 Exel Limited Hamilton................................. 306,450
6,000 Federal Home Loan Mortgage Corp....................... 386,625
5,000 Federal National Mortgage Association................. 370,000
19,300 Frontier Insurance Group, Inc......................... 248,488
9,000 Legg Mason, Inc....................................... 284,063
10,000 Lehman Brothers Holdings, Inc......................... 440,625
5,000 MBIA, Inc............................................. 327,812
19,100 Paine Webber Group, Inc............................... 737,737
5,000 SunAmerica, Inc....................................... 405,625
10,000 Waddell & Reed Financial, Inc. Cl. A.................. 236,875
-----------
4,617,550
-----------
</TABLE>
(continued)
29
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Food & Beverage Products--0.9%
2,000 Bestfoods........................................... $ 106,500
5,000 *Keebler Foods Co................................... 188,125
10,000 *Vlasic Foods International, Inc.................... 238,125
-----------
532,750
-----------
Forest Products--0.3%
10,000 Deltic Timber Corp.................................. 203,750
-----------
Healthcare Products & Services--8.4%
2,000 Abbott Laboratories................................. 98,000
15,000 *Acuson Corp........................................ 223,125
8,000 American Home Products Corp......................... 450,500
10,000 Amerisource Health Corp............................. 650,000
7,800 Beckman Coulter, Inc................................ 423,150
18,000 *Boston Scientific Corp............................. 482,625
2,500 Dura Pharmaceuticals, Inc........................... 37,969
14,000 First Health Group Corp............................. 231,875
10,000 *Foundation Health Systems, Inc..................... 119,375
5,000 HCR Manor Care, Inc................................. 146,875
20,000 *Lincare Holdings, Inc.............................. 811,250
10,000 McKesson Corp....................................... 790,625
14,500 *Quorum Health Group, Inc........................... 187,593
2,000 Schering-Plough Corp................................ 110,500
6,000 Shared Medical System Corp.......................... 299,250
-----------
5,062,712
-----------
Industrial Specialty Products & Services--7.4%
11,000 AptarGroup, Inc..................................... 308,687
10,375 Autoliv, Inc........................................ 385,820
7,000 Bemis Co., Inc...................................... 265,563
6,500 Borg-Warner Automotive, Inc......................... 362,781
10,000 Dover Corp.......................................... 366,250
9,000 Flowserve Corp...................................... 149,063
7,000 Parker Hannifin Corp................................ 229,250
15,000 Pittston Brink's Group.............................. 478,125
7,500 Snap-on, Inc........................................ 261,094
22,000 *Strattec Security Corp............................. 660,000
7,000 Sundstrand Corp..................................... 363,125
18,200 *UCAR International, Inc............................ 324,187
19,000 *Unova, Inc......................................... 344,375
-----------
4,498,320
-----------
Information Services & Technology--0.7%
5,000 *Adaptec, Inc....................................... 87,812
7,875 Computer Associates International, Inc.............. 335,672
-----------
423,484
-----------
Leisure & Tourism--0.2%
5,000 Gaylord Entertainment Co............................ 150,625
-----------
Manufacturing--Distributing--0.3%
10,000 Hussmann International, Inc......................... 193,750
-----------
Metal Products & Services--0.3%
18,300 *Steel Dynamics, Inc................................ 215,025
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Oil/Energy--4.3%
20,000 Berry Petroleum Co. Cl. A........................... $ 283,750
15,000 Cabot Oil & Gas Corp. Cl. A......................... 225,000
5,000 Chevron Corp........................................ 414,687
17,500 *Houston Exploration Co............................. 347,812
4,000 Kerr-McGee Corp..................................... 153,000
7,000 National Fuel Gas Co................................ 316,313
8,000 *Nuevo Energy Co.................................... 92,000
10,000 *Oryx Energy Co..................................... 134,375
15,500 *Santa Fe Energy Resources, Inc..................... 114,313
20,000 Southwestern Energy Co.............................. 150,000
8,000 Transocean Offshore, Inc............................ 214,500
6,000 Williams Companies, Inc............................. 187,125
-----------
2,632,875
-----------
Oil Field Services--0.9%
11,000 *Atwood Oceanics, Inc............................... 187,000
3,444 Halliburton Co...................................... 102,029
14,160 *R & B Falcon Corp.................................. 107,970
20,000 *Varco International, Inc........................... 155,000
-----------
551,999
-----------
Paper & Packaging--0.3%
3,216 *Sealed Air Corp.................................... 164,217
-----------
Printing, Publishing, Broadcasting & Entertainment--2.9%
11,500 *Jacor Communications, Inc.......................... 740,312
9,000 TCA Cable TV, Inc................................... 321,188
11,000 Time Warner, Inc.................................... 682,687
-----------
1,744,187
-----------
Real Estate--2.3%
2,800 Arden Realty Group, Inc. REIT....................... 64,925
3,500 CarrAmerica Realty Corp. REIT....................... 84,000
10,000 Mack-Cali Realty Corp. REIT......................... 308,750
20,000 *Starwood Hotels & Resorts Trust REIT............... 453,750
17,000 Weeks Corp. REIT.................................... 479,188
-----------
1,390,613
-----------
Retailing & Wholesale--4.7%
5,000 Avnet, Inc.......................................... 302,500
10,000 *Cole National Corp. Cl. A.......................... 171,250
14,000 Ethan Allen Interiors, Inc.......................... 574,000
3,500 J. C. Penney Co., Inc............................... 164,063
10,000 Lowe's Companies, Inc............................... 511,875
10,000 Rite Aid Corp....................................... 495,625
19,816 *Saks, Inc.......................................... 625,442
-----------
2,844,755
-----------
Transportation--4.1%
15,000 Burlington Northern Santa Fe Corp................... 506,250
13,500 Kansas City Southern Industries, Inc................ 664,031
</TABLE>
(continued)
30
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Transportation--continued
25,300 Southwest Airlines Co.............................. $ 567,669
17,200 Union Pacific Corp................................. 775,075
-----------
2,513,025
-----------
Utilities--Electric--1.1%
18,000 TNP Enterprises, Inc............................... 682,875
-----------
Utilities--Gas--0.5%
11,000 Northwest Natural Gas Co........................... 284,625
-----------
Utilities--Telephone--0.6%
10,000 Frontier Corp...................................... 340,000
-----------
Total Common Stocks
(cost $46,005,383)................................ $52,149,938
-----------
PREFERRED STOCKS--0.0% (a)
Healthcare Products & Services--0.0% (a)
3,500 *Fresenius National Med Care, Inc. Ser. D (cost
$736)............................................. 105
-----------
CONVERTIBLE PREFERRED--0.2%
Paper & Packaging--0.2%
2,850 *Sealed Air Corp. (cost $100,265).................. 147,844
-----------
</TABLE>
* Non-income producing securities.
(a) Less than one-tenth of one percent.
Summary of Abbreviations:
LOCLetter of Credit
REITReal Estate Investment Trust
<TABLE>
<CAPTION>
Principal
Amount Value
- ------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--14.8%
Commercial Paper--8.9%
$ 840,000 Island Finance Puerto Rico, Inc. 5.55%, 1/22/99,
(LOC: Norwest Corp.)............................... $ 837,280
555,000 Marsh & McLennan Co., Inc.
5.40%, 1/20/99..................................... 553,418
560,000 Park Avenue Recreation Corp. 5.75%, 1/22/99......... 558,122
1,695,000 Power Authority St New York 5.37%, 1/13/99.......... 1,691,966
1,640,000 Republic Industries Funding Corp. 5.60%, 1/13/99.... 1,636,939
110,000 Texas Dept of Commerce
5.40%, 1/6/99...................................... 109,917
-----------
5,387,642
-----------
U.S. Government Agency Obligations--5.9%
1,000,000 Federal Home Loan Bank
Discount Notes
5.12%, 1/20/99..................................... 997,298
Federal Home Loan Mortgage Discount Notes
2,300,000 5.09%, 1/7/99....................................... 2,298,049
260,000 5.14%, 1/14/99...................................... 259,517
-----------
3,554,864
-----------
Total Short-Term Investments
(cost $8,942,506).................................. $ 8,942,506
-----------
Total Investments--
(cost $55,048,890)........................... 101.1% 61,240,393
Other Assets and Liabilities--net............. (1.1) (664,202)
------ -----------
Net Assets.................................... 100.0% $60,576,191
====== ===========
</TABLE>
See Combined Notes to Financial Statements.
31
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--90.7%
Aerospace & Military Technology--1.8%
3,069 British Aerospace......................................... $ 26,157
----------
Automobiles--5.1%
416 Compagnie Generale des Etablissements Michelin Cl. B...... 16,630
223 Daimlerchrysler AG........................................ 21,971
2,000 Suzuki Motor Corp. ....................................... 23,706
444 Volvo AB, Ser. B.......................................... 10,164
----------
72,471
----------
Banking--11.8%
6,163 Anglo Irish Bank Corp. ................................... 17,782
424 Argentaria Corp Bc........................................ 10,964
2,000 Bank Of Tokyo Mitsubishi.................................. 20,699
195 Bayerische Vereinsbank AG................................. 15,269
1,805 National Australia Bank Ltd. ............................. 27,209
1,000 National Bank of Canada................................... 16,225
2,000 Sumitomo Bank Ltd. ....................................... 20,522
660 Svenska Handelsbanken, Ser. A............................. 27,782
3 Verwalt & Private Bank.................................... 11,083
----------
167,535
----------
Beverages & Tobacco--8.2%
720 Bass...................................................... 10,419
938 British America Tobacco................................... 8,259
7,034 Fosters Brewing Group Ltd. ............................... 19,052
4,722 Gallaher Group Plc........................................ 31,616
219 Heineken NV............................................... 13,172
1,482 Imperial Tobacco.......................................... 15,512
148 Pernod Ricard SA.......................................... 9,609
1,500 Rembrandt Group Ltd. ..................................... 8,913
----------
116,552
----------
Broadcasting & Publishing--4.5%
901 Arn Mondadori Edit SpA.................................... 11,907
32 Edipresse SA.............................................. 9,201
492 Quebecor, Inc., Cl. B..................................... 10,590
225 VNU....................................................... 8,479
115 Wolters Kluwer NV......................................... 24,595
----------
64,772
----------
Business & Public Services--4.3%
80 *ATOS SA.................................................. 19,116
100 Cap Gemini................................................ 16,044
5,115 Cordiant Commerce Plc..................................... 8,923
127 Dauphin O.T.A. ........................................... 11,585
90 *ISS International Service System AS, Ser. B.............. 5,854
----------
61,522
----------
Electrical & Electronics--1.0%
200 Sony Corp. ............................................... 14,560
----------
Electronic Components--1.2%
1,160 Smiths Industries Plc..................................... 16,632
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Energy Sources--1.4%
726 British Petroleum Co. Plc.............................. $ 10,807
81 Societe Nationale Elf Aquitaine SA..................... 9,359
----------
20,166
----------
Financial Services--5.2%
1,132 Close Brothers Group Plc............................... 10,156
1,444 Lend Lease Corp. ...................................... 19,467
100 Nichiei Co. Ltd. ...................................... 7,961
825 Prudential Corp. Plc................................... 12,585
37 *Societe Eurafrance SA................................. 24,486
----------
74,655
----------
Food & Household Products--10.0%
59 Groupe Danone.......................................... 16,884
31 Hero AG................................................ 21,213
344 Koninklijke Ahold NV................................... 12,708
4 Lindt & Spruengli AG................................... 10,483
23 Nestle SA.............................................. 50,062
358 Unilever NV CVA........................................ 30,584
----------
141,934
----------
Health & Personal Care--20.7%
1,099 Astra AB, Ser. A....................................... 22,386
190 Fresenius AG........................................... 40,016
644 Glaxo Wellcome Plc..................................... 22,169
1,000 Kao Corp. ............................................. 22,557
12 Novartis AG, Registered Shares......................... 23,586
452 Pharmacia & Upjohn, Inc. .............................. 25,257
719 Rhone-Poulenc SA, Cl. A................................ 36,985
2 Roche Holding AG....................................... 24,401
1,000 Sankyo Co. ............................................ 21,849
2,000 Taisho Pharmaceutical Co. ............................. 55,020
----------
294,226
----------
Insurance--4.5%
2,290 Allied Zurich.......................................... 34,413
126 AXA-UAP................................................ 18,254
147 Fortis Amev NV......................................... 12,175
----------
64,842
----------
Machinery & Engineering--0.9%
305 Boewe Systec AG........................................ 12,445
----------
Merchandising--1.2%
33 Karstadt AG............................................ 17,227
----------
Mining--0.9%
200 Potash Corp. of Saskatchewan, Inc. .................... 12,888
----------
Multi-Industry--1.6%
45 Eaux Cie Generale...................................... 11,670
56 Marine-Wendel SA....................................... 11,018
----------
22,688
----------
</TABLE>
(continued)
32
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA INTERNATIONAL GROWTH FUND
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Telecommunications--3.8%
400 Ericsson LM Telephone Co., ADR............................ $ 9,563
100 Mannesmann AG............................................. 11,460
100 Nokia Corp. ADR........................................... 12,044
1,600 Telecom Italia SpA........................................ 13,644
100 Telecomunicacoes Brasileiras SA, ("Telebras") ADR......... 7,269
----------
53,980
----------
Utilities--Electric, Gas & Water--1.6%
110 Suez Lyonn Eaux........................................... 22,586
----------
Wholesale & International Trade--1.0%
1,000 Canon Sales Co., Inc. .................................... 14,144
----------
Total Common Stocks (cost $1,160,921)..................... $1,291,982
----------
</TABLE>
* Non-income producing securities.
Summary of Abbreviations:
ADR American Depository Receipt
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS--10.6%
U.S. Agency Obligations--10.6%
$151,000 Federal Home Loan Mortgage Discount Notes
4.50%, 1/4/99 (cost $150,943).......................... $ 150,943
----------
Total Investments--
(cost $1,311,864).............................. 101.3% 1,442,925
Other Assets and Liabilities--net............... (1.3) (18,327)
------ ----------
Net Assets...................................... 100.0% $1,424,598
====== ==========
</TABLE>
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward Foreign Currency Exchange
Contracts to Sell:
<TABLE>
<CAPTION>
Unrealized
Exchange U.S. Value at In Exchange Appreciation
Date Contracts to Deliver December 31, 1998 for U.S.$ (Depreciation)
- ------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
22,528Australian
3/15/99 Dollar $ 13,815 $ 14,000 $ 185
2/26/99 237,706German Marks 143,036 140,000 (3,036)
2/26/99 4,785,840Japanese Yen 42,656 40,000 (2,656)
-------
$(5,507)
=======
</TABLE>
At December 31, 1998, the Fund held
securities in the following markets:
<TABLE>
<CAPTION>
Percent of
Value Portfolio Assets
- ------------------------------------------------
<S> <C> <C>
France.............. $ 224,226 15.5%
United Kingdom...... 207,649 14.4%
Japan............... 201,017 13.9%
United States**..... 176,200 12.2%
Switzerland......... 150,029 10.4%
Germany............. 118,387 8.2%
Netherlands......... 101,714 7.0%
Sweden.............. 69,895 4.8%
Australia........... 65,728 4.6%
Canada.............. 39,703 2.8%
Italy............... 25,551 1.8%
Ireland............. 17,781 1.2%
Other............... 45,045 3.1%
---------- ------
$1,442,925 100.0%
========== ======
</TABLE>
** Includes short-term investments
See Combined Notes to Financial Statements.
33
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA SMALL CAP EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--86.5%
Aerospace & Defense--2.1%
900 Curtiss Wright Corp. ................................. $ 34,313
1,300 *Wyman-Gordon Co. .................................... 13,325
----------
47,638
----------
Automotive Equipment & Manufacturing--1.8%
1,000 Arvin Industries, Inc. ............................... 41,688
----------
Banks--10.5%
1,400 ABC Bancorp........................................... 17,675
1,800 Britton & Koontz Capital Corp. ....................... 35,662
1,785 Commercial Bankshares, Inc. .......................... 41,055
1,600 Granite State Bankshares, Inc. ....................... 37,600
1,000 Greater Bay Bancorp................................... 33,750
2,000 Independent Bankshares, Inc. ......................... 23,000
600 Pacific Bank, N.A. ................................... 26,175
1,000 SierraWest Bancorp.................................... 24,875
----------
239,792
----------
Building, Construction & Furnishings--7.2%
1,400 American Woodmark Corp. .............................. 47,950
600 Knape & Vogt Manufacturing Co. ....................... 10,275
2,700 Shelby Williams Industries, Inc. ..................... 32,400
2,500 Standard Pacific Corp. ............................... 35,313
1,500 TJ International, Inc. ............................... 38,531
----------
164,469
----------
Business Equipment & Services--0.7%
2,800 Tab Products Co. ..................................... 16,450
----------
Chemical & Agricultural Products--1.2%
800 Learonal, Inc. ....................................... 27,100
----------
Consumer Products & Services--8.7%
2,100 CPI Corp. ............................................ 55,650
1,000 Lancaster Colony Corp. ............................... 32,125
1,100 Polaris Industries, Inc. ............................. 43,106
2,000 Russ Berrie & Co., Inc. .............................. 47,000
2,200 York Group, Inc. ..................................... 20,900
----------
198,781
----------
Electronic Equipment & Services--3.8%
1,600 Boston Acoustics, Inc. ............................... 42,400
1,000 CTS Corp. ............................................ 43,500
----------
85,900
----------
Electrical Equipment & Services--2.1%
3,700 Helix Technology Corp. ............................... 48,100
----------
Finance & Insurance--1.6%
2,000 Morgan Keegan, Inc. .................................. 37,625
----------
Food & Beverage Products--6.8%
2,640 Bridgford Foods Corp. ................................ 33,495
2,000 International Multifoods Corp. ....................... 51,625
1,500 Michael Foods, Inc. .................................. 45,000
1,000 Smucker (J. M.) Co. Cl. A............................. 24,750
----------
154,870
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Healthcare Products & Services--1.5%
3,000 Kewaunee Scientific Corp. ................................ $ 33,375
----------
Industrial Specialty Products & Services--6.6%
1,400 Badger Meter, Inc. ....................................... 49,875
1,200 Federal Signal Corp. ..................................... 32,850
1,000 Graco, Inc. .............................................. 29,500
2,000 Hach Co. ................................................. 24,000
1,500 Hach Co. Cl. A............................................ 15,375
----------
151,600
----------
Machinery--Diversified--1.0%
1,200 Hardinge, Inc. ........................................... 22,125
----------
Oil/Energy--4.0%
2,500 Cabot Oil & Gas Corp. Cl. A............................... 37,500
2,000 Penn Virginia Corp. ...................................... 36,750
2,200 Southwestern Energy Co. .................................. 16,500
----------
90,750
----------
Oil Field Services--0.8%
1,000 Lufkin Industries, Inc. .................................. 18,500
----------
Paper & Packaging--1.4%
2,400 Tuscarora, Inc. .......................................... 32,100
----------
Printing, Publishing, Broadcasting & Entertainment--2.4%
2,000 Banta Corp. .............................................. 54,750
----------
Real Estate--3.8%
2,000 Eastgroup Properties, Inc. REIT........................... 36,875
1,600 Parkway Properties, Inc. REIT............................. 50,000
----------
86,875
----------
Retailing & Wholesale--2.2%
3,000 Craftmade International, Inc. ............................ 49,875
----------
Telecommunication Services & Equipment--4.7%
2,900 Communications Systems, Inc. ............................. 34,256
3,000 Hickory Tech Corp. ....................................... 39,000
1,500 Scientific Atlanta, Inc. ................................. 34,219
----------
107,475
----------
Textile & Apparel--1.2%
1,000 Oxford Industries, Inc. .................................. 28,250
----------
Thrift Institutions--6.1%
3,957 Community Savings Bankshares, Inc. ....................... 42,538
2,000 Harbor Florida Bancshares, Inc. .......................... 22,375
2,400 Horizon Financial Corp. .................................. 30,300
1,600 St. Paul Bancorp, Inc. ................................... 43,550
----------
138,763
----------
Utilities--Electric--1.1%
700 WPS Resources Corp. ...................................... 24,675
----------
</TABLE>
(continued)
34
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA SMALL CAP EQUITY INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS--continued
Utilities--Gas--3.2%
2,400 Chesapeake Utilities Corp. ............................... $ 43,950
1,500 Delta Natural Gas Co., Inc. .............................. 27,937
----------
71,887
----------
Total Common Stocks (cost $1,952,861)..................... $1,973,413
----------
CONVERTIBLE PREFERRED--4.3%
Electrical Equipment & Services--1.9%
1,000 Pioneer Standard Financial Trust 6.75%, 3/31/28........... 42,630
----------
Finance & Insurance--2.4%
800 Frontier Financing Trust
6.25%, TOPRS............................................. 32,600
2,300 Philadelphia Consolidated Holdings, Inc. 7.00%, PRIDES.... 23,000
----------
55,600
----------
Total Convertible Preferred (cost $113,669)............... $ 98,230
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE DEBENTURES--7.1%
Consumer Products & Services--1.0%
$ 25,000 Action Performance Companies, Inc. 4.75%, 4/1/05,
144A.................................................. $ 23,688
----------
Healthcare Products & Services--2.4%
40,000 Alpharma, Inc.
5.75%, 4/1/05, 144A................................... 54,800
----------
Leisure & Tourism--1.2%
25,000 Speedway Motorsports, Inc. 5.75%, 9/30/03.............. 27,125
----------
Telecommunication Services & Equipment--2.5%
55,000 Antec Corp.
4.50%, 5/15/03, 144A.................................. 55,756
----------
Total Convertible Debentures (cost $145,206)........... $ 161,369
----------
SHORT-TERM INVESTMENTS--4.6%
U.S. Government Agency Obligations--4.6%
$105,000 Federal Home Loan Bank Discount Notes
5.05%, 1/13/99 (cost $104,823)......................... $ 104,823
----------
Total Investments--(cost $2,316,559)........... 102.5% 2,337,835
Other Assets and Liabilities--net.............. (2.5) (56,108)
------ ----------
Net Assets..................................... 100.0% $2,281,727
====== ==========
</TABLE>
* Non-income producing securities.
144A Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under guidelines established by the Board of Trustees.
Summary of Abbreviations:
PRIDESPreferred Redeemable Increased Dividend Equity Securities
REITReal Estate Investment Trust
TOPRSTrust Originated Preferred Securities
See Combined Notes to Financial Statements.
35
<PAGE>
Evergreen Variable Annuity Trust
EVERGREEN VA STRATEGIC INCOME FUND
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--27.1%
Advertising & Related Services--3.6%
$ 400,000 Ackerly Group, Inc., Sr. Notes (Subord.),
9.00%, 1/15/09 144A.................................. $ 406,000
-----------
Cable/Other Video Distribution--2.9%
290,000 Adelphia Communications Corp., Sr. Notes, Series B,
9.875%, 3/1/07....................................... 321,175
-----------
Food & Beverage Products--3.9%
150,000 Perkins Family Restaurant, Sr. Notes, Series B,
10.125%, 12/15/07.................................... 159,000
350,000 RAB Enterprises, Inc., Sr. Notes, 10.50%, 5/1/05
144A................................................. 279,125
-----------
438,125
-----------
Oil/Energy--4.2%
350,000 Parker Drilling Co., Sr. Notes, Series D, 9.75%,
11/15/06............................................. 312,375
300,000 Petsec Energy, Inc., Sr. Notes (Subord.), Series B,
9.50%, 6/15/07....................................... 156,000
-----------
468,375
-----------
Paper & Packaging--0.9%
100,000 Riverwood International Corp., Sr. Notes,
10.25%, 4/1/06....................................... 99,000
-----------
Printing, Publishing, Broadcasting & Entertainment--0.4%
50,000 Echostar Satellite Broadcast Corp., Sr. Secd. Disc.
Notes, (Eff. Yield 10.39%),
0.00%, 3/15/04(a).................................... 49,875
-----------
Telecommunication Services & Equipment--4.7%
200,000 Echostar Communications Corp., Sr. Secd. Disc. Notes,
(Eff. Yield 9.66%),
0.00%, 6/1/04(a)..................................... 206,000
300,000 Global Crossings Holdings Ltd., Sr. Notes, 9.625%,
5/15/08.............................................. 315,000
-----------
521,000
-----------
Textile & Apparel--0.8%
90,000 Delta Mills, Inc., Sr. Notes, Series B, 9.625%,
9/1/07............................................... 87,075
-----------
Transportation--5.7%
350,000 Greyhound Lines, Inc., Sr. Notes, Series B,
11.50%, 4/15/07...................................... 400,750
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS--continued
Transportation--continued
$ 250,000 Sea Containers Ltd., Sr. Notes, Series B, 7.875%,
2/15/08............................................. $ 240,000
-----------
640,750
-----------
Total Corporate Bonds (cost $3,246,648).............. $ 3,031,375
-----------
FOREIGN BONDS (U.S. DOLLARS)--1.3%
140,000 Great Central Mines Ltd., Sr. Notes, 8.875%, 4/1/08
(cost $139,327)..................................... 139,650
-----------
FOREIGN BONDS (NON U.S. DOLLARS)--17.7%
575,000 Canada Government, Debs.,
CAD 6.00%, 6/1/08....................................... 407,221
625,000 Denmark (Kingdom of), Debs.,
DKK 8.00%, 5/15/03...................................... 113,927
675,000 Germany (Republic of), Debs.,
DEM 6.875%, 5/12/05..................................... 477,352
880,000 New Zealand Government, Debs.,
NZD 7.00%, 7/15/09...................................... 518,396
2,991,000 Realkredit Danmark, Debs.,
DKK 6.00%, 10/1/29...................................... 460,801
-----------
Total Foreign Bonds
(Non U.S. Dollars) (cost $1,883,640)................ $ 1,977,697
-----------
U.S. GOVERNMENT & AGENCY OBLIGATIONS--47.3%
$ 950,000 U.S. Treasury Bonds, 6.375%, 8/15/27................. $ 1,091,901
U.S. Treasury Notes
250,000 5.50%, 5/31/03....................................... 258,125
300,000 5.63%, 12/31/99...................................... 302,907
1,345,000 5.75%, 4/30/03....................................... 1,400,064
810,000 6.13%, 8/15/07....................................... 884,674
315,000 6.25%, 6/30/02....................................... 330,653
3,350,000 U.S. Treasury STRIPS, (Eff. Yield 8.55%),
0.00%, 5/15/20(a)................................... 1,024,229
-----------
Total U.S. Government & Agency Obligations (cost
$5,202,261)......................................... $ 5,292,553
-----------
SHORT-TERM INVESTMENTS--5.6%
631,000 Federal Home Loan Mortgage Discount Notes, 4.50%,
1/4/99 (cost $630,763).............................. 630,763
-----------
Total Investments--(cost $11,102,639).......... 99.0% 11,072,038
Other Assets and Liabilities--net.............. 1.0 109,791
------ -----------
Net Assets..................................... 100.0% $11,181,829
====== ===========
</TABLE>
(a) Effective yield (calculated at the date of purchase) is the yield at which
the bond accretes on an annual basis until maturity date.
144A Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under guidelines established by the Board of Trustees.
Summary of Abbreviations:
CAD Canadian Dollar
DEM German Deutsche Mark
DKK Danish Krone
NZD New Zealand Dollar
STRIPS Separate Trading of Registered Interest and Principal Securities
See Combined Notes to Financial Statements.
36
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Aggressive Global
Growth Evergreen Foundation Leaders
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities.................. $3,052,801 $41,562,865 $70,238,371 $8,585,768
Net unrealized gains or
losses on securities........ 976,558 4,982,583 7,971,154 1,080,243
- --------------------------------------------------------------------------------
Market value of securities... 4,029,359 46,545,448 78,209,525 9,666,011
Cash......................... 57 0 89,357 0
Receivable for Fund shares
sold........................ 0 95,459 61,115 37,604
Dividends and interest
receivable.................. 284 27,217 500,121 14,555
Deferred organization
expense..................... 6,453 9,013 9,371 6,426
Prepaid expenses and other
assets...................... 7,240 152 304 22
- --------------------------------------------------------------------------------
Total assets................. 4,043,393 46,677,289 78,869,793 9,724,618
- --------------------------------------------------------------------------------
Liabilities
Payable for investments
purchased................... 0 758,277 420,545 67,045
Payable for Fund shares
redeemed.................... 104 0 0 0
Due to custodian bank........ 0 61,959 0 59,602
Advisory fee payable......... 1,099 31,358 65,784 5,460
Due to other related
parties..................... 82 1,063 1,586 246
Accrued expenses and other
liabilities................. 3,270 4,273 10,921 8,965
- --------------------------------------------------------------------------------
Total liabilities............ 4,555 856,930 498,836 141,318
- --------------------------------------------------------------------------------
Net assets.................... $4,038,838 $45,820,359 $78,370,957 $9,583,300
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital.............. $3,222,476 $40,605,528 $70,131,196 $8,569,969
Undistributed net investment
income...................... (253) 156,544 (5,588) 1,761
Accumulated net realized
gains or losses on
securities and foreign
currency related
transactions................ (159,943) 75,704 274,195 (68,852)
Net unrealized gains or
losses on securities and
foreign currency related
transactions................ 976,558 4,982,583 7,971,154 1,080,422
- --------------------------------------------------------------------------------
Total net assets.............. $4,038,838 $45,820,359 $78,370,957 $9,583,300
- --------------------------------------------------------------------------------
Shares outstanding............ 297,619 2,993,757 5,414,433 750,951
- --------------------------------------------------------------------------------
Net asset value per share..... $13.57 $15.31 $14.47 $12.76
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
37
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
Growth International Small Cap Strategic
and Income Growth Equity Income Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $55,048,890 $1,311,864 $2,316,559 $11,102,639
Net unrealized gains or
losses on securities... 6,191,503 131,061 21,276 (30,601)
- --------------------------------------------------------------------------------
Market value of
securities............. 61,240,393 1,442,925 2,337,835 11,072,038
Cash.................... 0 6,382 56,649 0
Receivable for
investments sold....... 0 5,680 0 0
Receivable for Fund
shares sold............ 8,654 981 1,949 0
Dividends and interest
receivable............. 43,438 1,493 5,170 154,572
Unrealized gains on open
forward foreign
currency exchange
contracts.............. 0 185 0 0
Deferred organization
expense................ 9,369 0 0 6,453
Receivable from
investment advisor..... 5,563 0 3,857 0
Prepaid expenses and
other assets........... 144 10,443 0 430
- --------------------------------------------------------------------------------
Total assets............ 61,307,561 1,468,089 2,405,460 11,233,493
- --------------------------------------------------------------------------------
Liabilities
Payable for investments
purchased.............. 603,004 6,132 112,759 0
Payable for Fund shares
redeemed............... 111,345 0 0 6,109
Due to custodian bank... 687 0 0 37,922
Unrealized depreciation
on open forward foreign
currency exchange
contracts.............. 0 5,692 0 0
Advisory fee payable.... 0 0 0 5,408
Due to other related
parties................ 1,296 0 0 227
Accrued expenses and
other liabilities...... 15,038 31,667 10,974 1,998
- --------------------------------------------------------------------------------
Total liabilities....... 731,370 43,491 123,733 51,664
- --------------------------------------------------------------------------------
Net assets............... $60,576,191 $1,424,598 $2,281,727 $11,181,829
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital......... $54,057,578 $1,419,279 $2,282,988 $11,266,075
Undistributed net
investment income...... (1,909) 1,276 0 (255)
Accumulated net realized
gains or losses on
securities and foreign
currency related
transactions........... 329,019 (121,523) (22,537) (53,963)
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 6,191,503 125,566 21,276 (30,028)
- --------------------------------------------------------------------------------
Total net assets........ $60,576,191 $1,424,598 $2,281,727 $11,181,829
- --------------------------------------------------------------------------------
Shares outstanding....... 3,888,759 151,668 238,173 1,076,292
- --------------------------------------------------------------------------------
Net asset value per
share................... $ 15.58 $ 9.39 $ 9.58 $ 10.39
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
38
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Aggressive Global
Growth Evergreen Foundation Leaders
Fund Fund Fund Fund
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign
withholding taxes of $0, $0,
$0 and $6,918, respectively).. $ 4,581 $ 276,453 $ 661,863 $ 84,779
Interest....................... 14,437 233,376 1,279,396 31,344
- ---------------------------------------------------------------------------------
Total investment income......... 19,018 509,829 1,941,259 116,123
- ---------------------------------------------------------------------------------
Expenses
Advisory fee................... 16,941 326,123 467,156 58,409
Administrative services fees... 771 9,416 15,429 1,670
Transfer agent fee............. 92 178 166 92
Trustees' fees and expenses.... 0 101 3,535 50
Custodian fee.................. 677 8,739 16,041 6,589
Professional fees.............. 18,574 34,714 42,948 21,464
Printing and postage........... 1,149 5,059 14,481 5,157
Organization expenses.......... 2,022 4,689 4,333 2,022
Other.......................... 3,657 1,246 1,256 163
- ---------------------------------------------------------------------------------
Total expenses................. 43,883 390,265 565,345 95,616
Less: Fee credits.............. (677) (4,715) (5,852) (2,546)
Fee waivers and expense
reimbursements............... (14,973) (42,262) 0 (31,587)
- ---------------------------------------------------------------------------------
Net expenses................... 28,233 343,288 559,493 61,483
- ---------------------------------------------------------------------------------
Net investment income.......... (9,215) 166,541 1,381,766 54,640
- ---------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on securities
and foreign currency related
transactions
Net realized gains or losses
on:
Securities..................... (122,678) 1,153,050 1,192,308 (68,852)
Foreign currency related
transactions.................. 0 0 0 680
- ---------------------------------------------------------------------------------
Net realized gains or losses on
securities foreign currency
related transactions.......... (122,678) 1,153,050 1,192,308 (68,172)
- ---------------------------------------------------------------------------------
Net change in unrealized gains
or losses on securities and
foreign currency related
transactions.................. 820,212 407,756 2,722,636 1,018,021
- ---------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on securities
and foreign currency related
transactions.................. 697,534 1,560,806 3,914,944 949,849
- ---------------------------------------------------------------------------------
Net increase in net assets
resulting from operations..... $ 688,319 $1,727,347 $5,296,710 $1,004,489
- ---------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
39
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Growth International Small Cap Strategic
and Income Growth Equity Income Income
Fund Fund** Fund* Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of foreign
withholding taxes of $256,
$392, $0 and $0,
respectively)............. $ 460,366 $ 3,865 $ 28,086 $ 0
Interest................... 504,851 4,668 7,663 480,344
- -------------------------------------------------------------------------------
Total investment income..... 965,217 8,533 35,749 480,344
- -------------------------------------------------------------------------------
Expenses
Advisory fee............... 453,431 3,122 9,742 39,755
Administrative services
fees...................... 13,127 110 274 2,075
Transfer agent fee......... 137 22 26 78
Trustees' fees and
expenses.................. 742 25 15 146
Custodian fee.............. 13,061 2,076 345 2,766
Professional fees.......... 45,415 27,241 18,814 19,825
Printing and postage....... 19,994 1,716 5,184 821
Amortization of
organization expenses..... 4,333 0 0 2,022
Other...................... 1,613 64 1,203 1,939
- -------------------------------------------------------------------------------
Total expenses............. 551,853 34,376 35,603 69,427
Less: Fee credits.......... (5,349) (68) (195) (2,693)
Fee waivers and expense
reimbursements........... (69,140) (30,145) (25,153) 0
- -------------------------------------------------------------------------------
Net expenses............... 477,364 4,163 10,255 66,734
- -------------------------------------------------------------------------------
Net investment income...... 487,853 4,370 25,494 413,610
- -------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and foreign
currency related
transactions
Net realized gains or
losses on:
Securities................. 1,366,195 (111,791) (19,832) (31,768)
Foreign currency related
transactions.............. 0 (50,928) 0 (23,016)
- -------------------------------------------------------------------------------
Net realized gains or
losses on securities and
foreign currency related
transactions.............. 1,366,195 (162,719) (19,832) (54,784)
- -------------------------------------------------------------------------------
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions.............. (455,127) 125,566 21,276 (40,343)
- -------------------------------------------------------------------------------
Net realized and unrealized
gains or losses on
securities and foreign
currency related
transactions.............. 911,068 (37,153) 1,444 (95,127)
- -------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
operations................ $1,398,921 $ (32,783) $ 26,938 $318,483
- -------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
** For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
See Combined Notes to Financial Statements.
40
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Aggressive Global
Growth Evergreen Foundation Leaders
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income....... $ (9,215) $ 166,541 $ 1,381,766 $ 54,640
Net realized gains or losses
on securities and foreign
currency related
transactions............... (122,678) 1,153,050 1,192,308 (68,172)
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions............... 820,212 407,756 2,722,636 1,018,021
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations.. 688,319 1,727,347 5,296,710 1,004,489
- --------------------------------------------------------------------------------
Distributions to shareholders
from
Net investment income....... 0 0 (1,361,829) (53,046)
Net realized gains.......... 0 (1,412,932) (1,143,134) 0
- --------------------------------------------------------------------------------
Total distributions to
shareholders............... 0 (1,412,932) (2,504,963) (53,046)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 2,148,396 26,319,301 43,723,203 6,009,276
Payment for shares
redeemed................... (666,191) (3,826,451) (2,489,319) (329,929)
Net asset value of shares
issued in reinvestment of
distributions.............. 0 1,412,932 2,504,963 53,046
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions......... 1,482,205 23,905,782 43,738,847 5,732,393
- --------------------------------------------------------------------------------
Total increase in net
assets..................... 2,170,524 24,220,197 46,530,594 6,683,836
Net assets
Beginning of year........... 1,868,314 21,600,162 31,840,363 2,899,464
- --------------------------------------------------------------------------------
End of year................. $4,038,838 $45,820,359 $78,370,957 $9,583,300
- --------------------------------------------------------------------------------
Undistributed net investment
income..................... $ (253) $ 156,544 $ (5,588) $ 1,761
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
41
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Growth International Small Cap Strategic
and Income Growth Equity Income Income
Fund Fund** Fund* Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 487,853 $ 4,370 $ 25,494 $ 413,610
Net realized gains or
losses on securities
and foreign currency
related transactions... 1,366,195 (162,719) (19,832) (54,784)
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions........... (455,127) 125,566 21,276 (40,343)
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations........ 1,398,921 (32,783) 26,938 318,483
- --------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income... (484,359) 0 (26,284) (421,077)
Net realized gains...... (1,110,182) 0 (2,958) 0
- --------------------------------------------------------------------------------
Total distributions to
shareholders........... (1,594,541) 0 (29,242) (421,077)
- --------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 30,800,519 1,481,797 2,317,719 9,723,293
Payment for shares
redeemed............... (2,711,167) (24,416) (62,930) (1,064,322)
Net asset value of
shares issued in
reinvestment of
distributions.......... 1,594,541 0 29,242 421,077
- --------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... 29,683,893 1,457,381 2,284,031 9,080,048
- --------------------------------------------------------------------------------
Total increase in net
assets................. 29,488,273 1,424,598 2,281,727 8,977,454
Net assets
Beginning of year....... 31,087,918 0 0 2,204,375
- --------------------------------------------------------------------------------
End of year............. $60,576,191 $1,424,598 $2,281,727 $11,181,829
- --------------------------------------------------------------------------------
Undistributed net
investment income...... $ (1,909) $ 1,276 $ 0 $ (255)
- --------------------------------------------------------------------------------
</TABLE>
* For the period from May 1, 1998 (commencement of operations) to December 31,
1998.
** For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
See Combined Notes to Financial Statements.
42
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Aggressive Global
Growth Evergreen Foundation Leaders
Fund* Fund Fund Fund*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income....... $ (7,814) $ 66,723 $ 470,937 $ 15,518
Net realized gains or losses
on securities and foreign
currency related
transactions............... (37,265) 1,210,189 1,288,151 2,395
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions............... 156,346 3,658,731 3,805,707 62,401
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from operations.. 111,267 4,935,643 5,564,795 80,314
- --------------------------------------------------------------------------------
Distributions to shareholders
from
Net investment income....... 0 (66,336) (489,506) (13,693)
Net realized gains.......... 0 (899,946) (1,300,033) (6,846)
- --------------------------------------------------------------------------------
Total distributions to
shareholders............... 0 (966,282) (1,789,539) (20,539)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold... 1,903,365 7,331,021 11,637,130 2,913,607
Payment for shares
redeemed................... (146,318) (1,528,968) (1,173,846) (94,457)
Net asset value of shares
issued in reinvestment of
distributions.............. 0 966,282 1,789,539 20,539
- --------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions......... 1,757,047 6,768,335 12,252,823 2,839,689
- --------------------------------------------------------------------------------
Total increase in net
assets..................... 1,868,314 10,737,696 16,028,079 2,899,464
Net assets
Beginning of year........... 0 10,862,466 15,812,284 0
- --------------------------------------------------------------------------------
End of year................. $1,868,314 $21,600,162 $31,840,363 $2,899,464
- --------------------------------------------------------------------------------
Undistributed net investment
income..................... $ (253) $ (985) $ (5,485) $ (513)
- --------------------------------------------------------------------------------
</TABLE>
* For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
See Combined Notes to Financial Statements.
43
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Period Ended December 31, 1997
<TABLE>
<CAPTION>
Growth Strategic
and Income Income
Fund* Fund*
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income................................ $ 128,975 $ 59,509
Net realized gains or losses on securities and
foreign currency related transactions............... 1,072,723 1,177
Net change in unrealized gains or losses on
securities and foreign currency related
transactions........................................ 5,223,120 10,315
- --------------------------------------------------------------------------------
Net increase in net assets resulting from
operations.......................................... 6,424,818 71,001
- --------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income................................ (127,123) (58,403)
Net realized gains................................... (1,004,449) (3,203)
- --------------------------------------------------------------------------------
Total distributions to shareholders.................. (1,131,572) (61,606)
- --------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold............................ 10,949,903 2,160,738
Payment for shares redeemed.......................... (770,650) (27,364)
Net asset value of shares issued in reinvestment of
distributions....................................... 1,131,572 61,606
- --------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions.................................. 11,310,825 2,194,980
- --------------------------------------------------------------------------------
Total increase in net assets......................... 16,604,071 2,204,375
Net assets
Beginning of period.................................. 14,483,847 0
- --------------------------------------------------------------------------------
End of period........................................ $31,087,918 $2,204,375
- --------------------------------------------------------------------------------
Undistributed net investment income.................. $ (4,790) $ 1,266
- --------------------------------------------------------------------------------
</TABLE>
* For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
See Combined Notes to Financial Statements.
44
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Combined Notes to Financial Statements
1. Organization
Evergreen Variable Annuity Trust (the "Trust") is organized as a Delaware
business trust with eight separate investment series, Evergreen VA Aggressive
Growth Fund ("Aggressive Growth Fund"), Evergreen VA Fund ("Evergreen Fund"),
Evergreen VA Foundation Fund ("Foundation Fund"), Evergreen VA Global Leaders
Fund ("Global Leaders Fund"), Evergreen VA Growth and Income Fund ("Growth and
Income Fund"), Evergreen VA International Growth Fund ("International Growth
Fund"), Evergreen Small Cap Equity Income Fund ("Small Cap Equity Income
Fund"), and Evergreen VA Strategic Income Fund ("Strategic Income Fund"),
collectively known as the "Funds". The Funds are registered under the
Investment Company Act of 1940, as diversified, open-ended, management
investment companies.
Shares of each Fund may only be purchased by insurance companies for the
purpose of funding variable annuity contracts or variable life insurance
policies. Shares of each Fund are sold without a front-end sales charge or a
contingent deferred sales charge. However, surrender charges, mortality and
expense risk fees and other charges may be assessed by the participating
insurance companies under the variable annuity contracts or variable life
insurance policies. Such fees should be described in the prospectus of such
contracts or policies.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities--The Funds value securities traded on an
established securities exchange or included on the Nasdaq National Market
System ("NMS") at the last reported sales price on the exchange where
primarily traded. For international securities, the Funds value investments
traded on an established exchange on the basis of the last sales price on the
exchange where primarily traded. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded
in the over-the-counter market at the mean between the last reported bid and
asked price. U.S. government obligations held by the Funds are valued at the
mean between the over-the-counter bid and asked prices. Corporate bonds, other
fixed income securities, and mortgage and other asset-backed securities are
valued at prices provided by an independent pricing service. In determining a
price for normal institutional-size transactions, the pricing service uses
methods based on market transactions for comparable securities and analysis of
various relationships between similar securities which are generally
recognized by institutional traders. Securities for which valuations are not
available from an independent pricing service, including restricted
securities, are valued at fair value as determined in good faith according to
procedures established by the Board of Trustees. Short-term investments with
remaining maturities of 60 days or less are carried at amortized cost, which
approximates market value.
B. Repurchase Agreements--Each Fund may invest in repurchase agreements.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. Each Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement, including accrued interest. Each
Fund will only enter into repurchase agreements with banks and other financial
institutions, which are deemed by the investment advisor to be creditworthy
pursuant to guidelines established by the Board of Trustees.
C. Foreign Currency--The books and records of the Funds are maintained in U.S.
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, other assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain or loss resulting from changes in foreign
currency exchange rates is a component of net unrealized gains or losses on
securities and foreign currency related transactions. Net realized foreign
currency gains or losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
securities transactions, foreign currency related transactions and the
difference between the amounts of interest and dividends recorded on the books
of the Fund and the amounts that are actually received and are included in
realized gain or loss on foreign currency related transactions. The portion of
foreign currency gains or losses related to fluctuations in exchange rates
between the initial purchase trade date and subsequent sale trade date is
included in realized gains or losses on securities.
D. Forward Foreign Currency Exchange Contracts--The Funds may enter into
forward foreign currency exchange contracts ("forward contracts") to settle
portfolio purchases and sales of securities denominated in a foreign currency
and to hedge certain foreign currency assets or liabilities. Forward contracts
are recorded at the forward rate and marked-to-market daily. Realized gains
and losses arising from such transactions are included in net realized gains
or losses on foreign currency related transactions. The Fund bears the risk of
an unfavorable change in the foreign currency exchange rate underlying the
forward contract and is subject to the credit risk that the other party will
not fulfill their obligations under the contract. Forward contracts involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
E. Security Transactions and Investment Income--Securities transactions are
accounted for no later than one business day after the trade date. Realized
gains and losses are computed on the identified cost basis. Interest income is
recorded on the accrual basis and includes accretion of discounts and
amortization of premiums. Dividend income is recorded on the ex-dividend date,
or in the case of some foreign securities, on the date thereafter when the
Fund is made aware of the dividend. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable. Capital gains realized on
some foreign securities may be subject to foreign taxes and are accrued as
applicable.
F. Federal Taxes--The Funds have qualified and intend to continue to qualify
as regulated investment companies under the Internal Revenue Code of 1986, as
amended (the "Code"). Thus, the Funds will not incur any federal income tax
liability to the extent they distribute all of their
45
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Combined Notes to Financial Statements (Continued)
net investment company taxable income and net capital gains, if any, to their
shareholders. The Funds also intend to avoid excise tax liability by making
the required distributions under the Code. Accordingly, no provision for
federal taxes is required. To the extent that realized capital gains can be
offset by capital loss carryforwards, it is each Fund's policy not to
distribute such gains.
G. Distributions--Distributions from net investment income and net realized
capital gains, if any, for the Funds are declared and paid at least annually.
Distributions to shareholders are recorded at the close of business on the ex-
dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing
treatment for net operating losses and foreign currency gains or losses.
H. Organization Expenses--For the Funds, except International Growth Fund and
Small Cap Equity Income Fund, organization expenses are amortized to
operations over a five-year period on a straight-line basis. In the event any
of the initial shares of the Funds are redeemed by any holder during the five-
year amortization period, redemption proceeds will be reduced by any
unamortized organization expenses in the same proportion as the number of
initial shares being redeemed bears to the number of initial shares
outstanding at the time of the redemption.
Expenses relating to the organization of International Growth Fund and Small
Cap Equity Income Fund have been reflected, in each Fund's operating results
for the period ended December 31, 1998.
3. Capital Share Transactions
Each Fund has an unlimited number of shares of beneficial interest with a par
value of $0.001 authorized. Transactions in shares of the Funds were as
follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1998 1997*
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Fund
Shares sold................................................ 184,977 181,866
Shares redeemed............................................ (55,735) (13,490)
- --------------------------------------------------------------------------------
Net increase............................................... 129,242 168,376
- --------------------------------------------------------------------------------
Evergreen Fund
Shares sold................................................ 1,696,668 540,931
Shares redeemed............................................ (250,312) (108,385)
Shares issued in reinvestment of distributions............. 96,422 66,227
- --------------------------------------------------------------------------------
Net increase............................................... 1,542,778 498,773
- --------------------------------------------------------------------------------
Foundation Fund
Shares sold................................................ 3,066,890 905,499
Shares redeemed............................................ (178,716) (88,122)
Shares issued in reinvestment of distributions............. 175,029 135,505
- --------------------------------------------------------------------------------
Net increase............................................... 3,063,203 952,882
- --------------------------------------------------------------------------------
Global Leaders Fund
Shares sold................................................ 507,154 275,213
Shares redeemed............................................ (29,069) (8,439)
Shares issued in reinvestment of distributions............. 4,197 1,894
- --------------------------------------------------------------------------------
Net increase............................................... 482,282 268,668
- --------------------------------------------------------------------------------
Growth and Income Fund
Shares sold................................................ 1,929,361 786,872
Shares redeemed............................................ (177,543) (53,607)
Shares issued in reinvestment of distributions............. 104,254 74,988
- --------------------------------------------------------------------------------
Net increase............................................... 1,856,072 808,253
- --------------------------------------------------------------------------------
International Growth Fund**
Shares sold................................................ 154,555 0
Shares redeemed............................................ (2,887) 0
- --------------------------------------------------------------------------------
Net increase............................................... 151,668 0
- --------------------------------------------------------------------------------
Small Cap Equity Income Fund***
Shares sold................................................ 241,643 0
Shares redeemed............................................ (6,669) 0
Shares issued in reinvestment of distributions............. 3,199 0
- --------------------------------------------------------------------------------
Net increase............................................... 238,173 0
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
Evergreen Variable Annuity Trust
- --------------------------------------------------------------------------------
Combined Notes to Financial Statements (Continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------
1998 1997*
- --------------------------------------------------------------------------------
<S> <C> <C>
Strategic Income Fund
Shares sold.................................................. 919,993 212,808
Shares redeemed.............................................. (100,550) (2,693)
Shares issued in reinvestment of distributions............... 40,670 6,063
- --------------------------------------------------------------------------------
Net increase................................................. 860,113 216,178
- --------------------------------------------------------------------------------
</TABLE>
* For Aggressive Growth Fund, Global Leaders Fund and Strategic Income Fund the
capital share activity is for the period from March 6, 1997 (commencement of
operations) to December 31, 1997.
** For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
*** For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
47
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Combined Notes to Financial Statements (continued)
4. Securities Transactions
Cost of purchases and proceeds from sales of investment securities (excluding
short-term securities) were as follows for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------------- ---------------------
U.S. Non-U.S. U.S. Non-U.S.
Government Government Government Government
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund........... $ 0 $ 2,710,084 $ 0 $1,254,028
Evergreen Fund................... 0 25,575,441 0 4,836,966
Foundation Fund.................. 14,383,438 31,150,181 0 4,590,841
Global Leaders Fund.............. 103,584 6,225,867 0 669,343
Growth and Income Fund........... 322,840 29,935,177 0 5,129,872
International Growth Fund*....... 0 1,831,786 0 559,075
Small Cap Equity Income Fund**... 0 2,471,464 0 239,954
Strategic Income Fund............ 8,008,381 13,937,913 3,582,061 9,643,082
</TABLE>
* For the period from August 17, 1998 (commencement of operations) to December
31, 1998.
** For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
On December 31, 1998, the composition of unrealized gains and losses on
securities based on the aggregate cost of securities for federal income tax
purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Net Unrealized
Tax Cost Gains Losses Gain or Loss
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund...... $ 3,053,038 $ 1,345,156 $ 368,835 $ 976,321
Evergreen Fund.............. 41,557,138 9,144,275 4,155,965 4,988,310
Foundation Fund............. 70,191,774 10,963,931 2,946,180 8,017,751
Global Leaders Fund......... 8,585,946 1,616,393 536,328 1,080,065
Growth and Income Fund...... 55,047,896 11,591,367 5,398,870 6,192,497
International Growth Fund... 1,323,335 137,501 17,911 119,590
Small Cap Equity Income
Fund....................... 2,316,559 218,991 197,715 21,276
Strategic Income Fund....... 11,107,993 247,077 283,032 (35,955)
</TABLE>
On December 31, 1998, the following Funds had capital loss carryovers for
federal income tax purposes as follows:
<TABLE>
<CAPTION>
Capital Loss Expires Expires
Carryovers 2005 2006
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth Fund........................... $130,000 $25,000 $105,000
Global Leaders Fund.............................. 47,000 0 47,000
International Growth Fund........................ 101,000 0 101,000
Strategic Income Fund............................ 49,000 0 49,000
</TABLE>
In addition to capital loss carryovers, capital and currency losses incurred
after October 31 within a Fund's fiscal year end are deemed to arise on the
first business day of the Fund's following fiscal year. For the fiscal year
ended December 31, 1998, Aggressive Growth Fund, Evergreen Fund, Global
Leaders Fund, International Growth Fund and Small Cap Equity Income Fund have
incurred and elected to defer $29,800, $118,714, $21,296, $9,115 and $22,537
of capital loss, respectively. International Growth Fund has incurred and
elected to defer $4,227 of currency loss.
48
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Combined Notes to Financial Statements (continued)
5. Investment Advisory Agreement and Other Affiliated Transactions
Evergreen Investment Management ("EIM"), formerly the Capital Management Group
("CMG"), a division of First Union National Bank ("FUNB"), is the investment
advisor for Aggressive Growth Fund and is paid an advisory fee that is
calculated daily and paid monthly. The advisory fee is computed at an annual
rate of 0.60% of the Fund's average daily net assets.
Evergreen Asset Management Corp. ("EAMC"), a wholly-owned subsidiary of First
Union Corporation ("First Union"), is the investment advisor for Evergreen
Fund, Foundation Fund, Global Leaders Fund, Growth and Income Fund and Small
Cap Equity Income Fund and is paid an investment advisory fee that is computed
daily and paid monthly. For Evergreen Fund, Global Leaders Fund, Growth and
Income Fund and Small Cap Equity Income Fund, the investment advisory fee is
computed at a annual rate of 0.95% of each respective Fund's average daily net
assets. Foundation Fund pays an investment advisory fee at an annual rate of
0.825% of its average daily net assets. Lieber & Company, an affiliate of
First Union, serves as investment sub-advisor to the Evergreen Fund,
Foundation Fund, Global Leaders Fund, Growth and Income Fund and Small Cap
Equity Income Fund. Lieber & Company provides such services at no additional
cost to the Funds.
Lieber & Company also provides brokerage services for Evergreen Fund,
Foundation Fund, Global Leaders Fund, Growth and Income Fund and Small Cap
Equity Income Fund with respect to substantially all security transactions
executed on the New York or American Stock Exchanges. For transactions
executed during the year ended December 31, 1998, Evergreen Fund, Foundation
Fund, Global Leaders Fund, Growth and Income Fund and Small Cap Equity Income
Fund incurred brokerage commissions of $47,079, $46,786, $6,368, $53,382 and
$2,821, respectively, with Lieber & Company.
Evergreen Investment Management Company (formerly Keystone Investment
Management Company) ("EIMC"), a subsidiary of First Union, is the investment
advisor for International Growth Fund and Strategic Income Fund and is paid an
advisory fee that is calculated daily and paid monthly. For International
Growth Fund, the investment advisory fee is calculated by applying percentage
rates, which start at 0.75% and decline, as assets increase, to 0.45% of the
Fund's average daily net assets. For Strategic Income Fund, the advisory fee
is computed at an annual rate of 2.0% of the Fund's gross investment income
plus an amount which is determined by applying percentage rates, starting at
0.45% and declining as net assets increase to 0.20% per annum, to the average
daily net assets of the Fund.
Each investment advisor has voluntarily agreed to reimburse the Funds to the
extent that each Fund's annual operating expenses (including the investment
advisory fee and amortization of organizational expenses but excluding
interest, taxes, brokerage commissions and extraordinary expenses) exceed
1.00%, excluding indirectly paid expenses, of its average daily net assets.
For the period ended December 31, 1998, the investment advisors voluntarily
waived and/or reimbursed the following amounts:
<TABLE>
<CAPTION>
Waived Reimbursed
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Fund........................ $14,973 $ 0
Evergreen Fund................................ 42,262 0
Foundation Fund............................... 0 0
Global Leaders Fund........................... 31,587 0
Growth and Income Fund........................ 69,140 0
International Growth Fund..................... 3,122 27,023
Small Cap Equity Income Fund.................. 9,742 15,411
Strategic Income Fund......................... 0 0
Evergreen Investment Services, Inc. ("EIS"), a subsidiary of First Union, is
the administrator and BISYS Fund Services ("BISYS") is sub-administrator to
the Funds. As administrator, EIS provides the Funds with facilities, equipment
and personnel. As sub-administrator to the Funds, BISYS provides the officers
of the Funds. The administrator and sub-administrator for each Fund are
entitled to an annual fee based on the average daily net assets of the Funds
administered by EIS for which First Union or its investment advisory
subsidiaries are also the investment advisors. The administration fee is
calculated by applying percentage rates, which start at 0.05% and decline to
0.01% per annum as net assets increase, to the average daily net asset value
of each Fund. The sub-administration fee is calculated by applying percentage
rates, which start at 0.01% and decline to .004% per annum as net assets
increase, to the average daily net asset value of each Fund.
For the year ended December 31, 1998, the Funds paid or accrued the following
amounts to EIS for administration fees and BISYS for sub-administration fees:
<CAPTION>
Administration Sub-administration
fee fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Aggressive Growth Fund........................ $ 620 $ 151
Evergreen Fund................................ 7,722 1,694
Foundation Fund............................... 12,389 3,040
Global Leaders Fund........................... 1,371 299
Growth and Income Fund........................ 10,561 2,566
International Growth Fund..................... 89 21
Small Cap Equity Income Fund.................. 220 54
Strategic Income Fund......................... 1,719 356
</TABLE>
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC
relating to certain cash balances held at First Union for the benefit of the
Evergreen Funds.
49
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Combined Notes to Financial Statements (Continued)
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
6. Expense Offset Arrangement
The Funds have entered into an expense offset arrangement with their
custodian. The assets deposited with the custodian under this expense offset
arrangement could have been invested in income-producing assets.
7. Deferred Trustees Fees
Each Independent Trustee of the Funds may defer any or all compensation
related to performance of their duties as Trustees. The Trustees' deferred
balances are allocated to deferral accounts which are included in the accrued
expenses for the Funds. The investment performance of the deferral accounts
are based on the investment performance of certain Evergreen Funds. Any gains
earned or losses incurred in the deferral accounts are reported in each Fund's
Trustees' fees and expenses. Trustees will be paid either in one lump sum or
in quarterly installments for up to ten years at their election, not earlier
than either the year in which the Trustee ceases to be a member of the Board
of Trustees or January 1, 2000.
8. Financing Agreement
On December 22, 1997, a financing agreement among certain Evergreen Funds,
State Street Bank and Trust ("State Street") and a group of banks ("Banks")
became effective. Under this agreement, the Banks provide an unsecured credit
facility in the aggregate amount of $400 million ($275 million committed and
$125 million uncommitted). The credit facility is allocated, under the terms
of the financing agreement, among the Banks. The credit facility is to be
accessed by the Funds for temporary or emergency purposes only and is subject
to each Fund's borrowing restrictions. Borrowings under this facility bear
interest at 0.50% per annum above the Federal Funds rate. A commitment fee of
0.065% per annum will be incurred on the unused portion of the committed
facility, which will be allocated to all Funds. For its assistance in
arranging this financing agreement, the Capital Market Group of First Union
was paid a one-time arrangement fee of $27,500. State Street serves as
administrative agent for the Banks, and as administrative agent is entitled to
a fee of $20,000 per annum which is allocated to all of the Funds.
On December 22, 1998, the financing agreement referenced above was amended and
renewed among certain Evergreen Funds, SSB and Bank of New York ("BONY").
Under this agreement, SSB and BONY provide an unsecured credit facility in the
aggregate amount of $150 million ($125 million committed and $25 million
uncommitted). The remaining terms and conditions of the agreement were
unaffected.
At December 31, 1998, the Funds had no borrowings pursuant to this line of
credit.
50
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Trustees and Shareholders
Evergreen Variable Annuity Trust
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments of the 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, portfolios of the Evergreen Variable Annuity Trust, as
of December 31, 1998, and the related statements of operations for the year or
period then ended, the statements of changes in net assets for each of the
years or periods in the two year period then ended and financial highlights
for each of the years or periods as described on pages 16 to 19 in the three
year period ended December 31, 1998. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen VA 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 as of December 31,
1998, the results of their operations, changes in their net assets and
financial highlights for each of the years or periods described above in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 29, 1999
51
<PAGE>
Evergreen Variable Annuity Trust
- -------------------------------------------------------------------------------
Additional Information (unaudited)
Year 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer
systems that they use and to obtain satisfactory assurances that comparable
steps are being taken by the Funds' other major service providers. At this
time, however, there can be no assurance that these steps will be sufficient
to avoid any adverse impact on the Funds from this problem.
FEDERAL TAX STATUS OF DISTRIBUTIONS
Pursuant to section 852 of the Internal Revenue Code, Evergreen Fund,
Foundation Fund and Growth and Income Fund had designated the following
amounts as long-term 20% capital gain distributions for the fiscal year ended
December 31, 1998:
<TABLE>
<CAPTION>
Aggregate Per Share Date Paid
--------- --------- ----------
<S> <C> <C> <C>
Evergreen Fund............................... $110,829 $0.043 8/27/1998
549,480 0.197 11/24/1998
Foundation Fund.............................. 116,204 0.025 8/26/1998
506,953 0.101 11/24/1998
Growth and Income Fund....................... 76,798 0.022 8/27/1998
842,153 0.229 11/24/1998
</TABLE>
Shareholders are advised to use information received on Form 1099 to
determine their taxable long-term capital gain distribution rather than
the per share amounts presented above.
52
<PAGE>
This report must be preceded or accompanied by a prospectus of an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing or
sending money.
-----------------------------
NOT May lose value
FDIC
INSURED No bank guarantee
-----------------------------
Evergreen Funds Distributors, Inc.
44186 547189 02/99
