1933 Act No. 33-83100
1940 Act No. 811-8716
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 19 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 22 [X]
EVERGREEN VARIABLE ANNUITY TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective
date for a previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 19
TO
REGISTRATION STATEMENT
This Post-Effective Amendment No. 19 to Registrant's Registration
Statement No. 33-83100/811-8716 consists of the following pages, items of
information and documents:
The Facing Sheet
The Contents Page
PART A
------
Prospectus for the following funds is contained herein:
Evergreen VA Blue Chip Fund, Evergreen VA Capital Growth Fund, Evergreen VA
Equity Index Fund, Evergreen VA Fund, Evergreen VA Foundation
Fund, Evergreen VA Global Leaders Fund, Evergreen VA Growth and Income Fund,
Evergreen VA Growth Fund, Evergreen VA High Income Fund, Evergreen VA
International Growth Fund, Evergreen VA Masters Fund, Evergreen VA Omega Fund,
Evergreen VA Perpetual International Fund, Evergreen VA Small Cap Value Fund,
Evergreen VA Special Equity Fund and Evergreen VA Strategic Income Fund.
PART B
------
Statement of Additional Information for the following funds
is contained herein:
Evergreen VA Blue Chip Fund, Evergreen VA Capital Growth Fund, Evergreen VA
Equity Index Fund, Evergreen VA Fund, Evergreen VA Foundation
Fund, Evergreen VA Global Leaders Fund, Evergreen VA Growth and Income Fund,
Evergreen VA Growth Fund, Evergreen VA High Income Fund, Evergreen VA
International Growth Fund, Evergreen VA Masters Fund, Evergreen VA Omega Fund,
Evergreen VA Perpetual International Fund, Evergreen VA Small Cap Value Fund,
Evergreen VA Special Equity Fund and Evergreen VA Strategic Income Fund.
PART C
------
Financial Statements
Exhibits
Number of Holders of Securities
Indemnification
Business and Other Connections of Investment Adviser
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART A
PROSPECTUS
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
Evergreen VA Blue Chip Fund
Evergreen VA Capital Growth Fund
Evergreen VA Equity Index Fund
Evergreen VA Fund
Evergreen VA Foundation Fund
Evergreen VA Global Leaders Fund
Evergreen VA Growth and Income Fund
Evergreen VA Growth Fund
Evergreen VA High Income Fund
Evergreen VA International Growth Fund
Evergreen VA Masters Fund
Evergreen VA Omega Fund
Evergreen VA Perpetual International Fund
Evergreen VA Small Cap Value Fund
Evergreen VA Special Equity Fund
Evergreen VA Strategic Income Fund
Prospectus, May 1, 2000
[LOGO OF EVERGREEN FUNDS]
The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor has it
approved or disapproved these securities. Anyone who tells you otherwise
is committing a crime.
<PAGE>
TABLE OF CONTENTS
FUND RISK/RETURN SUMMARIES:
<TABLE>
<S> <C>
Overview of Fund Risks..................................................... 2
Evergreen VA Blue Chip Fund................................................ 4
Evergreen VA Capital Growth Fund........................................... 6
Evergreen VA Equity Index Fund............................................. 8
Evergreen VA Fund.......................................................... 10
Evergreen VA Foundation Fund............................................... 12
Evergreen VA Global Leaders Fund........................................... 14
Evergreen VA Growth and Income Fund........................................ 16
Evergreen VA Growth Fund................................................... 18
Evergreen VA High Income Fund.............................................. 20
Evergreen VA International Growth Fund..................................... 22
Evergreen VA Masters Fund.................................................. 24
Evergreen VA Omega Fund (formerly Evergreen VA Aggressive Growth Fund)..... 26
Evergreen VA Perpetual International Fund.................................. 28
Evergreen VA Small Cap Value Fund.......................................... 30
Evergreen VA Special Equity Fund........................................... 32
Evergreen VA Strategic Income Fund......................................... 34
GENERAL INFORMATION:
The Funds' Investment Advisors............................................. 36
The Funds' Sub-Advisors.................................................... 37
The Funds' Portfolio Managers.............................................. 38
Calculating the Share Price................................................ 40
Participating Insurance Companies.......................................... 40
How to Buy and Redeem Shares............................................... 40
Other Services............................................................. 41
The Tax Consequences of Investing in the Funds............................. 41
Fees and Expenses of the Funds............................................. 41
Financial Highlights....................................................... 42
Other Fund Practices....................................................... 50
</TABLE>
In general, Funds included in this prospectus provide investors with a
selection of investment alternatives which seek to provide capital growth,
income and diversification. Shares of the Funds are sold only to separate
accounts funding variable annuity contracts and variable life insurance
policies issued by life insurance companies. For further information about
these contracts and policies, please see the separate prospectuses issued by
the participating life insurance companies.
Fund Summaries Key
Each Fund's summary is organized around the following basic topics and
questions:
INVESTMENT GOAL
What is the Fund's financial objective? You can find clarification on how
the Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about trying to meet its goals? What types of
investments does it contain? What style of investing and investment philosophy
does it follow? Does it have limits on the amount invested in any particular
type of security?
RISK FACTORS
What are the specific risks for an investor in the Fund?
PERFORMANCE
How well has the Fund performed in the past year? The past five years? The
past ten years?
<PAGE>
OVERVIEW OF FUND RISKS
Variable Annuity Funds
Shares of the Funds are sold only to separate accounts funding variable annuity
contracts and variable life insurance policies issued by life insurance
companies. For more information about these Funds and the other variable
annuity funds offered by Evergreen, please call 1-800-847-5397.
Following this overview, you will find information on each Variable Annuity
Fund's specific investment strategies and risks.
................................................................................
Risk Factors For All Mutual Funds
Please remember that mutual fund shares are:
. not guaranteed to achieve their
investment goal
. not a deposit with a bank
. not insured, endorsed or guaranteed
by the FDIC or any government agency
. subject to investment risks,
including possible loss of your
original investment.
Like most investments, your investment
in a Fund could fluctuate
significantly in value over time and
could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following
this overview:
Stock Market Risk
Your investment in a Fund that invests in stocks will be affected by general
economic conditions such as prevailing economic growth, inflation and interest
rates. When economic growth slows, or interest or inflation rates increase,
securities tend to decline in value. Such events also could cause companies to
decrease the dividends they pay. If these events were to occur, the value of
and dividend yield and total return earned on your investment would likely
decline. Even if general economic conditions do not change, your investment may
decline in value if particular industries, issuers or sectors your Fund invests
in do not perform well.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
Fund that invests in these companies to increase in value more rapidly than a
Fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. As a result, stocks of small and medium capitalization
companies may decline significantly in market downturns.
Investment Style Risk
Stocks with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform or underperform other funds that employ a different style.
A Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they
are more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when
value investing is in favor. Value stocks are those that are undervalued in
comparison to their peers due to adverse business developments or other
factors. Value oriented funds will typically underperform when growth investing
is in favor.
VARIABLE ANNUITY FUNDS
2
<PAGE>
OVERVIEW OF FUND RISKS
Interest Rate Risk
When interest rates go up, the value of debt securities tends to fall. If a
Fund invests a significant portion of its portfolio in debt securities or
dividend paying stocks that are purchased for dividend income and interest
rates rise, then the value of and total return earned on your investment may
decline. When interest rates go down, interest earned by the Fund on its
investments may also decline, which could cause the Fund to reduce the
dividends it pays. Debt securities with longer maturities are generally more
sensitive to interest rate changes than securities with shorter maturities.
Credit Risk
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. If a Fund invests in debt securities,
then the value of and total return earned on your investment may decline if an
issuer fails to pay an obligation on a timely basis.
Foreign Investment Risk
A Fund's investment in non-U.S. securities could expose it to certain unique
risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. In addition, if the value of any foreign currency
in which the Fund's investments are denominated declines relative to the U.S.
dollar, the value of your investment in the Fund may decline as well. Certain
foreign countries have less developed and less regulated securities markets and
accounting systems than the U.S. This may make it harder to get accurate
information about a security or company, and increase the likelihood that an
investment will not perform as well as expected.
VARIABLE ANNUITY FUNDS
3
<PAGE>
EVERGREEN
VA Blue Chip Fund
FUND FACTS:
Goal:
. Capital Growth
Principal Investment:
. Large-Cap U.S. Common Stocks
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Manager:
. Judith A. Warners
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks capital growth with the potential for income.
INVESTMENT STRATEGY
The Fund invests primarily in common stocks of well-established, large U.S.
companies with a long history of performance, typically recognizable names
representing a broad range of industries. To provide balance, the Fund also
invests in quality medium-sized companies. The Fund's stock selection is based
on a diversified style of equity management that allows it to invest in both
value and growth-oriented equity securities. "Value" securities are securities
that the Fund's portfolio manager believes are undervalued. The portfolio
manager looks for factors that could trigger a rise in price such as new
products or markets or positive changes in corporate structure or market
perception. "Growth" securities are securities of companies that the Fund's
portfolio manager believes have anticipated earnings ranging from steady to
accelerated growth. Buy and sell decisions are based primarily on fundamental
analysis to identify companies with leading positions within their industry,
solid management groups and strategies, and a trend of stable or accelerating
profits.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
4
<PAGE>
EVERGREEN
PERFORMANCE
Since the Fund did not commence operations until April 28, 2000, total return
information is not yet available.
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C> <C>
0.61% 0.00% 0.65% 1.26%
</TABLE>
+Estimated for the fiscal year ending 12/31/2000.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses are estimated to be
1.00%.
The table below shows the total expenses you would pay on a $10,000 investment
over one- and three-year periods. The example is intended to help you compare
the cost of investing in this Fund versus other mutual funds and is for
illustration purposes only. The example assumes a 5% average annual return and
that you reinvest all of your dividends and distributions. Your actual costs
may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $128
3 years $400
</TABLE>
VARIABLE ANNUITY FUNDS
5
<PAGE>
EVERGREEN
VA Capital Growth Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investment:
. Large Cap U.S. Common Stocks
Investment Advisor:
. Mentor Investment Advisors LLC
Portfolio Manager:
. John G. Davenport, CFA
. Richard H. Skeppstrom, II
. Steven A. Certo
. E. Craig Dauer
. John G. Jordan, III, CFA
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund seeks to achieve its goal by investing primarily in common stocks of
large U.S. companies which the portfolio managers believe have the potential
for capital appreciation over the intermediate- and long-term. The Fund may
also invest without limit in preferred stocks, convertible securities and any
other securities that the portfolio managers believe may permit the Fund to
achieve its investment goal. The Fund's portfolio managers select stocks using
a "growth-at-a-reasonable-price" method. This style of diversified equity
management is best defined as a blend between growth and value stocks. "Growth"
stocks are stocks of companies that the Fund's portfolio managers believe have
anticipated earnings ranging from steady to accelerated growth. "Value" stocks
are stocks of companies that the Fund's portfolio managers believe are
undervalued. The portfolio managers look for factors that could trigger a rise
in price such as new products or markets or positive changes in corporate
structure or market perception.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
.Interest Rate Risk
.Credit Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
6
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/3/1998. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied.
Separate account fees charged by participating insurance companies are not
reflected in this chart. If these fees were reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1994 1995 1996 1997 1998 1999
6.50
Best Quarter: 2nd Quarter 1999 +10.24%
Worst Quarter: 3rd Quarter 1999 -8.48%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the S&P 500 Index, which is an unmanaged, market value-
weighted index measuring the performance of 500 U.S. stocks chosen for market
size, liquidity, and industry group representation. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/3/1998
<S> <C> <C> <C> <C> <C>
Fund 3/3/1998 6.50% N/A N/A 8.29%
S&P 500 21.04% N/A N/A 21.70%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.80% 0.00% 0.38% 1.18%
</TABLE>
+Actual for the fiscal year ended 12/31/1999.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. The Fund's investment
advisor has currently agreed to limit Total Fund Operating Expenses to 1.05%.
Including such waivers and expense reimbursements, Total Fund Operating
Expenses would have been 1.05%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $120
3 years $375
5 years $649
10 years $1,432
</TABLE>
VARIABLE ANNUITY FUNDS
7
<PAGE>
EVERGREEN
VA Equity Index Fund
FUND FACTS:
Goal:
. Price and Yield Performance Comparable to the S&P 500 Index
Principal Investment:
. Equity
Securities
listed in
the S&P
500 Index
Investment Advisor:
. First Capital Group
Portfolio Manager:
. William E. Zieff
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks investment results that achieve price and yield performance
similar to the S&P 500 Index.
INVESTMENT STRATEGY
The Fund invests substantially all of its total assets in equity securities
that represent a composite of the S&P 500 Index. The correlation between the
performance of the Fund and the S&P 500 Index is expected to be, before
expenses, 0.98 or higher. The Fund's portfolio manager uses a computer model
that closely monitors the industry weightings of the S&P 500 Index. The S&P 500
is an unmanaged index of 500 common stocks chosen to reflect the industries of
the U.S. economy and is often considered a proxy for the stock market in
general. To replicate the performance of the S&P 500 Index, the Fund's
investment advisor uses a passive management approach and purchases all or a
representative sample of the stocks comprising the S&P 500 Index.
The Fund intends to sell a portfolio investment when it is removed from the S&P
500 Index, when the Fund must meet redemptions, or for other investment reasons
which the investment advisor deems necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
The Fund is also subject to index fund risk. The Fund is not actively managed
and invests in securities included in the S&P 500 Index regardless of their
investment merit. Therefore, the Fund cannot modify its investment strategy to
respond to changes in the economy and may be particularly susceptible to a
general decline in the U.S. or global stock market segment relating to the S&P
500 Index. Although the Fund's modeling techniques are intended to produce
performance that approximates that of the S&P 500 Index (before expenses),
there can be no assurance that these techniques will reduce "tracking error"
(i.e., the difference between the Fund's investment results (before expenses)
and the S&P 500 Index's). Tracking error may arise as a result of brokerage
costs, fees and operating expenses and a lack of correlation between the Fund's
investments and the S&P 500 Index.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
8
<PAGE>
EVERGREEN
PERFORMANCE
Since the Fund commenced operations on 9/29/1999, total return information is
not yet available for a full calendar year.
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.32% 0.00% 0.30% 0.62%
</TABLE>
+Estimated for the fiscal year ending 12/31/2000.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses are estimated to be
0.30%.
The table below shows the total expenses you would pay on a $10,000 investment
over one- and three-year periods. The example is intended to help you compare
the cost of investing in this Fund versus other mutual funds and is for
illustration purposes only. The example assumes a 5% average annual return and
that you reinvest all of your dividends and distributions. Your actual costs
may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $63
3 years $199
</TABLE>
VARIABLE ANNUITY FUNDS
9
<PAGE>
EVERGREEN
VA Fund
FUND FACTS:
Goal:
. Long-term Capital Growth
Principal Investment:
. Large Cap U.S. Common Stocks
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Managers:
. Jean C. Ledford, CFA
. Richard Welsh
NASDAQ Symbol:
. EVEFX
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in the common stocks of large U.S. companies. The
Fund's portfolio managers select stocks using a "growth-at-a-reasonable-price"
method. This style of diversified equity management is best defined as a blend
between growth and value stocks. "Growth" stocks are stocks of companies that
the Fund's portfolio managers believe have anticipated earnings ranging from
steady to accelerated growth. "Value" stocks are stocks of companies that the
Fund's portfolio managers believe are undervalued. The portfolio managers look
for factors that could trigger a rise in price such as new products or markets
or positive changes in corporate structure or market perception. Other equity
securities in which the Fund may invest include preferred stocks and securities
convertible into common stocks.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
10
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/1/1996. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year to year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-By-Year Total Return
[GRAPH]
1990 1991 1992 1994 1995 1996 1997 1998 1999
37.16 6.44 23.03
Best Quarter:4th Quarter 1999+18.02%
Worst Quarter:3rd Quarter 1998-17.20%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Russell 2000 Index and the S&P 500 Index. The Russell 2000
Index is an unmanaged, market capitalization-weighted index measuring the
performance of the 2000 smallest companies in the Russell 3000 Index,
representing approximately 10% of the total market capitalization of the
Russell 3000 Index. The S&P 500 Index is an unmanaged, market value-weighted
index measuring the performance of 500 U.S. stocks chosen for market size,
liquidity, and industry group representation. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/1996
<S> <C> <C> <C> <C> <C>
Fund 3/1/1996 23.03% N/A N/A 20.78%
Russell 2000 21.26% N/A N/A N/A
S&P 500 21.04% N/A N/A 25.99%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.87% 0.00% 0.23% 1.10%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.02%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $112
3 years $350
5 years $606
10 years $1,340
</TABLE>
VARIABLE ANNUITY FUNDS
11
<PAGE>
EVERGREEN
VA Foundation Fund
FUND FACTS:
Goals:
. Reasonable Income
. Conservation of Capital
. Capital Appreciation
Principal Investments:
. Common and Preferred Stocks
. U.S. Treasury and agency obligations
. Investment grade debt securities
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Managers:
. Jean C. Ledford, CFA
. Richard Welsh
NASDAQ Symbol:
. EVFFX
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks, in order of priority: reasonable income, conservation of
capital and capital appreciation.
INVESTMENT STRATEGY
The Fund invests in a combination of equity and debt securities. Under normal
conditions, the Fund will invest at least 25% of its assets in debt securities
and the remainder in equity securities.
The equity securities that the Fund invests in will include common stocks,
preferred stocks and securities convertible or exchangeable for common stocks
of companies of all market capitalizations with a focus on large companies. The
Fund's investment in equity securities will be on the basis of the potential
for capital appreciation. The Fund's portfolio managers select stocks using a
"growth-at-a-reasonable-price" method. This style of diversified equity
management is best defined as a blend between growth and value stocks. "Growth"
stocks are stocks of companies that the Fund's portfolio managers believe have
anticipated earnings ranging from steady to accelerated growth. "Value" stocks
are stocks of companies that the Fund's portfolio managers believe are
undervalued. The portfolio managers look for factors that could trigger a rise
in price such as new products or markets or positive changes in corporate
structure or market perception.
The Fund's fixed income portion will include securities issued by the U.S.
Treasury or by an agency or instrumentality of the U.S. government, corporate
debt securities, bank obligations, and high quality commercial paper. The
corporate debt securities that the Fund may invest in will be of investment
grade quality rated in the top three categories of a nationally recognized
statistical ratings organization, or if unrated, then determined to be of
comparable quality by the portfolio managers.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
.Interest Rate Risk
.Credit Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
12
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/1/1996. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year-to-year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
27.80 10.56 10.64
Best Quarter: 4th Quarter 1999 +13.26%
Worst Quarter: 3rd Quarter 1998 -7.37%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the S&P 500 Index, which is an unmanaged, market value-
weighted index measuring the performance of 500 U.S. stocks chosen for market
size, liquidity, and industry group representation. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/1996
<S> <C> <C> <C> <C> <C>
Fund 3/1/1996 10.64% N/A N/A 16.62%
S&P 500 21.04% N/A N/A 25.99%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses
<S> <C> <C> <C>
0.75% 0.00% 0.20% 0.95%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $97
3 years $303
5 years $525
10 years $1,166
</TABLE>
VARIABLE ANNUITY FUNDS
13
<PAGE>
EVERGREEN
VA Global Leaders Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investment:
. Equity Securities
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Manager:
. Edwin D. Miska
. Anthony Han, CFA
NASDAQ Symbol:
. EVGLX
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks to provide investors with long-term capital growth.
INVESTMENT STRATEGY
The Fund normally invests at least 65% of its assets in a diversified portfolio
of equity securities of companies located in the world's major industrialized
countries. The Fund will make investments in no less than three countries,
which may include the U.S., but may invest more than 25% of its total assets in
one country. The Fund's investment advisor will screen the largest companies in
major industrialized countries and invest in the 100 best companies selected by
the investment advisor based on qualitative and quantitative criteria such as
high return on equity, consistent earnings growth and established market
presence. Such companies may include those with the highest return on equity
and consistent earnings growth, established market presence or operate in
industries or sectors with significant growth prospects. The Fund's investment
advisor will review and evaluate on an ongoing basis, its criteria for choosing
these companies.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
.Foreign Investment Risk
In addition, if more than 25% of the Fund's total assets is invested in one
country, the value of the Fund's shares may be subject to greater fluctuation
due to the lesser degree of diversification across countries and the fact that
the securities markets of certain countries may be subject to greater risks and
volatility than that which exist in the U.S.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
14
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/6/1997. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year-to-year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
18.92 24.72
Best Quarter: 4th Quarter 1999 +21.86%
Worst Quarter: 3rd Quarter 1998 -14.25%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Morgan Stanley Capital International World Index (MSCI
World), which is an unmanaged, broad, market capitalization-weighted
performance benchmark for all developed markets in the world. An index does not
include transaction costs associated with buying and selling securities or any
mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/1997
<S> <C> <C> <C> <C> <C>
Fund 3/6/1997 24.72% N/A N/A 18.48%
MSCI World 24.93% N/A N/A 20.45%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Management 12b-1 Other Total Fund
Fee Fees Expenses Operating Expenses++
<S> <C> <C> <C>
0.87% 0.00% 0.33% 1.20%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.01%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $122
3 years $381
5 years $660
10 years $1,455
</TABLE>
VARIABLE ANNUITY FUNDS
15
<PAGE>
EVERGREEN
VA Growth and Income Fund
FUND FACTS:
Goals:
. Capital Growth
. Current Income
Principal Investment:
. Common Stocks
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Managers:
. Philip M. Foreman, CFA, CFP
. Irene D. O'Neill, CFA
NASDAQ Symbol:
. EVGIX
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks capital growth in the value of its shares and current income.
INVESTMENT STRATEGY
The Fund invests primarily in common stocks of mid-sized U.S. companies. The
Fund's stock selection is based on a diversified style of equity management
that allows it to invest in both value and growth-oriented equity securities.
The Fund's portfolio managers look for companies that are temporarily
undervalued in the marketplace but which display certain characteristics of
growth such as earning a high return on investment and having some kind of
competitive advantage in their industry. The Fund may also invest up to 25% of
its assets in foreign securities.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
.Foreign Investment Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
16
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss of the Fund in each calendar
year since its inception on 3/1/1996. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year-to-year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
34.66 4.77 18.57
Best Quarter: 4th Quarter 1999 +17.25%
Worst Quarter: 1st Quarter 1997 -0.81%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the S&P 400 Mid Cap Index (S&P 400), which is an unmanaged
market-value index measuring the performance of the mid-sized company segment
of the U.S. market consisting of 400 domestic stocks chosen for market size,
liquidity, and industry group representation. An index does not include
transaction costs associated with buying and selling securities or any mutual
fund expenses. It is not possible to invest in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/1/1996
<S> <C> <C> <C> <C> <C>
Fund 3/1/1996 18.57% N/A N/A 19.66%
S&P 400 14.72% N/A N/A 20.62%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.87% 0.00% 0.21% 1.08%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.01%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $110
3 years $343
5 years $595
10 years $1,317
</TABLE>
VARIABLE ANNUITY FUNDS
17
<PAGE>
EVERGREEN
VA Growth Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investment:
. Small-Cap U.S. Common Stocks
Investment Advisor:
. Mentor Investment Advisors LLC
Portfolio Managers:
. Theodore W. Price, CFA
. Linda Ziglar, CFA
. Jeffrey S. Drummond, CFA
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund seeks to achieve its goal by normally investing at least 75% of its
assets in common stocks of small and medium sized U.S. companies but may invest
in companies of any size. The Fund's portfolio managers employ a growth style
of equity management and will purchase stocks of companies that have
demonstrated earnings, asset values, or growth potential which they believe are
not yet reflected in the stock's market price. A key indicator of
undervaluation considered by the portfolio managers would be a company whose
earnings growth is above the S&P 500 Index's average.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
18
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/3/1998. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied.
Separate account fees charged by participating insurance companies are not
reflected in this chart. If these fees were reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
21.21
Best Quarter: 4th Quarter 1999 +30.97%
Worst Quarter: 1st Quarter 1999 -2.07%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Russell 2000 Index, which is an unmanaged market
capitalization-weighted index measuring the performance of the 2000 smallest
companies in the Russell 3000 Index, representing approximately 10% of the
total market capitalization of the Russell 3000 Index. An index does not
include transaction costs associated with buying and selling securities or any
mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/3/1998
<S> <C> <C> <C> <C> <C>
Fund 3/3/1998 21.21% N/A N/A 5.93%
Russell 2000 21.26% N/A N/A 6.24%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.70% 0.00% 0.63% 1.33%
</TABLE>
+Actual for the fiscal year ended 12/31/1999.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees and reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. The Fund's investment
advisor has currently agreed to limit Total Fund Operating Expenses to 0.97%.
Including such waivers and expense reimbursements, Total Fund Operating
Expenses would have been 0.97%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $135
3 years $421
5 years $729
10 years $1,601
</TABLE>
VARIABLE ANNUITY FUNDS
19
<PAGE>
EVERGREEN
VA High Income Fund
FUND FACTS:
Goals:
. High Current Income
. Capital Growth
Principal Investments:
. Lower- and Higher-Rated Fixed Income Securities
Investment Advisor:
. Mentor Investment Advisors LLC
Portfolio Manager:
. By committee of investment professionals
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks a high level of current income. Capital growth is a secondary
objective when consistent with the objective of seeking high current income.
INVESTMENT STRATEGY
The Fund may invest in both lower-rated and higher rated fixed-income
securities, including debt securities, convertible securities, and preferred
stocks that are consistent with its primary investment objective of high
current income. The Fund may at times hold a substantial portion of its assets
in mortgage-backed and other asset-backed securities. The Fund may also invest
up to 50% of its assets in foreign securities.
The Fund may invest in debt securities of any maturity. The portfolio managers
will adjust the expected average life of the investments held in the Fund from
time to time, depending on its assessment of relative yields and risks of
securities of different maturities and its expectations of future changes in
interest rates.
The Fund may invest a portion of its assets (and normally will invest at least
65% of its assets) in securities rated Baa or lower by Moody's Investors
Service, Inc. (Moody's) or BBB or lower by Standard & Poor's Ratings Services
(S&P) and in unrated securities determined by the investment advisor to be of
comparable quality, in an attempt to capture higher yields. The Fund may at
times invest up to 10% of its assets in securities rated in the lower grades
(Ca or C in the case of Moody's and CC, C or D in the case of S&P or in unrated
securities determined by the investment advisor to be of comparable quality),
if the investment advisor believes that there are prospects for an upgrade in a
security's rating or a favorable conversion of a security into other
securities.
The Fund seeks its secondary objective of capital growth, when consistent with
its primary objective of seeking high current income, by investing in
securities that may be expected to appreciate in value as a result of declines
in long-term interest rates or of favorable developments affecting the business
or prospects of the issuer which may improve the issuer's financial condition
and credit rating.
The Fund intends to sell a portfolio investment when the issuer's investment
fundamentals begin to deteriorate, when the investment no longer appears to
meet the Fund's investment objective, when the Fund must meet redemptions, or
for other investment reasons which the investment advisor deems necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
VARIABLE ANNUITY FUNDS
20
<PAGE>
EVERGREEN
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Interest Rate Risk
.Credit Risk
.Foreign Investment Risk
The Fund is subject to the risks associated with investing in below investment
grade bonds. These bonds are commonly referred to as "junk bonds" because they
are usually backed by issuers of less proven or questionable financial
strength. Such issuers are more vulnerable to financial setbacks and less
certain to pay interest and principal than issuers of bonds offering lower
yields and risk. Markets may react to unfavorable news about issuers of below
investment grade bonds causing sudden and steep declines in value.
The Fund is also subject to the risks associated with investing in mortgage-
backed securities. Like other debt securities, changes in interest rates
generally affect the value of mortgage-backed securities. Additionally, some
mortgage-backed securities may be structured so that they may be particularly
sensitive to interest rates. Early repayment of mortgages underlying these
securities may expose the Fund to a lower rate of return when it reinvests the
principal.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
PERFORMANCE
Since the Fund commenced operations on June 30, 1999, total return information
is not yet available for a full calendar year.
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.70% 0.00% 0.70% 1.40%
</TABLE>
+Estimated for the fiscal year ending 12/31/2000.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses are estimated to be
1.00%.
The table below shows the total expenses you would pay on a $10,000 investment
over one- and three-year periods. The example is intended to help you compare
the cost of investing in this Fund versus other mutual funds and is for
illustration purposes only. The example assumes a 5% average annual return and
that you reinvest all of your dividends and distributions. Your actual costs
may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $143
3 years $443
</TABLE>
VARIABLE ANNUITY FUNDS
21
<PAGE>
EVERGREEN
VA International Growth Fund
FUND FACTS:
Goals:
. Long-Term Capital Growth
. Modest Income
Principal Investment:
. Equity Securities of Non-U.S. Companies in Developed Markets
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Manager:
. Gilman C. Gunn
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term growth of capital and secondarily, modest income.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities issued by established, quality
non-U.S. companies located in countries with developed markets. The Fund may
also invest in emerging markets and in securities of companies in the formerly
communist countries of Eastern Europe. The Fund normally invests at least 65%
of its total assets in the securities of companies in at least three different
countries (other than the U.S.). The investment advisor seeks both growth and
value opportunities. For growth investments, the advisor seeks, among other
things, good business models, good management and growth in cash flows. For
value investments, the advisor seeks securities that are undervalued in the
marketplace and which have a trigger, or catalyst, that will cause their values
to eventually be realized. The Fund may also invest in debt securities,
including up to 10% of its assets in below investment grade debt securities.
Excluding repurchase agreements, the Fund invests solely in securities of non-
U.S. issuers.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Interest Rate Risk
.Credit Risk
.Foreign Investment Risk
Below investment grade bonds are commonly referred to as "junk bonds" because
they are usually backed by issuers of less proven or questionable financial
strength. Such issuers are more vulnerable to financial setbacks and less
certain to pay interest and principal than issuers of bonds offering lower
yields and risk. Markets may react to unfavorable news about issuers of below
investment grade bonds causing sudden and steep declines in value.
In addition, the Fund may also be subject to an emerging markets risk. An
"emerging market" is any country considered to be emerging or developing, has a
relatively low gross national product, but the potential for rapid growth
(which can lead to instability). Investing in securities of emerging countries
has many risks. Emerging countries are generally small and rely heavily on
international trade and could be adversely affected by the economic conditions
in the countries with which they trade. There is also a possibility of a change
in the political climate, nationalization, diplomatic developments (including
war), and social instability. Such countries may experience high levels of
inflation or deflation and currency devaluation. Investments in emerging
markets are considered to be speculative.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
22
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss of the Fund in each calendar
year since its inception on 8/17/1998. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied.
Separate account fees charged by participating insurance companies are not
reflected in this chart. If these fees were reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
38.22
Best Quarter: 4th Quarter 1999 +26.01%
Worst Quarter: 1st Quarter 1999 +4.41%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Morgan Stanley Capital International EAFE Index (MSCI
EAFE), which is an unmanaged, broad, market capitalization-weighted performance
benchmark for developed market equity securities listed in Europe, Australasia
and the Far East. An index does not include transaction costs associated with
buying and selling securities or any mutual fund expenses. It is not possible
to invest in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 8/17/1998
<S> <C> <C> <C> <C> <C>
Fund 8/17/1998 38.22% N/A N/A 20.92%
MSCI EAFE 29.96% N/A N/A 32.66%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.66% 0.00% 1.81% 2.47%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.03%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $250
3 years $770
5 years $1,316
10 years $2,806
</TABLE>
VARIABLE ANNUITY FUNDS
23
<PAGE>
EVERGREEN
VA Masters Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investment:
. Common Stocks of All Market Caps
Investment Advisor:
. Evergreen Investment Management
Portfolio Manager:
. By Committee
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund's investment program is based on the Manager of Managers strategy of
the investment advisor which allocates the Fund's portfolio assets on an
approximately equal basis among four investment management organizations or
sub-advisors--each of which employs a different investment style.
The Fund's current sub-advisors are:
Evergreen Asset Management Corp. (EAMC)
MFS Institutional Advisors, Inc. (MFS)
OppenheimerFunds, Inc. (Oppenheimer)
Putnam Investment Management, Inc. (Putnam)
The following investment styles will be applied by the sub-advisors to the
segment of the Fund's portfolio for which that sub-advisor is responsible.
EAMC's segment of the portfolio will primarily be invested in equity securities
of U.S. and foreign companies with market capitalizations between approximately
$500 million and $5 billion. EAMC invests in companies it believes the market
has temporarily undervalued in relation to such factors as the company's
assets, cash flow and earnings potential. EAMC will use a value-oriented
investment strategy.
MFS manages its segment of the portfolio by primarily investing in equity
securities of companies with market capitalizations falling within the range of
the Russell Midcap Growth Index at the time of the Fund's investment. Such
companies generally would be expected to show earnings growth over time that is
well above the growth rate of the overall economy and the rate of inflation,
and would have the products, management and market opportunities which are
usually necessary to continue sustained growth. MFS may invest up to 25% (and
generally expects to invest between 0% and 10%) of its segment of the Fund's
assets in foreign securities (not including American Depositary Receipts),
including foreign growth securities, which are not traded on a U.S. exchange.
MFS will use a growth-oriented investment strategy.
Oppenheimer manages its segment of the portfolio by investing primarily in
equity securities of those companies with market capitalizations over $5
billion; however, Oppenheimer may, when it deems advisable, invest in the
equity securities of mid-cap and small-cap companies. In purchasing portfolio
securities, Oppenheimer may invest without limit in foreign securities and may,
to a limited degree, invest in non-convertible debt securities and preferred
stocks which have the potential for capital appreciation. Oppenheimer will use
a blended growth- and value-oriented investment strategy.
Putnam's segment of the portfolio will primarily be invested in equity
securities of U.S. and foreign issuers with market capitalizations of $3
billion or more. Putnam may also purchase non-convertible debt securities which
offer the opportunity for capital appreciation. In the evaluation of a company,
more consideration is given to growth potential than to dividend income. Putnam
will use a growth-oriented investment strategy.
VARIABLE ANNUITY FUNDS
24
<PAGE>
EVERGREEN
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the sub-advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Interest Rate Risk
.Credit Risk
.Investment Style Risk
.Foreign Investment Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
PERFORMANCE
Since the Fund commenced operations on 1/29/1999, total return information is
not yet available for a full calendar year.
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.87% 0.00% 0.63% 1.50%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.00%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $153
3 years $474
5 years $818
10 years $1,791
</TABLE>
VARIABLE ANNUITY FUNDS
25
<PAGE>
EVERGREEN
VA Omega Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investments:
. U.S. Common Stocks of All Market Caps
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Manager:
. Maureen E. Cullinane, CFA
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in common stocks of U.S. companies across all market
capitalizations. The Fund's portfolio manager employs a growth style of equity
management. "Growth" stocks are stocks of companies that the Fund's portfolio
manager believes have anticipated earnings ranging from steady to accelerated
growth. The portfolio manager's active style of portfolio management may lead
to high portfolio turnover, but that will not limit the portfolio manager's
investment decisions.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
26
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/6/1997. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied from
year-to-year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
22.25 47.24
Best Quarter: 4th Quarter 1999 +29.99%
Worst Quarter: 3rd Quarter 1998 -10.67%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Russell 1000 Growth Index, which is an unmanaged, market
capitalization-weighted index measuring the performance of those Russell 1000
companies with higher price-to-book ratios and forecasted growth values. An
index does not include transaction costs associated with buying and selling
securities or any mutual fund expenses. It is not possible to invest directly
in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/1997
<S> <C> <C> <C> <C> <C>
Fund 3/6/1997 47.24% N/A N/A 27.80%
Russell 1000 Growth 33.16% N/A N/A 33.39%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses
<S> <C> <C> <C>
0.52% 0.00% 0.44% 0.96%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $98
3 years $306
5 years $531
10 years $1,178
</TABLE>
VARIABLE ANNUITY FUNDS
27
<PAGE>
EVERGREEN
VA Perpetual International Fund
FUND FACTS:
Goal:
. Long-Term Capital Growth
Principal Investment:
. Equity Securities
Investment Advisor:
. Mentor Perpetual Advisors LLC
Portfolio Managers:
. Paul Chesson
. Kathryn Langridge
. Margaret Roddan
. Stephen Whittaker
. Robert Yerbury
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The Fund normally invest in a diversified portfolio of equity securities of
issuers located outside the U.S. The Fund's portfolio managers choose equity
securities across all market capitalizations. In identifying candidates for
investment, the investment advisor considers a variety of factors, including
the likelihood of above average earnings growth, attractive relative valuation,
and whether the company has any proprietary advantages. The Fund invests in
companies, large or small, where earnings are believed to be in a relatively
strong growth trend, or where significant further growth is not anticipated but
where the shares are thought to be undervalued. The Fund will normally invest a
portion of its assets in securities of smaller companies and may at times
invest a portion of its assets in issuers located in emerging markets. The Fund
may also invest to a lesser extent in investment grade debt securities. When it
chooses to invest in debt, the Fund seeks to maintain relatively high average
credit quality but may vary its maturity. The investment advisor will adjust
the maturity of the Fund's debt securities in response to changing market
conditions.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Interest Rate Risk
.Credit Risk
.Foreign Investment Risk
In addition, the Fund may also be subject to an emerging markets risk. An
"emerging market" is any country considered to be emerging or developing, has a
relatively low gross national product, but has the potential for rapid growth
(which can lead to instability). Investing in securities of emerging countries
has many risks. Emerging countries are generally small and rely heavily on
international trade and could be adversely effected by the economic conditions
in the countries with which they trade. There is also a possibility of a change
in the political climate, nationalization, diplomatic developments (including
war), and social instability. Such countries may experience high levels of
inflation or deflation and currency devaluation. Investments in emerging
markets are considered to be speculative.
If more than 25% of the Fund's total assets are invested in one country, the
value of the Fund's shares may be subject to greater fluctuation due to the
lesser degree of diversification across countries and the fact that the
securities markets of certain countries may be subject to greater risks and
volatility than that which exists in the U.S.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
28
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/3/1998. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied.
Separate account fees charged by participating insurance companies are not
reflected in this chart. If these fees were reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
39.99
Best Quarter: 4th Quarter 1999 +19.29%
Worst Quarter: 1st Quarter 1999 +7.92%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Morgan Stanley Capital International EAFE Index (MSCI
EAFE), which is an unmanaged, broad, market capitalization-weighted performance
benchmark for developed market equity securities listed in Europe, Australasia
and the Far East. An index does not include transaction costs associated with
buying and selling securities or any mutual fund expenses. It is not possible
to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/3/1998
<S> <C> <C> <C> <C> <C>
Fund 3/3/1998 39.99% N/A N/A 27.90%
MSCI EAFE 29.96% N/A N/A 16.95%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
1.00% 0.00% 0.96% 1.96%
</TABLE>
+Actual for the fiscal year ended 12/31/1999.
++The Fund's investment advisor may, at its discretion, reduce or waive its
fees or reimburse the Fund for certain of its expenses in order to reduce
expense ratios. The Fund's investment advisor may cease these waivers or
reimbursements at any time. The Annual Fund Operating Expenses do not reflect
fee waivers and expense reimbursements. The Fund's investment advisor has
currently agreed to limit Total Fund Operating Expenses to 1.60%. Including
such waivers and expense reimbursements, Total Fund Operating Expenses would
have been 1.60%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $199
3 years $615
5 years $1,057
10 years $2,285
</TABLE>
VARIABLE ANNUITY FUNDS
29
<PAGE>
EVERGREEN
VA Small Cap Value Fund
FUND FACTS:
Goals:
. Current Income
. Capital Growth
Principal Investment:
. Small-Cap U.S. Common Stocks
Investment Advisor:
. Evergreen Asset Management Corp.
Portfolio Manager:
. Jordan D. Alexander, CFA
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks current income and capital growth in the value of its shares.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities of small U.S. companies (less
than $1.5 billion in market capitalization at time of purchase). The Fund's
equity securities will include common stocks and securities convertible into
common stock. The Fund's portfolio manager seeks to limit the investment risk
of small company investing by seeking stocks that produce regular income and
trade below what the portfolio manager considers their intrinsic value. The
Fund's portfolio manager looks specifically for various growth triggers, or
catalysts, that will bring the stock's price into line with its actual or
potential value, such as new products, new management, changes in regulation
and/or restructuring potential.
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
.Interest Rate Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
30
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss of the Fund in the calendar
year since its inception on 5/1/1998. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's return has varied.
Separate account fees charged by participating insurance companies are not
reflected in this chart. If these fees were reflected, returns would be less
than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
12.07
Best Quarter: 2nd Quarter 1999 +17.26%
Worst Quarter: 1st Quarter 1999 -5.64%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund by comparing its
performance with the Russell 2000 Value Index. The Russell 2000 Value Index is
an unmanaged, market capitalization-weighted index measuring the performance of
those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values. An index does not include transaction costs
associated with buying and selling securities or any mutual fund expenses. It
is not possible to invest in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 5/1/1998
<S> <C> <C> <C> <C> <C>
Fund 5/1/1998 12.07% N/A N/A 5.22%
Russell 2000 Value -1.49% N/A N/A -9.51%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.87% 0.00% 0.50% 1.37%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses were 1.01%.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $139
3 years $434
5 years $750
10 years $1,646
</TABLE>
VARIABLE ANNUITY FUNDS
31
<PAGE>
EVERGREEN
VA Special Equity Fund
FUND FACTS:
Goal:
. Capital Growth
Principal Investment:
. Equity Securities of Small Companies
Investment Advisor:
. Meridian Investment Company
Portfolio Manager:
. Timothy M. Stevenson, CFA
. Eric M. Teal
. Jay Zelko
NASDAQ Symbol:
. None
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks capital growth.
INVESTMENT STRATEGY
The Fund invests primarily in equity securities of U.S. companies with small
market capitalizations. The Fund's portfolio managers choose companies that
they expect will experience growth in earnings and price. The Fund strives to
provide a return greater than stock market indices such as the Russell 2000
Index by investing principally in a diversified portfolio of common stocks of
domestic companies. The Fund may purchase stocks in initial public offerings
("IPOs").
The Fund intends to sell a portfolio investment when the value of the
investment reaches or exceeds its estimated fair value, when the issuer's
investment fundamentals begin to deteriorate, when the investment no longer
appears to meet the Fund's investment objective, when the Fund must meet
redemptions, or for other investment reasons which the investment advisor deems
necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
You should be aware of the risks associated with the Fund purchasing IPOs.
Stocks purchased in IPOs have a tendency to fluctuate in value significantly
shortly after the IPO relative to the price at which they were purchased. These
fluctuations could impact the net asset value and return earned on the Fund's
shares.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices.
VARIABLE ANNUITY FUNDS
32
<PAGE>
EVERGREEN
PERFORMANCE
Since the Fund commenced operations on 9/29/1999, total return information is
not yet available for a full calendar year.
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses++
<S> <C> <C> <C>
0.92% 0.00% 0.45% 1.37%
</TABLE>
+Estimated for the fiscal year ending 12/31/2000.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including fee waivers and
expense reimbursements, Total Fund Operating Expenses are estimated to be
1.00%.
The table below shows the total expenses you would pay on a $10,000 investment
over one- and three-year periods. The example is intended to help you compare
the cost of investing in this Fund versus other mutual funds and is for
illustration purposes only. The example assumes a 5% average annual return and
that you reinvest all of your dividends and distributions. Your actual costs
may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $139
3 years $434
</TABLE>
VARIABLE ANNUITY FUNDS
33
<PAGE>
EVERGREEN
VA Strategic Income Fund
FUND FACTS:
Goals:
. High Current Income
. Capital Growth
Principal Investments:
. Domestic High Yield, High Risk Bonds
. Foreign Debt Securities
. U.S. Government Securities
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Manager:
. Prescott B. Crocker, CFA
NASDAQ Symbol:
. EVAYX
Dividend Payment Schedule:
. Annually
................................................................................
INVESTMENT GOAL
The Fund seeks high current income from interest on debt securities.
Secondarily, the Fund considers potential for growth of capital in selecting
securities.
INVESTMENT STRATEGY
The Fund intends to allocate its assets principally between domestic high
yield, high risk bonds and debt securities (which may be denominated in U.S.
dollars or in non-U.S. currencies) of foreign governments and foreign
corporations. In addition, the Fund will, from time to time, allocate a portion
of its assets to U.S. government securities, including zero-coupon U.S.
Treasury securities, mortgage-backed securities and money market instruments.
This allocation will be made on the basis of the investment advisor's
assessment of global opportunities for high income and high investment return.
From time to time, the Fund may invest 100% of its assets in U.S. or foreign
securities. While the Fund may invest in securities of any maturity, it is
currently expected that the Fund will not invest in securities with maturities
of more than 30 years. The Fund's portfolio manager takes an aggressive
approach to investing but seeks to control risk through diversification, credit
analysis, economic analysis, interest rate forecasts and review of sector and
industry trends.
The Fund intends to sell a portfolio investment when the issuer's investment
fundamentals begin to deteriorate, when the investment no longer appears to
meet the Fund's investment objective, when the Fund must meet redemptions, or
for other investment reasons which the investment advisor deems necessary.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
.Interest Rate Risk
.Credit Risk
.Foreign Investment Risk
In addition, the Fund principally invests in below investment grade bonds,
commonly referred to as "junk bonds" because they are usually backed by issuers
of less proven or questionable financial strength. Such issuers are more
vulnerable to financial setbacks and less certain to pay interest and principal
than issuers of bonds offering lower yields and risk. Markets may react to
unfavorable news about issuers of below investment grade bonds causing sudden
and steep declines in value.
The Fund is also subject to the risks associated with investing in mortgage-
backed securities. Like other debt securities, changes in interest rates
generally affect the value of mortgage-backed securities. Additionally, some
mortgage-backed securities may be structured so that they may be particularly
sensitive to interest rates. Early repayment of mortgages underlying these
securities may expose the Fund to a lower rate of return when it reinvests the
principal.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
VARIABLE ANNUITY FUNDS
34
<PAGE>
EVERGREEN
PERFORMANCE
The following charts show how the Fund has performed in the past. Returns
reflect reinvestment of all dividends and distributions and fees, but do not
reflect contract or policy charges assessed by participating insurance
companies. Past performance is not an indication of future results.
The chart below shows the percentage gain or loss for the Fund in each calendar
year since its inception on 3/6/1997. It should give you a general idea of the
risks of investing in the Fund by showing how the Fund's returns have varied
from year-to-year. Separate account fees charged by participating insurance
companies are not reflected in this chart. If these fees were reflected,
returns would be less than those shown.
Year-by-Year Total Return (%)
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
5.91 1.64
Best Quarter: 4th Quarter 1999 +2.94%
Worst Quarter: 1st Quarter 1998 +0.58%
The next table lists the Fund's average annual total return over the past year
and since inception (through 12/31/1999). This table is intended to provide you
with some indication of the risks of investing in the Fund. At the bottom of
the table you can compare this performance with the Lehman Brothers
Intermediate Term Government Bond Index (LBITGBI) and the Lehman Brothers
Aggregate Bond Index (LBABI). The LBITGBI is an unmanaged fixed income index of
U.S. government and U.S. government agency debt with one to ten years remaining
to maturity. The LBABI is an unmanaged, fixed income index covering the U.S.
investment grade fixed-rate bond market, including U.S. government and U.S.
government agency securities, corporate securities, and asset-backed
securities. An index does not include transaction costs associated with buying
and selling securities or any mutual fund expenses. It is not possible to
invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Performance
Inception Since
Date 1 year 5 year 10 year 3/6/1997
<S> <C> <C> <C> <C> <C>
Fund 3/6/1997 1.64% N/A N/A 4.53%
LBITGBI 0.49% N/A N/A 5.62%
LBABI -0.82% N/A N/A 5.85%
</TABLE>
EXPENSES
This section describes the estimated fees and expenses you would pay if you
bought and held shares of the Fund. The Fund does not assess any fees upon
purchase or redemption. 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 are described in the prospectus of such contracts or policies.
Annual Fund Operating Expenses (expenses that are deducted from fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fee Fees Expenses Expenses
<S> <C> <C> <C>
0.52% 0.00% 0.32% 0.84%
</TABLE>
+Restated for the fiscal year ended 12/31/1999 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration purposes only. The example assumes a 5% average annual return
and that you reinvest all of your dividends and distributions. Your actual
costs may be higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After:
<S> <C>
1 year $86
3 years $268
5 years $466
10 years $1,037
</TABLE>
VARIABLE ANNUITY FUNDS
35
<PAGE>
EVERGREEN
THE FUNDS' INVESTMENT ADVISORS
The investment advisor manages a Fund's investments and supervises its daily
business affairs. There are seven investment advisors for the Evergreen
Variable Annuity Funds in this prospectus. All investment advisors for
the Evergreen Funds are subsidiaries of First Union Corporation, the sixth
largest bank holding company in the United States, with over $253 billion in
consolidated assets as of 3/31/2000. First Union Corporation is located at 301
South College Street, Charlotte, North Carolina 28288-0013.
Evergreen Asset Management Corp. (EAMC)
is the investment advisor to:
.VA Fund
.VA Foundation Fund
.VA Global Leaders Fund
.VA Growth and Income Fund
.VA Small Cap Value Fund
EAMC, with its predecessors, has served as investment advisor to the Evergreen
Funds since 1971, and currently manages over $23.4 billion in assets for 20 of
the Evergreen Funds. EAMC is located at 1311 Mamaroneck Avenue, White Plains,
New York 10605.
Evergreen Investment Management (EIM)
(formerly known as Capital Management Group), a division of First Union
National Bank (FUNB), is the investment advisor to:
. VA Masters Fund
EIM has been managing money for over 50 years and currently manages over $18.5
billion in investment assets for 25 of the Evergreen Funds. EIM is located at
201 South College Street, Charlotte, North Carolina 28288-0630.
First Capital Group (FCG),
a division of FUNB, is the investment advisor to:
. VA Equity Index Fund
FCG has been managing money for over 50 years and currently manages $11.1
billion in assets for 14 of the Evergreen Funds. FCG is located at 201 South
College Street, Charlotte, North Carolina 28288-0630
Evergreen Investment Management Company (EIMC)
is the investment advisor to:
.VA Blue Chip Fund
.VA International Growth Fund
.VA Omega Fund
.VA Strategic Income Fund
EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $12.7 billion in investment assets for 31 of the
Evergreen Funds. EIMC is located at 200 Berkeley Street, Boston, Massachusetts
02116-5034.
Mentor Investment Advisors LLC (MIA)
is the investment advisor to:
.VA Capital Growth Fund
.VA Growth Fund
.VA High Income Fund
MIA and its affilitates currently manage over $14.1 billion in investment
assets for 19 of the Evergreen Funds. MIA is located at 901 East Byrd Street,
Richmond, Virginia 23219.
Mentor Perpetual Advisors LLC (MPA)
is the investment advisor to:
. VA Perpetual International Fund
MPA, an investment advisory firm organized in 1995, is owned equally by
Perpetual plc, a diversified financial services holding company, and MIA. The
Perpetual organization currently serves as investment advisor for assets of
more than $18 billion. Its clients include 28 unit and investment trusts and
other public investment pools including private individuals, charities, pension
plans and life assurance companies. MPA is located at 901 East Byrd Street,
Richmond, Virginia 23219.
Meridian Investment Company (MIC)
is the investment advisor to:
.VA Special Equity Fund
MIC has been managing money for over 15 years and currently manages over $768.6
million in investments for 3 of the Evergreen Funds. MIC is located at 55
Valley Stream Parkway, Malvern, Pennsylvania 19355.
Under the terms of the various investment advisory agreements, each Fund's
investment advisor is entitled to receive a fee as a percentage of the Fund's
average daily net assets. Each Fund's effective advisory fee rates for the
fiscal year ended December 31, 1999 is set forth below.
VARIABLE ANNUITY FUNDS
36
<PAGE>
EVERGREEN
<TABLE>
<CAPTION>
Effective Rate for
Advisory Services
For the Year
Ended 12/31/1999
<S> <C>
VA Blue Chip Fund* N/A
VA Capital Growth Fund 0.80%
VA Equity Index Fund** 0.00%
VA Fund 0.87%
VA Foundation Fund 0.83%
VA Global Leaders Fund 0.76%
VA Growth and Income Fund 0.88%
VA Growth Fund 0.70%
VA High Income Fund*** 0.14%
VA International Growth Fund 0.00%
VA Masters Fund**** 0.45%
VA Omega Fund+ 0.60%
VA Perpetual International Fund 1.00%
VA Small Cap Value Fund 0.59%
VA Special Equity Fund** 0.00%
VA Strategic Income Fund 0.61%
</TABLE>
*The Fund commenced operations on April 28, 2000.
**The Fund commenced operations on September 29, 1999.
***The Fund commenced operations on June 30, 1999.
****The Fund commenced operations on January 29, 1999.
+The investment advisor changed on April 1, 1999 from EIM to EIMC; however, the
contractual advisory fee rate did not change.
THE FUNDS' SUB-ADVISORS
Lieber & Company (Lieber) is the investment sub-advisor to:
.VA Fund
.VA Foundation Fund
.VA Global Leaders Fund
.VA Growth and Income Fund
.VA Small Cap Value Fund
Lieber has provided investment research and other investment services since
1971. Lieber is located at 1311 Mamaroneck Avenue, White Plains, New York
10605.
Under the terms of Lieber's sub-advisory agreements, it is entitled to be
reimbursed by EAMC for the cost of providing sub-advisory services to EAMC. The
Funds pay no direct fees to Lieber. The effective sub-advisory fee rates for
the fiscal year ended December 31, 1999 received by Lieber is set forth below.
<TABLE>
<CAPTION>
Effective Rate for
Sub-Advisory Services
For the Year Ended
12/31/1999
<S> <C>
VA Fund 0.87%
VA Foundation Fund 0.83%
VA Global Leaders Fund 0.76%
VA Growth and Income Fund 0.88%
VA Small Cap Value Fund 0.59%
</TABLE>
Subject to the supervision of EIM, each sub-advisor listed below manages a
segment of VA Masters Fund's portfolio in accordance with the Fund's investment
objective and policies, makes investment decisions for the segment, and places
orders to purchase and sell securities for the segment. The Fund pays no direct
fees to any of the sub-advisors. The four sub-advisors of the Fund are:
EAMC is described above. Lieber, also described above, provides sub-advisory
services to EAMC.
MFS Institutional Advisors, Inc. (MFS), 500 Boylston Street, Boston,
Massachusetts 02116, is America's oldest mutual fund organization. As of
December 31, 1999, MFS managed more than $135 billion on behalf of more than
4.5 million investor accounts.
OppenheimerFunds, Inc. (Oppenheimer), Two World Trade Center, New York, New
York 10048, has operated as an investment advisor since 1959. As of December
31, 1999, Oppenheimer and its subsidiaries managed investment companies with
assets of more than $120 billion and with more than 5 million shareholder
accounts.
Putnam Investment Management, Inc. (Putnam), One Post Office Square, Boston,
Massachusetts 02109, has been managing mutual funds since 1937. As of December
31, 1999, Putnam and its affiliates managed more than $391 billion of assets
for nearly 12 million shareholder accounts.
Through an exemptive order received from the Securities and Exchange
Commission, EIM has ultimate responsibility (subject to oversight by the Board
of Trustees) to oversee VA Masters Fund's sub-advisors and recommend the
hiring, termination and replacement of unaffiliated sub-advisors without
receiving prior shareholder approval. However, shareholders will be notified in
the event there has been a replacement of one of the sub-advisors. In addition,
the exemptive order permits the disclosure of fees paid to unaffiliated sub-
advisors on an aggregate basis only.
VARIABLE ANNUITY FUNDS
37
<PAGE>
EVERGREEN
For the fiscal year ended 12/31/1999, the fees paid to the sub-advisors by EIM
(EAMC for Lieber) were as follows:
<TABLE>
<CAPTION>
% of VA Masters Fund's
Sub-advisor average net assets
<S> <C>
EAMC 0.12%
Lieber 0.12%
MFS, Oppenheimer, Putnam 0.38%
</TABLE>
THE FUNDS' PORTFOLIO MANAGERS
VA Blue Chip Fund
Judith A. Warners has managed the Fund since April 2000. Ms. Warners, a Vice
President and portfolio manager since January 1995, joined EIMC as an analyst
in 1981.
VA Capital Growth Fund
John G. Davenport, CFA, Richard H. Skeppstrom, II, Steven A. Certo, E. Craig
Dauer, and John G. Jordan, III, CFA are the co-managers of the Fund. Mr.
Davenport has co-managed the Fund since its inception and is a Managing
Director, portfolio manager and Team Leader for the Large Capitalization Growth
team; he joined MIA in 1992. Mr. Skeppstrom has co-managed the Fund since its
inception and is a Senior Vice President and portfolio manager for the Large
Capitalization Growth team; he joined MIA in 1992. Mr. Certo has co-managed the
Fund since its inception and is a Vice President and portfolio manager for the
Large Capitalization Growth team; he joined MIA in 1997. From August 1994 until
joining MIA he was a research analyst with the equity research department of
First Union Securities, Inc. (First Union Securities), an affiliate of MIA. Mr.
Dauer has co-managed the Fund since June 1999 and is an Assistant Vice
President and portfolio manager with the Large Capitalization Growth team. Mr.
Dauer joined MIA in 1999 after previous employment as an equity research
analyst at First Union Securities. Prior to joining First Union Securities in
September 1996, Mr. Dauer was an MBA candidate at the Darden School of the
University of Virginia. Mr. Jordan has co-managed the Fund since June 1999
after eight years of previous employment as an analyst and portfolio manager at
Thompson, Siegel & Walmsley.
VA Equity Index Fund
William E. Zieff has managed the Fund since May 2000. Mr. Zieff joined FCG in
January 2000 as Managing Director of Global Structured Products. Prior to
joining FCG, Mr. Zieff was Managing Director and co-CIO of the Global Asset
Allocation Group at Putnam Investments, Inc. from November 1996 until December
1998. From October 1992 until November 1996, Mr. Zieff was portfolio manager
and Head of Asset Allocation at Grantham, Mayo, Van Otterloo & Co.
VA Fund
Jean C. Ledford, CFA, has been lead manager and Richard Welsh has been co-
manager of the Fund since August 1999. Ms. Ledford has been President and Chief
Executive Officer of EAMC since August 1999. From January 1997 until she joined
EAMC, Ms. Ledford was employed as a portfolio manager at American Century
Investments (American Century). From 1980 until she joined American Century,
Ms. Ledford was an investment director at the State of Wisconsin Investment
Board. Mr. Welsh has been a Senior Vice President and portfolio manager at EAMC
since August 1999. From August 1994 until he joined EAMC, Mr. Welsh was a
portfolio manager and analyst at American Century.
VA Foundation Fund
Ms. Ledford has been lead manager and Mr. Welsh has been co-manager of the Fund
since August 1999.
VA Global Leaders Fund
Edwin D. Miska and Anthony Han, CFA co-manage the Fund. Mr. Miska has managed
the Fund since March 1997. Mr. Miska has been an analyst with EAMC and its
predecessor since 1986 and a portfolio manager since 1989. Mr. Han joined EAMC
in January 2000 as a Vice President and portfolio manager. Prior to joining
EAMC, Mr. Han was an international analyst with The Pioneer Group since
September 1992.
VA Growth and Income Fund
Philip M. Foreman, CFA, is lead manager and Irene D. O'Neill, CFA, is co-
manager of the Fund. Mr. Foreman managed the Fund alone from January 1999 until
joined by Ms. O'Neill in September 1999. Mr. Foreman has been a portfolio
manager at EAMC since joining EAMC in January 1999. From November 1991 until he
joined EAMC, he was a portfolio manager at Washington Mutual Advisors, Inc.
where he began as Vice President and became Senior Vice President in November
1994. Ms. O'Neill has been a portfolio manager at EAMC since March 1988.
VARIABLE ANNUITY FUNDS
38
<PAGE>
EVERGREEN
VA Growth Fund
Theodore W. Price, CFA, Linda Ziglar, CFA and Jeffrey S. Drummond, CFA are the
co-managers of the Fund. Mr. Price has co-managed the Fund since its inception
and is a Managing Director, portfolio manager and Leader of the Small
Capitalization Growth team of MIA. Mr. Price has been affiliated with MIA or
its affiliates since March 1972. Ms. Ziglar has co-managed the Fund since its
inception and is a Managing Director and portfolio manager; she joined MIA in
1991. Mr. Drummond has co-managed the Fund since its inception and is a Senior
Vice President and portfolio manager; he joined MIA in 1993.
VA High Income Fund
This Fund is managed by a committee of investment professionals appointed by
its investment advisor.
VA International Growth Fund
Gilman C. Gunn has managed the Fund since its inception. Mr. Gunn joined EIMC
in January 1991 as Senior Vice President--International and portfolio manager
and became Senior Vice President and Chief Investment Officer--International at
EIMC in February 1997. Mr. Gunn has managed the Evergreen International Growth
Fund since January 1991.
VA Omega Fund
Maureen E. Cullinane, CFA, has managed the Fund since April 1999. Ms. Cullinane
has been a Vice President and portfolio manager at EIMC since September 1987
and became a Senior Vice President and Senior Portfolio Manager in March 1997.
She has been employed by EIMC and its predecessor since 1974. Ms. Cullinane has
been the portfolio manager of the Evergreen Omega Fund since April 1989.
VA Perpetual International Fund
The Fund is managed by the following team of investment professionals:
Paul Chesson has been the Far East Team Leader for the Fund since January 2000.
Mr. Chesson has been a portfolio manager with Perpetual Portfolio Management
Ltd. (PPM) since 1993. Mr. Chesson has been affiliated with MPA since January
2000. Kathryn Langridge has been the Emerging Markets Team Leader for the Fund
since its inception. Ms. Langridge joined PPM in 1990 and is Head of Emerging
Markets Investment. Ms. Langridge has been affiliated with MPA since April
1995. Margaret Roddan has been the Europe Team Leader for the Fund since its
inception. Ms. Roddan has been a portfolio manager with PPM since 1992. Ms.
Roddan has been affiliated with MPA since April 1995. Stephen Whittaker has
been the UK Team Leader for the Fund since its inception. Mr. Whittaker has
been a portfolio manager with PPM since 1987. Mr. Whittaker has been affiliated
with MPA since April 1995. Robert Yerbury has been the Team Leader responsible
for country allocation of the Fund since its inception. Mr. Yerbury has been
Chief Investment Officer with PPM since October 1997. He joined PPM as a
portfolio manager and head of the U.S. Equity Team in 1983. Mr. Yerbury has
been affiliated with MPA since April 1995.
VA Small Cap Value Fund
Jordan D. Alexander, CFA, has managed or co-managed the Fund since April 1999.
Mr. Alexander has been an assistant portfolio manager with EAMC since September
1998. From 1995 until he joined EAMC, he was an associate healthcare analyst at
PaineWebber, Inc. From 1990 until he joined PaineWebber, Inc., Mr. Alexander
was a senior analyst with Arthur Andersen LLP.
VA Special Equity Fund
Timothy M. Stevenson, CFA, Eric M. Teal and Jay Zelko, have been co-managers of
the Fund since October 1999. Mr. Stevenson has been an investment professional
since August 1981 and joined FUNB in November 1994 as a Senior Vice President
and portfolio manager. Mr. Stevenson has been affiliated with MIC as a
portfolio manager since October 1999. Mr.Teal joined FUNB in September 1993 as
an investment officer and has been Vice President and quantitative equity
analyst since September 1997. Currently, he heads the Quantitative
Analysis/Portfolio Management Unit within FUNB. He is also responsible for
equity quantitative management for the Evergreen Select Equity Funds. Mr. Teal
has been affiliated with MIC as a portfolio manager since October 1999. Mr.
Zelko joined FUNB in April 1994. He is an equity portfolio manager within MIC
who maintains sector analytical and portfolio management responsibilities. Mr.
Zelko has been affiliated with MIC as a portfolio manager since June 1999.
VA Strategic Income Fund
Prescott B. Crocker, CFA, has managed the Fund since its inception. Mr. Crocker
is Senior Vice President, Senior Portfolio Manager, and head of the High Yield
Bond Team at EIMC. He joined EIMC in February 1997 and initially served as the
manager of the High Yield Bond Fund portfolio and the Strategic Income Fund
portfolio.
VARIABLE ANNUITY FUNDS
39
<PAGE>
EVERGREEN
From 1993 until he joined EIMC, he held various positions at Boston Security
Counselors, including President and Chief Investment Officer, and was Managing
Director and a portfolio manager at Northstar Investment Management.
VA Masters Fund
Manager Oversight--EIM has appointed a committee of investment personnel which
is primarily responsible for overseeing the sub-advisors of the VA Masters
Fund. The investment advisor has ultimate responsibility for the investment
performance of the Fund.
EIM continuously monitors the performance and investment styles of the Fund's
sub-advisors and from time to time may recommend changes of sub-advisors based
on factors such as changes in a sub-advisor's investment style or a departure
by a sub-advisor from the investment style for which it had been selected, a
deterioration in a sub-advisor's performance relative to that of other
investment management firms practicing a similar style, or adverse changes in
its ownership or personnel.
One segment of the Fund's portfolio managed by a sub-advisor may be larger or
smaller at various times than other segments, but the investment advisor will
not reallocate assets among the segments to reduce these differences in size
until the assets allocated to one sub-advisor either exceed 35% or are less
than 15% of the Fund's average daily net assets for a period of three
consecutive months. In such event the investment advisor may, but is not
obligated to, reallocate assets among sub-advisors to provide for a more equal
distribution of the Fund's assets.
CALCULATING THE SHARE PRICE
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated on each day the New York Stock Exchange is open, at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares
outstanding. Each security held by a Fund is valued using the most recent
market data for that security. If no market data is available for a given
security, the Fund will price that security at fair value according to policies
established by the Fund's Board of Trustees. Short-term securities with
maturities of 60 days or less will be valued on the basis of amortized cost.
The price per share for a Fund purchase or the amount received for a Fund
redemption is based on the next price calculated after the order is received
and all required information is provided.
Certain Funds may invest in foreign securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Fund does not
price its shares. As a result, the NAV of the Fund may change on days when
investors will not be able to purchase or redeem the Fund's shares.
PARTICIPATING INSURANCE COMPANIES
The Funds were organized to serve as investment vehicles for separate accounts
funding variable annuity contracts and variable life insurance policies issued
by certain life insurance companies. The Funds do not currently foresee any
disadvantages to the holders of the contracts or policies arising from the fact
that the interests of holders of those contracts or policies may differ due to
the difference of tax treatment and other considerations. Nevertheless, the
Board of Trustees has established procedures for the purpose of identifying any
irreconcilable material conflicts that may arise and to determine what action,
if any, would be taken in response thereto. The variable annuity contracts and
variable life insurance policies are described in the separate prospectuses
issued by the participating insurance companies. The Evergreen Variable Annuity
Trust assumes no responsibility for such prospectuses.
HOW TO BUY AND REDEEM SHARES
Investors may not purchase or redeem shares of the Funds directly, but only
through variable annuity contracts or variable life insurance policies offered
through separate accounts of participating insurance companies. Investors
should refer to the prospectus of the variable annuity contracts or variable
life insurance policies for information on how to purchase such contracts or
policies, how to select specific Evergreen Variable Annuity Funds as investment
options for the contracts or policies and how to redeem funds or change
investment options.
The separate accounts of the participating insurance companies place orders to
purchase and redeem shares of the Funds based on, among other things, the
amount
VARIABLE ANNUITY FUNDS
40
<PAGE>
EVERGREEN
of premium payments to be invested and the amount of surrender and transfer
requests (as defined in the prospectus describing the variable annuity
contracts or variable life insurance policies issued by the participating
insurance companies) to be effected on that day pursuant to the contracts or
policies.
Timing of Proceeds
Normally, we will send redemption proceeds on the next business day after we
receive a request; however, we reserve the right to wait up to seven business
days to redeem any investments.
OTHER SERVICES
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains are
distributed to the separate accounts of participating insurance companies and
are automatically reinvested, unless requested otherwise.
THE TAX CONSEQUENCES OF INVESTING IN THE FUNDS
Fund Distributions
Each Fund passes along the net income or profits it receives from its
investments. The Evergreen Variable Annuity Funds expect that any distributions
to separate accounts will be exempt from current federal income taxation to the
extent that such distributions accumulate in a variable annuity contract or
variable life insurance policy.
. Dividends. The Fund pays a yearly dividend from the dividends, interest and
other income on the securities in which it invests.
. Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. Evergreen Variable Annuity Funds generally
distribute capital gains, if any, at least once a year.
For a discussion of the tax consequences of variable annuity contracts or
variable life insurance policies, refer to the prospectus of the variable
annuity contract or variable life insurance policies offered by the
participating insurance company. Variable annuity contracts or variable life
insurance policies purchased through insurance company separate accounts
provide for the accumulation of all earnings from interest, dividends and
capital appreciation without current federal income tax liability to the owner.
Depending on the variable annuity contract or variable life insurance policies,
distributions from the contract or policy may be subject to ordinary income tax
and, in addition, a 10% penalty tax on distributions before age 59 1/2. Only
the portion of a distribution attributable to income on the investment in the
contract is subject to federal income tax. Investors should consult with
competent tax advisors for a more complete discussion of possible tax
consequences in a particular situation.
FEES AND EXPENSES OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses and, in certain instances, sub-advisory fees.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running a Fund is called the expense ratio. As a shareholder,
you are not charged these fees directly; instead they are taken out before the
Fund's net asset value is calculated, and are expressed as a percentage of the
Fund's average daily net assets. The effect of these fees is reflected in the
performance results. Because these fees are "invisible," investors should
examine them closely, especially when comparing one fund with another fund in
the same investment category. There are three things to remember about expense
ratios: 1) your total return in the Fund is reduced in direct proportion to the
fees; 2) expense ratios can vary greatly between funds and fund families, from
under 0.25% to over 3.0%; and 3) a Fund's investment advisor may waive a
portion of the Fund's expenses for a period of time, reducing its expense
ratio.
VARIABLE ANNUITY FUNDS
41
<PAGE>
EVERGREEN
Variable Annuity Trust
FINANCIAL HIGHLIGHTS
This section looks in detail at the results for one share in each of the
Funds -- how much income it earned, how much of this income was passed along as
a distribution and how much the return was reduced by expenses. The tables for
each Fund have been derived from financial
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 (a)
<S> <C> <C>
VA CAPITAL GROWTH FUND
Net asset value, beginning of period $ 13.58 $ 12.50
----------- -----------
Income from investment operations
Net investment income 0.01 0.03
Net realized and unrealized gains on securities 0.87 1.05
----------- -----------
Total from investment operations 0.88 1.08
----------- -----------
Distributions to shareholders from
Net investment income (0.02) 0
Net realized gains (0.02) 0
----------- -----------
Total distributions (0.04) 0
----------- -----------
Net asset value, end of period $ 14.42 $ 13.58
----------- -----------
Total return* 6.50% 8.64%
Ratios and supplemental data
Net assets, end of period (thousands) $ 28,377 $ 20,142
Ratios to average net assets
Expenses** 1.18% 1.05%+
Net investment income 0.06% 0.50%+
Portfolio turnover rate 87% 54%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
December 31, 1999 (b)
<S> <C>
VA EQUITY INDEX FUND
Net asset value, beginning of period $ 10.00
-------
Income from investment operations
Net investment income 0.03
Net realized and unrealized gains on securities and
futures contracts 1.51
-------
Total from investment operations 1.54
-------
Distributions to shareholders from
Net investment income (0.03)
Net realized gains (0.03)
-------
Total distributions (0.06)
-------
Net asset value, end of period $ 11.48
-------
Total return* 15.47%
Ratios and supplemental data
Net assets, end of period (thousands) $18,685
Ratios to average net assets
Expenses** 0.31%+
Net investment income 1.34%+
Portfolio turnover rate 5%
</TABLE>
(a) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from September 29, 1999 (commencement of operations) to De-
cember 31, 1999.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
VARIABLE ANNUITY FUNDS
42
<PAGE>
EVERGREEN
Variable Annuity Trust
information audited by KPMG LLP, the Funds' independent auditors. For a more
complete picture of the Funds' financial statements, please see the Funds'
Annual Report as well as the Statement of Additional Information.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 # 1998 # 1997 # 1996 (a) #
<S> <C> <C> <C> <C>
VA FUND
Net asset value, beginning of period $ 15.31 $ 14.89 $ 11.41 $ 10.00
------- ------- ------- -------
Income from investment operations
Net investment income 0.09 0.07 0.06 0.05
Net realized and unrealized gains on
securities 3.36 0.86 4.15 1.44
------- ------- ------- -------
Total from investment operations 3.45 0.93 4.21 1.49
------- ------- ------- -------
Distributions to shareholders from
Net investment income (0.11) 0 (0.05) (0.05)
Net realized gains (1.34) (0.51) (0.68) (0.03)
------- ------- ------- -------
Total distributions (1.45) (0.51) (0.73) (0.08)
------- ------- ------- -------
Net asset value, end of period $ 17.31 $ 15.31 $ 14.89 $ 11.41
------- ------- ------- -------
Total return* 23.03% 6.44% 37.16% 14.90%
Ratios and supplemental data
Net assets, end of period (thousands) $69,774 $45,820 $21,600 $10,862
Ratios to average net assets
Expenses** 1.02% 1.01% 1.01% 1.00%+
Net investment income 0.57% 0.49% 0.42% 0.87%+
Portfolio turnover rate 111% 16% 32% 6%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1999 1998 # 1997 # 1996 (a) #
<S> <C> <C> <C> <C>
VA FOUNDATION FUND
Net asset value, beginning of period $ 14.47 $ 13.54 $ 11.31 $ 10.00
-------- ------- ------- -------
Income from investment operations
Net investment income 0.28 0.35 0.26 0.16
Net realized and unrealized gains on
securities 1.27 1.07 2.86 1.37
-------- ------- ------- -------
Total from investment operations 1.55 1.42 3.12 1.53
-------- ------- ------- -------
Distributions to shareholders from
Net investment income (0.28) (0.26) (0.24) (0.16)
Net realized gains (0.04) (0.23) (0.65) (0.06)
-------- ------- ------- -------
Total distributions (0.32) (0.49) (0.89) (0.22)
-------- ------- ------- -------
Net asset value, end of period $ 15.70 $ 14.47 $ 13.54 $ 11.31
-------- ------- ------- -------
Total return* 10.64% 10.56% 27.80% 15.30%
Ratios and supplemental data
Net assets, end of period (thousands) $145,566 $78,371 $31,840 $15,812
Ratios to average net assets
Expenses** 0.95% 1.00% 1.01% 1.00%+
Net investment income 2.29% 2.44% 2.15% 2.70%+
Portfolio turnover rate 77% 10% 26% 12%
</TABLE>
(a) For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
43
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 # 1997 (a) #
<S> <C> <C> <C>
VA GLOBAL LEADERS FUND
Net asset value, beginning of period $ 12.76 $10.79 $10.00
------- ------ ------
Income from investment operations
Net investment income 0.06 0.10 0.11
Net realized and unrealized gains on securities
and foreign currency related transactions 3.09 1.94 0.77
------- ------ ------
Total from investment operations 3.15 2.04 0.88
------- ------ ------
Distributions to shareholders from
Net investment income (0.06) (0.07) (0.06)
Net realized gains 0 0 (0.03)
------- ------ ------
Total distributions (0.06) (0.07) (0.09)
------- ------ ------
Net asset value, end of period $ 15.85 $12.76 $10.79
------- ------ ------
Total return* 24.72% 18.92% 8.80%
Ratios and supplemental data
Net assets, end of period (thousands) $21,022 $9,583 $2,899
Ratios to average net assets
Expenses** 1.01% 1.04% 1.05%+
Net investment income 0.58% 0.89% 1.15%+
Portfolio turnover rate 17% 12% 11%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 # 1998 # 1997 # 1996 (b) #
<S> <C> <C> <C> <C>
VA GROWTH AND INCOME FUND
Net asset value, beginning of period $ 15.58 $ 15.29 $ 11.83 $ 10.00
------- ------- ------- -------
Income from investment operations
Net investment income 0.07 0.16 0.08 0.06
Net realized and unrealized gains on
securities and foreign currency
related transactions 2.74 0.56 4.01 1.84
------- ------- ------- -------
Total from investment operations 2.81 0.72 4.09 1.90
------- ------- ------- -------
Distributions to shareholders from
Net investment income (0.06) (0.13) (0.07) (0.06)
Net realized gains (0.89) (0.30) (0.56) (0.01)
------- ------- ------- -------
Total distributions (0.95) (0.43) (0.63) (0.07)
------- ------- ------- -------
Net asset value, end of period $ 17.44 $ 15.58 $ 15.29 $ 11.83
------- ------- ------- -------
Total return* 18.57% 4.77% 34.66% 19.00%
Ratios and supplemental data
Net assets, end of period (thousands) $84,067 $60,576 $31,088 $14,484
Ratios to average net assets
Expenses** 1.01% 1.01% 1.01% 1.00%+
Net investment income 0.44% 1.02% 0.59% 1.00%+
Portfolio turnover rate 66% 13% 18% 2%
</TABLE>
(a) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
(b) For the period from March 1, 1996 (commencement of operations) to December
31, 1996.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
44
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 (a)
<S> <C> <C>
VA GROWTH FUND
Net asset value, beginning of period $ 11.46 $ 12.50
----------- -----------
Income from investment operations
Net investment income or loss (0.07) 0.02
Net realized and unrealized gains or losses on
securities 2.50 (1.06)
----------- -----------
Total from investment operations 2.43 (1.04)
----------- -----------
Distributions to shareholders from
Net investment income (0.02) 0
----------- -----------
Total distributions (0.02) 0
----------- -----------
Net asset value, end of period $ 13.87 $ 11.46
----------- -----------
Total return* 21.21% (8.32%)
Ratios and supplemental data
Net assets, end of period (thousands) $ 15,888 $ 11,064
Ratios to average net assets
Expenses** 1.33% 0.97%+
Net investment income or loss (0.67%) 0.44%+
Portfolio turnover rate 143% 62%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
December 31, 1999 (b)
<S> <C>
VA HIGH INCOME FUND
Net asset value, beginning of period $10.00
------
Income from investment operations
Net investment income 0.29
Net realized and unrealized gains on securities 0.16
------
Total from investment operations 0.45
------
Distributions to shareholders from
Net investment income (0.30)
------
Net asset value, end of period $10.15
------
Total return 4.46%
Ratios and supplemental data
Net assets, end of period (thousands) $5,257
Ratios to average net assets
Expenses* 1.02%+
Net investment income 5.88%+
Portfolio turnover rate 19%
</TABLE>
(a) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
VARIABLE ANNUITY FUNDS
45
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 # 1998 (a) #
<S> <C> <C>
VA INTERNATIONAL GROWTH FUND
Net asset value, beginning of period $ 9.39 $ 10.00
----------- -----------
Income from investment operations
Net investment income 0.09 0.03
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions 3.48 (0.64)
----------- -----------
Total from investment operations 3.57 (0.61)
----------- -----------
Distributions to shareholders from
Net investment income (0.14) 0
Net realized gains (0.10) 0
----------- -----------
Total distributions (0.24) 0
----------- -----------
Net asset value, end of period $ 12.72 $ 9.39
----------- -----------
Total return* 38.22% (6.10%)
Ratios and supplemental data
Net assets, end of period (thousands) $ 3,782 $ 1,425
Ratios to average net assets
Expenses** 1.03% 1.02%+
Net investment income 0.87% 1.05%+
Portfolio turnover rate 144% 59%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
December 31, 1999 (b) #
<S> <C>
VA MASTERS FUND
Net asset value, beginning of period $ 10.00
-------
Income from investment operations
Net investment income 0.01
Net realized and unrealized gains on securities and
foreign currency related transactions 2.74
-------
Total from investment operations 2.75
-------
Distributions to shareholders from
Net investment income (0.01)
Net realized gains (0.16)
-------
Total distributions (0.17)
-------
Net asset value, end of period $ 12.58
-------
Total return* 27.58%
Ratios and supplemental data
Net assets, end of period (thousands) $18,873
Ratios to average net assets
Expenses** 1.00%+
Net investment income 0.15%+
Portfolio turnover rate 83%
</TABLE>
(a) For the period from August 17, 1998 (commencement of operations) to
December 31, 1998.
(b) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
46
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1999 # 1998 # 1997 (a) #
<S> <C> <C> <C>
VA OMEGA FUND
Net asset value, beginning of period $ 13.57 $11.10 $10.00
------- ------ ------
Income from investment operations
Net investment loss (0.06) (0.04) (0.06)
Net realized and unrealized gains on securities 6.47 2.51 1.16
------- ------ ------
Total from investment operations 6.41 2.47 1.10
------- ------ ------
Net asset value, end of period $ 19.98 $13.57 $11.10
------- ------ ------
Total return* 47.24% 22.25% 11.00%
Ratios and supplemental data
Net assets, end of period (thousands) $24,176 $4,039 $1,868
Ratios to average net assets
Expenses** 0.96% 1.02% 1.06%+
Net investment loss (0.35%) (0.33%) (0.74%)+
Portfolio turnover rate 120% 49% 39%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1999 1998 (b)
<S> <C> <C>
VA PERPETUAL INTERNATIONAL FUND
Net asset value, beginning of period $ 14.01 $ 12.50
----------- -----------
Income from investment operations
Net investment income 0.02 0.02
Net realized and unrealized gains on securities
and foreign currency related transactions 5.58 1.49
----------- -----------
Total from investment operations 5.60 1.51
----------- -----------
Distributions to shareholders from
Net realized gains (0.01) 0
----------- -----------
Total distributions (0.01) 0
----------- -----------
Net asset value, end of period $ 19.60 $ 14.01
----------- -----------
Total return* 39.99% 12.08%
Ratios and supplemental data
Net assets, end of period (thousands) $ 24,816 $ 11,821
Ratios to average net assets
Expenses** 1.96% 1.60%+
Net investment income 0.13% 0.34%+
Portfolio turnover rate 113% 95%
</TABLE>
(a) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
(b) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
47
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1999 1998 (a) #
<S> <C> <C>
VA SMALL CAP VALUE FUND
Net asset value, beginning of period $ 9.58 $ 10.00
----------- -----------
Income from investment operations
Net investment income 0.13 0.15
Net realized and unrealized gains or losses on
securities 1.02 (0.45)
----------- -----------
Total from investment operations 1.15 (0.30)
----------- -----------
Distributions to shareholders from
Net investment income (0.13) (0.11)
Net realized gains (0.46) (0.01)
----------- -----------
Total distributions (0.59) (0.12)
----------- -----------
Net asset value, end of period $ 10.14 $ 9.58
----------- -----------
Total return* 12.07% (2.86%)
Ratios and supplemental data
Net assets, end of period (thousands) $ 4,958 $ 2,282
Ratios to average net assets
Expenses** 1.01% 1.02%+
Net investment income 1.69% 2.49%+
Portfolio turnover rate 65% 16%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
December 31, 1999 (b)
<S> <C>
VA SPECIAL EQUITY FUND
Net asset value, beginning of period $10.00
------
Income from investment operations
Net realized and unrealized gains on securities 1.88
------
Total from investment operations 1.88
------
Distributions to shareholders from
Net realized gains (0.04)
------
Total distributions (0.04)
------
Net asset value, end of period $11.84
------
Total return* 18.87%
Ratios and supplemental data
Net assets, end of period (thousands) $3,059
Ratios to average net assets
Expenses** 1.03%+
Net investment loss (0.07%)+
Portfolio turnover rate 104%
</TABLE>
(a) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(b) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
48
<PAGE>
EVERGREEN
Variable Annuity Trust
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 # 1998 # 1997 (a) #
<S> <C> <C> <C>
VA STRATEGIC INCOME FUND
Net asset value, beginning of period $ 10.39 $ 10.20 $10.00
------- ------- ------
Income from investment operations
Net investment income 0.73 0.64 0.32
Net realized and unrealized gains or losses on
securities and foreign currency related
transactions (0.56) (0.04) 0.21
------- ------- ------
Total from investment operations 0.17 0.60 0.53
------- ------- ------
Distributions to shareholders from
Net investment income 0 (0.41) (0.31)
Net realized gains 0 0 (0.02)
------- ------- ------
Total distributions 0 (0.41) (0.33)
------- ------- ------
Net asset value, end of period $ 10.56 $ 10.39 $10.20
------- ------- ------
Total return* 1.64% 5.91% 5.28%
Ratios and supplemental data
Net assets, end of period (thousands) $18,076 $11,182 $2,204
Ratios to average net assets
Expenses** 0.84% 1.02% 1.02%+
Net investment income 7.02% 6.05% 5.34%+
Portfolio turnover rate 205% 231% 119%
</TABLE>
(a) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
* Total return does not reflect charges attributable to your insurance
company's separate account.
** Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
+ Annualized.
# Net investment income is based on average shares outstanding during the
period.
VARIABLE ANNUITY FUNDS
49
<PAGE>
EVERGREEN
OTHER FUND PRACTICES
The Funds may invest in futures and options which are forms of derivatives.
Such practices are used to hedge a Fund's portfolio, to protect against changes
in interest rates, to adjust a portfolio's duration, to maintain a Fund's
exposure to its market, to manage cash or to attempt to increase income.
Although this is intended to increase returns, these practices may actually
reduce returns or increase volatility. The VA Equity Index Fund may also use
options and futures as a substitute for the sale or purchase of securities in
the S&P 500 Index.
The Funds may borrow money, an investment practice typically used only for
temporary or emergency purposes, such as meeting redemptions. Although not a
principal investment practice, VA High Income Fund may also use borrowing to
purchase additional securities. Borrowing is a form of leverage, that may
magnify a Fund's gain or loss. When a Fund has borrowed money for leverage and
its investments increase or decrease in value, its net asset value will
normally increase or decrease more than if it had not borrowed money for this
purpose. The interest that the Fund must pay on borrowed money will reduce its
net investment income and may also either offset any potential capital gains or
increase losses. VA High Income Fund currently intends to use leverage in order
to adjust the dollar-weighted average duration of the portfolio.
The Funds may lend their securities. Lending securities may cause the Fund to
lose the opportunity to sell these securities at the most desirable price and,
therefore, lose money.
While not principal investment strategies, the VA Blue Chip Fund, VA Foundation
Fund and VA Omega Fund may each invest up to 25% (however each Fund's current
intention is to invest no more than 10%, 10% and 15%, respectively), VA Capital
Growth Fund may invest up to 15%, each of the VA Equity Index Fund and VA
Special Equity Fund may invest up to 10% and VA Small Cap Value Fund may invest
up to 5%, of its assets, respectively, in foreign securities.
If a Fund invests in foreign securities, which may include foreign currency
transactions, the value of the Fund's shares will be affected by changes in
exchange rates. To manage this risk, the Fund may enter into currency futures
contracts and forward currency exchange contracts. Although the Fund uses these
contracts to hedge the U.S. dollar value of a security it already owns, the
Fund could lose money if it fails to predict accurately the future exchange
rates. The Fund may engage in hedging and cross hedging with respect to foreign
currencies to protect itself against a possible decline in the value of another
foreign currency in which certain of the Fund's investments are denominated. A
cross hedge cannot protect against exchange rate risks perfectly, and if a Fund
is incorrect in its judgement of future exchange rate relationships, the Fund
could be in a less advantageous position than if such a hedge had not been
established.
VA High Income Fund may enter into interest rate swaps and other interest rate
transactions, such as interest rate caps, floors and collars, in an attempt to
protect the value of its portfolio from interest rate fluctuations and to
adjust the interest rate sensitivity of its portfolio. The Fund intends to use
the interest rate transactions as a hedge and not as a speculative investment.
The Fund's ability to engage in certain interest rate transactions may be
limited by tax considerations. The use of interest rate swaps and other
interest rate transactions is a highly specialized activity that involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. See "Swaps, Caps, Floors and Collars" in the
Statement of Additional Information for more information.
Generally, the portfolio manager(s) of VA Fund, VA Growth Fund, VA
International Growth Fund, VA High Income Fund, VA Omega Fund, VA Perpetual
International Fund, VA Special Equity Fund and VA Strategic Income Fund, do(es)
not take portfolio turnover into account in making investment decisions. This
means a Fund could experience a high rate of portfolio turnover (100% or more)
in any given fiscal year, resulting in greater brokerage and other transaction
costs which are borne by the Fund and its shareholders. It may also result in a
Fund realizing greater net short-term capital gains, distributions from which
are taxable to shareholders as ordinary income.
Although not a principal investment strategy of the VA Growth and Income Fund,
the Fund may invest up to 5% of its assets in debt securities which are rated
below investment grade, commonly known as "junk bonds." Below investment grade
bonds are commonly referred to as "junk bonds" because they are usually backed
by issuers of less proven or questionable financial strength. Such issuers are
more vulnerable to financial setbacks and less certain to pay interest and
principal than issuers of bonds offering lower yields and risks. Markets may
react to unfavorable news about issuers of below investment grade bonds causing
sudden and steep declines in value. In addition, below investment grade bonds
are subject to credit risk and interest rate risk which are discussed under
"Overview of Fund Risks" on page 2.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used
by the Funds, including risks.
VARIABLE ANNUITY FUNDS
50
<PAGE>
EVERGREEN
Notes
VARIABLE ANNUITY FUNDS
51
<PAGE>
EVERGREEN
Evergreen Funds
Money Market
Florida Municipal Money Market Fund
Money Market Fund
Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Treasury Money Market Fund
U.S. Government Money Market Fund
Tax Advantaged
Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
High Grade Municipal Bond Fund
Maryland Municipal Bond Fund
Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
Short-Intermediate Municipal Fund
South Carolina Municipal Bond Fund
Tax-Free High Income Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Diversified Bond Fund
High Income Fund
High Yield Bond Fund
Intermediate Term Bond Fund
Short Duration Income Fund
Strategic Income Fund
U.S. Government Fund
Balanced
Balanced Fund
Capital Balanced Fund
Foundation Fund
Tax Strategic Foundation Fund
Growth & Income
Blue Chip Fund
Equity Income Fund
Growth and Income Fund
Income and Growth Fund
Select Equity Index Fund
Small Cap Value Fund
Utility Fund
Value Fund
Domestic Growth
Aggressive Growth Fund
Capital Growth Fund
Evergreen Fund
Growth Fund
Masters Fund
Omega Fund
Select Special Equity Fund
Small Company Growth Fund
Stock Selector Fund
Strategic Growth Fund
Tax Strategic Equity Fund
Global International
Emerging Markets Growth Fund
Global Leaders Fund
Global Opportunities Fund
International Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Precious Metals Fund
Variable Annuity
VA Blue Chip Fund
VA Capital Growth Fund
VA Equity Index Fund
VA Fund
VA Foundation Fund
VA Global Leaders Fund
VA Growth and Income Fund
VA Growth Fund
VA High Income Fund
VA International Growth Fund
VA Masters Fund
VA Omega Fund
VA Perpetual International Fund
VA Small Cap Value Fund
VA Special Equity Fund
VA Strategic Income Fund
www.evergreen-funds.com
VARIABLE ANNUITY FUNDS
52
<PAGE>
QUICK REFERENCE GUIDE
1 Information Line for Hearing and Speech Impaired (TTY/TDD)
Call 1-800-343-2888
Each business day, 8 a.m. to 6 p.m. Eastern time
2 Write us a letter
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-9970
. for general correspondence
3 For express, registered or certified mail:
Evergreen Service Company
200 Berkeley Street
Boston, MA 02116-5034
4 Visit us on-line:
www.evergreen-funds.com
<PAGE>
For More Information About the Evergreen Variable Annuity Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's holdings as of a specific date, as well as commentary from the Fund's
portfolio manager. This Report discusses the market conditions and
investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-847-5397 or ask your investment
representative. We will mail material within three business days.
Information about these Funds (including the SAI) is also available on the
SEC's Internet web site at http://www.sec.gov. Copies of this material may
be obtained, for a duplication fee, by writing the SEC Public Reference
Section, Washington DC 20549-6009, or by electronic request at the following
e-mail address: [email protected]. This material can also be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. For information
about the operation of the Public Reference Room, call the SEC at 1-202-942-
8090.
90609 Sec File No.: 811-8716
537769 RV6
[LOGO OF EVERGREEN FUNDS]
401 South Tryon Street --------------
Charlotte, NC 28288 PRSRT STD
U.S. POSTAGE
PAID
HUDSON, MA
PERMIT NO 19
--------------
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
Evergreen VA Blue Chip Fund ("Blue Chip Fund")
Evergreen VA Capital Growth Fund ("Capital Growth Fund")
Evergreen VA Equity Index Fund ("Equity Index 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 Growth Fund ("Growth Fund")
Evergreen VA High Income Fund ("High Income Fund ")
Evergreen VA International Growth Fund ("International Growth Fund")
Evergreen VA Masters Fund ("Masters Fund")
Evergreen VA Omega Fund ("Omega Fund")
Evergreen VA Perpetual International Fund ("Perpetual International Fund")
Evergreen VA Small Cap Value Fund ("Small Cap Value Fund")
Evergreen VA Special Equity Fund ("Special Equity Fund") and
Evergreen VA Strategic Income Fund ("Strategic Income Fund")
Each Fund is a series of Evergreen Variable Annuity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to the Funds
listed above. It is not a prospectus but should be read in conjunction with the
prospectus dated May 1, 2000 for the Fund in which you are interested. The Funds
are offered to separate accounts funding variable annuity and variable life
insurance contracts issued by life insurance companies ("Participating Insurance
Companies"). Copies of the prospectus may be obtained without charge by calling
(800) 343-2898.
Certain information is incorporated by reference to the Funds' Annual
Report dated December 31, 1999. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898.
<PAGE>
TABLE OF CONTENTS
PART 1
FUND HISTORY.......................................................1-1
INVESTMENT POLICIES................................................1-1
OTHER SECURITIES AND PRACTICES.....................................1-3
PRINCIPAL HOLDERS OF FUND SHARES...................................1-3
EXPENSES...........................................................1-7
PERFORMANCE.......................................................1-16
SERVICE PROVIDERS.................................................1-17
FINANCIAL STATEMENTS..............................................1-20
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES......2-1
ADDITIONAL INFORMATION CONCERNING THE INVESTMENTS
OF EVERGREEN VA MASTERS FUND..................................2-18
PURCHASE, REDEMPTION AND PRICING OF SHARES........................2-18
PERFORMANCE CALCULATIONS..........................................2-19
TAX INFORMATION...................................................2-21
BROKERAGE.........................................................2-22
ORGANIZATION......................................................2-23
INVESTMENT ADVISORY AGREEMENT.....................................2-24
MANAGEMENT OF THE TRUST...........................................2-25
CORPORATE BOND RATINGS...........................................2-28
ADDITIONAL INFORMATION............................................2-34
<PAGE>
PART 1
FUND HISTORY
The Trust is an open-end management investment company, which was
organized as a Delaware business trust on December 23, 1997. Each Fund is a
diversified series of Evergreen Variable Annuity Trust. A copy of the
Declaration of Trust is on file as an exhibit to the Trust's Registration
Statement, of which this SAI is a part.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
The Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, the Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33-1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. Each Fund, other than High Income Fund, may borrow only as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. Each Fund, other than High Income Fund, may purchase additional
securities as long as outstanding borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law. High Income Fund may borrow funds for the purpose of purchasing
securities.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33-1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see "Additional Information on
Securities and Investment Practices" in Part 2 of this SAI.
PRINCIPAL HOLDERS OF FUND SHARES
As of March 31, 2000, the officers and Trustees of the Trust owned as a
group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of March 31, 2000.
---------------------------------------------------------
Blue Chip Fund
---------------------------------------------------------
---------------------------------------------------------
None
---------------------------------------------------------
---------------------------------------------------------
Capital Growth Fund
---------------------------------------------------------
---------------------------------------------------------
Hartford Life Insurance Company 84.79%
Separate Account 2
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
---------------------------------------------------------
PFL Life Ins Company 9.25%
4333 Edgewood Road NE
Cedar Rapis, IA 52499-0001
---------------------------------------------------------
---------------------------------------------------------
Hartford Life & Annuity Insurance Co 5.44%
Separate Account One
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
---------------------------------------------------------
Equity Index Fund
---------------------------------------------------------
---------------------------------------------------------
First Union Corp 59.33%
c/o Evergreen Investment Services
Attn: Lori Gibson NC 1195
401 S Tryon St 5th FL
Charlotte, NC 28288-1195
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 39.31%
NWVA6
c/o IPO Portfolio Accounting
P.O. BOX 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Evergreen Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 75.35%
Variable Account #6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Security Equity Life Insurance Co 13.18%
c/o Conning Asset Management Co
Attn: Bonnie Harris Mail Code H3-10
700 Market St
St Louis, MO 63101-1829
---------------------------------------------------------
---------------------------------------------------------
Security Equity Life Insurance Co 8.16%
c/o Conning Asset Management Co
Attn Bonnie Harris Mail Code H3-10
700 Market St
St Louis, MO 63101-1829
---------------------------------------------------------
---------------------------------------------------------
Foundation Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance Co. 77.63%
Variable Account #6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Security Equity Life Insurance Co. 8.28%
c/o Conning Asset Management Co
Attn: Bonnie Harris Mail Code H3-10
700 Market St
St Louis, MO 63101-1829
---------------------------------------------------------
---------------------------------------------------------
PFL Life Ins Company 11.38%
4333 Edgewood Road NE
Cedar Rapids, IA 52499-0001
---------------------------------------------------------
---------------------------------------------------------
Global Leaders Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance Co. 81.39%
NWVA6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
American Skandia Assurance Corp 13.24%
Variable Account B Class 1
Attn: Investment Accounting
P.O. Box 883
Shelton, CT 06484-0883
---------------------------------------------------------
---------------------------------------------------------
Growth and Income Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance Co. 87.51%
Variable Account #6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Security Equity Life Insurance Co. 6.34%
Registered Share Account
c/o Conning Asset Management Co
Attn: Bonnie Harris Mail Code H3-10
700 Market St
St Louis, MO 63101-1829
---------------------------------------------------------
---------------------------------------------------------
Growth Fund
---------------------------------------------------------
---------------------------------------------------------
Hartford Life Insurance Company 90.18%
Separate Account 2
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
---------------------------------------------------------
Hartford Life & Annuity Insurance Co 5.34%
Separate Account One
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
---------------------------------------------------------
High Income Fund
---------------------------------------------------------
---------------------------------------------------------
First Union Corp 96.48%
C/c Evergreen Investment Services
Attn: Lori Gibson NC 1195
401 S Tryon St 5th FL
Charlotte, NC 28288-1195
---------------------------------------------------------
---------------------------------------------------------
International Growth Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 71.91%
NWVA6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 23.28%
NWVA6 Seed Account
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Masters Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 77.85%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance Co. 22.04%
Seed Account
Variable Account Six
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Omega Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 92.48%
NWVA6
c/o IPO Portfolio Accounting
P.O. BOX 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Perpetual International Fund
---------------------------------------------------------
---------------------------------------------------------
Hartford Life Insurance Company 92.28%
Separate Account 2
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
---------------------------------------------------------
Hartford Life & Annuity Insurance Co 7.71%
Separate Account One
Attn: Carol Lewis
200 Hopemeadow St
Simsbury, CT 06089-9625
---------------------------------------------------------
<PAGE>
---------------------------------------------------------
Small Cap Value Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 80.31%
NWVA6
c/o IPO Portfolio Accounting
P.O. BOX 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance 18.87%
NWVA6 Seed Account
c/o IPO Portfolio Accounting
P.O. BOX 182029
Columbus, OH 43218-2029
---------------------------------------------------------
---------------------------------------------------------
Special Equity Fund
---------------------------------------------------------
---------------------------------------------------------
American Skandia Assurance Corp 82.48%
Variable Account B Class 1
Attn: Investment Accounting
P.O. BOX 883
Shelton, CT 06484-0883
---------------------------------------------------------
---------------------------------------------------------
First Union Corp 13.77%
c/o Evergreen Investment Services
Attn: Lori Gibson NC 1195
401 S Tryon ST 5th FL
Charlotte, NC 28288-1195
---------------------------------------------------------
---------------------------------------------------------
Strategic Income Fund
---------------------------------------------------------
---------------------------------------------------------
Nationwide Life Insurance Co. 99.55%
NWVA6
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
---------------------------------------------------------
<PAGE>
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information,
see "Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC") is the investment advisor to
Evergreen Fund, Global Leaders Fund, Growth and Income Fund and Small Cap Value
Fund. EAMC is entitled to receive from each of these Funds an annual fee equal
to 0.87% of the average daily net assets of each Fund. EAMC is also the
investment advisor to Foundation Fund. EAMC is entitled to receive from
Foundation Fund an annual fee equal to 0.745% of the average daily net assets of
the Fund.
Evergreen Investment Management ("EIM"), also known as First Capital
Group, a division of First Union National Bank ("FUNB"), is the investment
advisor to Masters Fund. EIM is entitled to receive from Masters Fund an annual
fee equal to 0.87% of the average daily net assets of the Fund. EIM is also the
investment advisor to Equity Index Fund. EIM is entitled to receive from Equity
Index Fund an annual fee equal to 0.32% of the average daily net assets of the
Fund.
Evergreen Investment Management Company ("EIMC") is the investment
advisor to Blue Chip Fund. EIMC is entitled to receive from the Fund an annual
fee based on the average daily net assets, as follows:
---------------------------------- =================
Average Daily Net Assets Fee
---------------------------------- =================
---------------------------------- =================
First $100 million 0.61%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.56%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.51%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.46%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.41%
---------------------------------- =================
---------------------------------- =================
Next $500 million 0.36%
---------------------------------- =================
---------------------------------- =================
Next $500 million 0.31%
---------------------------------- =================
---------------------------------- =================
Over $1.5 billion 0.26%
---------------------------------- =================
EIMC is also the investment advisor to Omega Fund, International Growth
Fund and Strategic Income Fund. EIMC is entitled to receive from Omega Fund an
annual fee equal to 0.52% of the average daily net assets of the Fund. EIMC is
entitled to receive from Strategic Income Fund an annual fee of 2.0% of gross
dividend and interest income plus the following based on the average daily net
assets:
---------------------------------- =================
Average Daily Net Assets Fee
---------------------------------- =================
---------------------------------- =================
First $100 million 0.36%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.31%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.26%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.21%
---------------------------------- =================
---------------------------------- =================
Next $100 million 0.16%
---------------------------------- =================
---------------------------------- =================
Over $500 million 0.11%
---------------------------------- =================
EIMC is entitled to receive from International Growth Fund an annual
fee based on the average daily net assets, as follows:
---------------------------------- =================
Average Daily Net Assets Fee
---------------------------------- =================
---------------------------------- =================
first $200 million 0.66%
---------------------------------- =================
---------------------------------- =================
next $200 million 0.56%
---------------------------------- =================
---------------------------------- =================
next $200 million 0.46%
---------------------------------- =================
---------------------------------- =================
over $600 million 0.36%
---------------------------------- =================
Meridian Investment Company ("MIC") is the investment advisor to
Special Equity Fund. MIC is entitled to receive from Special Equity Fund an
annual fee equal to 0.92% of the average daily net assets of the Fund.
Mentor Investment Advisors, LLC ("Mentor Advisors") is the investment
advisor to Capital Growth Fund, Growth Fund and High Income Fund. Mentor
Advisors is entitled to receive from Capital Growth Fund an annual fee equal to
0.80% of its average daily net assets, from Growth Fund an annual fee equal to
0.70% of its average daily net assets, and from High Income an annual fee equal
to 0.70% of its average daily net assets.
Mentor Perpetual Advisors, LLC ("Mentor Perpetual") is the investment
advisor to Perpetual International Fund. Mentor Perpetual is entitled to receive
from Perpetual International Fund an annual fee equal to 1.00% of the average
daily net assets of the Fund.
<PAGE>
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods.
<TABLE>
<CAPTION>
========================================================================================
Fiscal Period/Fund Advisory Fees Paid Advisory Fees Waived
========================================================================================
Year or Period Ended December 31, 1999
======================================= ---------------------- =========================
<S> <C> <C>
Blue Chip Fund(a) N/A N/A
----------------------
======================================= ---------------------- =========================
Capital Growth Fund $197,527 $0
----------------------
======================================= ---------------------- =========================
Equity Index Fund(b) $15,320 $15,320
----------------------
======================================= ---------------------- =========================
Evergreen Fund $552,938 $43,949
----------------------
======================================= ---------------------- =========================
Foundation Fund $918,103 $0
----------------------
======================================= ---------------------- =========================
Global Leaders Fund $135,130 $26,954
----------------------
======================================= ---------------------- =========================
Growth and Income Fund $674,579 $50,584
----------------------
======================================= ---------------------- =========================
Growth Fund $79,436 $0
----------------------
======================================= ---------------------- =========================
High Income Fund(c) $18,045 $14,359
----------------------
======================================= ---------------------- =========================
International Growth Fund $17,188 $17,188
----------------------
======================================= ---------------------- =========================
Masters Fund(d) $100,395 $53,184
----------------------
======================================= ---------------------- =========================
Omega Fund $55,032 $0
----------------------
======================================= ---------------------- =========================
Perpetual International Fund $172,752 $0
----------------------
======================================= ---------------------- =========================
Small Cap Value Fund $34,408 $13,058
----------------------
--------------------------------------- ---------------------- =========================
Special Equity Fund(b) $7,217 $7,217
--------------------------------------- ---------------------- =========================
----------------------
Strategic Income Fund $94,335 $0
======================================= ---------------------- =========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================
Year or Period Ended December 31, 1998
======================================= ---------------------- =========================
<S> <C> <C>
Capital Growth Fund(e) $56,416 $4,692
----------------------
======================================= ---------------------- =========================
Evergreen Fund $326,123 $42,262
----------------------
======================================= ---------------------- =========================
Foundation Fund $467,156 $0
----------------------
======================================= ---------------------- =========================
Global Leaders Fund $58,409 $31,587
----------------------
======================================= ---------------------- =========================
Growth and Income Fund $453,431 $69,140
----------------------
======================================= ---------------------- =========================
Growth Fund(e) $25,960 $21,300
----------------------
======================================= ---------------------- =========================
International Growth Fund(f) $3,122 $3,122
----------------------
======================================= ---------------------- =========================
Omega Fund $16,941 $14,973
----------------------
======================================= ---------------------- =========================
Perpetual International Fund(e) $43,460 $42,172
----------------------
======================================= ---------------------- =========================
Small Cap Value Fund(g) $9,742 $9,742
----------------------
======================================= ---------------------- =========================
Strategic Income Fund $39,755 $0
========================================================================================
Year or Period Ended December 31, 1997
======================================= ---------------------- =========================
Evergreen Fund $152,253 $47,286
----------------------
======================================= ---------------------- =========================
Foundation Fund $186,702 $20,317
----------------------
======================================= ---------------------- =========================
Global Leaders Fund(h) $12,787 $12,787
----------------------
======================================= ---------------------- =========================
Growth and Income Fund $206,973 $47,995
----------------------
--------------------------------------- ---------------------- =========================
Omega Fund(h) $6,358 $6,280
--------------------------------------- ---------------------- =========================
----------------------
Strategic Income Fund(h) $6,441 $6,441
======================================= ---------------------- =========================
</TABLE>
(a) The Fund commenced operations on April 28, 2000.
(b) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
(c) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
(d) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
(e) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
(f) For the period from August 17, 1998 (commencement of operations) to
December 31, 1998.
(g) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(h) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
<PAGE>
Sub-Advisory Fees Paid
Lieber & Company (Lieber) acts as sub-advisor providing investment
research and other investment services to Evergreen Fund, Foundation Fund,
Global Leaders Fund, Growth and Income Fund and Small Cap Value Fund and is
reimbursed by EAMC for the costs of providing such services. EAMC acts as the
sub-advisor to a segment of Masters Fund and receives, from EIM, a sub-advisory
fee equal to 0.50% of the first $500 million of the Masters Fund's average daily
net assets managed by EAMC, 0.40% of the next $500 million of such net assets,
and 0.35% of such net assets in excess of $1 billion. Lieber also acts as
sub-advisor to EAMC for the Masters Fund providing investment research and other
investment services and is reimbursed by EAMC for the costs of providing such
services. OppenheimerFunds, Inc. ("Oppenheimer"), MFS Institutional Advisors,
Inc. ("MFS") and Putnam Investment Management, Inc. ("Putnam") each also manage
a segment of the Masters Fund. EIM pays Oppenheimer, MFS and Putnam fees equal
in the aggregate up to 0.50% of the Masters Fund's average daily net assets.
Below are the sub-advisory fees paid by the investment advisors to the
sub-advisors for the last three fiscal years:
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------- ===================================================================
Sub-Advisory Fee Paid
- --------------------------------------- ===================================================================
Oppenheimer,
MFS,
Fund EAMC Lieber Putnam
- --------------------------------------- -------------------- --------------------- ========================
===========================================================================================================
Year or Period Ended December 31, 1999
===========================================================================================================
- --------------------------------------- -------------------- --------------------- ========================
<S> <C> <C> <C>
Evergreen Fund N/A $506,444 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Foundation Fund N/A $913,512 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Global Leaders Fund N/A $107,635 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Growth and Income Fund N/A $620,875 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Masters Fund(a) $12,703 $12,639 $40,213
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Small Cap Value Fund(b)
N/A $21,243 N/A
- --------------------------------------- -------------------- --------------------- ========================
===========================================================================================================
Year or Period Ended December 31, 1998
===========================================================================================================
- --------------------------------------- -------------------- --------------------- ========================
Evergreen Fund N/A $282,441 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Foundation Fund N/A $464,820 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Global Leaders Fund N/A $26,688 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Growth and Income Fund N/A $382,370 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Small Cap Value Fund N/A $0 N/A
- --------------------------------------- -------------------- --------------------- ========================
===========================================================================================================
Year or Period Ended December 31, 1997
===========================================================================================================
- --------------------------------------- -------------------- --------------------- ========================
Evergreen Fund N/A $104,442 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Foundation Fund N/A $165,553 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Global Leaders Fund(c) N/A $0 N/A
- --------------------------------------- -------------------- --------------------- ========================
- --------------------------------------- -------------------- --------------------- ========================
Growth and Income Fund N/A $158,183 N/A
- --------------------------------------- -------------------- --------------------- ========================
</TABLE>
(a) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
(b) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(c) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
<PAGE>
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber and First Union Securities,
Inc. ("First Union") for the last three fiscal years or periods. For more
information regarding brokerage commissions, see "Brokerage" in Part 2 of this
SAI.
<TABLE>
<CAPTION>
========================================= -------------------- ------------------------ =======================
Total Paid to All Total Paid to Lieber Total Paid to First
Fund/Fiscal Year or Period Brokers Union
===============================================================================================================
Year or Period Ended December 31, 1999
========================================= -------------------- ------------------------ =======================
<S> <C> <C> <C>
Blue Chip Fund(a) N/A N/A N/A
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Capital Growth Fund $33,158 $0 $9,155
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Equity Index Fund(b) $5,027 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Evergreen Fund $147,096 $105,105 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Foundation Fund $157,780 $110,689 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Global Leaders Fund $20,165 $11,010 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Growth and Income Fund $143,672 $132,632 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Growth Fund $13,169 $0 $1,576
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
High Income Fund(c) N/A N/A N/A
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
International Growth Fund $16,007 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Masters Fund(d) $28,367 $6,486 $27
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Omega Fund $22,039 $0 $178
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Perpetual International Fund $62,111 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Small Cap Value Fund $10,942 $7,080 $0
-------------------- ------------------------
- ----------------------------------------- -------------------- ------------------------ =======================
Special Equity Fund(b) $8,873 $0 $0
- ----------------------------------------- -------------------- ------------------------ =======================
-------------------- ------------------------
Strategic Income Fund $0 $0 $0
========================================= -------------------- ------------------------ =======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
Year or Period Ended December 31, 1998
========================================= -------------------- ------------------------ =======================
<S> <C> <C> <C>
Capital Growth Fund(e) $41,077 $0 $4,284
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Evergreen Fund $53,354 $47,079 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Foundation Fund $47,678 $46,786 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Global Leaders Fund $13,902 $6,368 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Growth and Income Fund $53,618 $53,382 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Growth Fund(e) $38,938 $0 $767
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
International Growth Fund(f) $6,231 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Omega Fund $3,380 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Perpetual International Fund(e) $45,017 $0 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Small Cap Value Fund(g) $3,934 $2,821 $0
===============================================================================================================
Year or Period Ended December 31, 1997
========================================= -------------------- ------------------------ =======================
Evergreen Fund $19,154 $16,810 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Foundation Fund $16,976 $16,976 $0
-------------------- ------------------------
========================================= -------------------- ------------------------ =======================
Global Leaders Fund(h) $6,526 $1,965 $0
-------------------- ------------------------
- ----------------------------------------- -------------------- ------------------------ =======================
Growth and Income Fund $20,369 $17,413 $0
- ----------------------------------------- -------------------- ------------------------ =======================
-------------------- ------------------------
Omega Fund(h) $754 $0 $0
========================================= -------------------- ------------------------ =======================
</TABLE>
(a) The Fund commenced operations on April 28, 2000.
(b) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
(c) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
(d) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
(e) For the period from March 3, 1998 (commencement of operations) to December
31, 1998.
(f) For the period from August 17, 1998 (commencement of operations) to
December 31, 1998.
(g) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(h) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
Percentage of Brokerage Commissions Paid to Lieber and First Union
The table below shows, for the fiscal year or period ended December 31,
1999, (1) the percentage of aggregate brokerage commissions paid by each
applicable Fund to Lieber and First Union and (2) the percentage of each
applicable Fund's aggregate dollar amount of commissionable transactions
effected through Lieber and First Union. For more information, see "Selection of
Brokers" under "Brokerage" in Part 2 of this SAI.
<TABLE>
<CAPTION>
==========================================================================================================
Percentage of
Percentage of Commissionable Percentage of Percentage of
Commissions to Transactions Commissions to Commissionable
Fund Lieber through Lieber First Union Transactions through
First Union
==========================================================================================================
<S> <C> <C> <C> <C>
Blue Chip Fund(a) N/A N/A N/A N/A
------------------ ------------------ ======================
======================= ------------------ --------------------- ======================
Capital Growth Fund N/A N/A 27.60% 19.80%
------------------ ------------------ ======================
======================= ------------------ --------------------- ------------------
Equity Index Fund(b) N/A N/A N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Evergreen Fund 71.50% 67.30% N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Foundation Fund 70.15% 63.33% N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Global Leaders Fund 54.60% 74.20% N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Growth and Income Fund 92.30% 80.63% N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Growth Fund N/A N/A 12.00% 2.90%
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
High Income Fund(c) N/A N/A N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
International Growth
Fund N/A N/A N/A N/A
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Masters Fund(d) 22.85% 2.50% 0.10% 0.10%
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Omega Fund N/A N/A 1.00% 1.00%
------------------ ------------------
======================= ------------------ --------------------- ------------------ ======================
Perpetual
International Fund N/A N/A N/A N/A
------------------ ------------------
- ----------------------- ------------------ --------------------- ------------------ ======================
Small Cap Value Fund 65.20% 57.30% N/A N/A
- ----------------------- ------------------ --------------------- ------------------ ======================
------------------ ------------------
Special Equity Fund(a) N/A N/A N/A N/A
======================= ------------------ --------------------- ------------------ ======================
Strategic Income Fund N/A N/A N/A N/A
======================= ------------------ --------------------- ------------------ ======================
</TABLE>
(a) The Fund commenced operations on April 28, 2000.
(b) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
(c) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
(d) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
and by the Trust and the eleven other trusts in the Evergreen Fund complex for
the twelve months ended December 31, 1999. The Trustees do not receive pension
or retirement benefits from the Funds. For more information, see "Management of
the Trust" in Part 2 of this SAI.
<TABLE>
<CAPTION>
======================================== --------------------------- ====================================
Aggregate Compensation Total Compensation from the
Trustee from Trust for the fiscal Evergreen Fund Complex for the
year ended 12/31/1999 calendar year ended 12/31/1999*
---------------------------
======================================== --------------------------- ====================================
<S> <C> <C>
Laurence B. Ashkin $92 $75,000
---------------------------
======================================== --------------------------- ====================================
Charles A. Austin, III $92 $75,000
---------------------------
======================================== --------------------------- ====================================
Arnold H. Dreyfuss** $0 $0
---------------------------
======================================== --------------------------- ====================================
K. Dun Gifford $90 $75,000
---------------------------
======================================== --------------------------- ====================================
James S. Howell*** $125 $97,000
---------------------------
======================================== --------------------------- ====================================
Leroy Keith Jr. $90 $75,000
---------------------------
======================================== --------------------------- ====================================
Gerald M. McDonnell $92 $75,000
---------------------------
======================================== --------------------------- ====================================
Thomas L. McVerry $109 $85,000
---------------------------
======================================== --------------------------- ====================================
Louis W. Moelchert, Jr.** $0 $0
---------------------------
======================================== --------------------------- ====================================
William Walt Pettit $90 $75,000
---------------------------
======================================== --------------------------- ====================================
David M. Richardson $90 $75,000
---------------------------
======================================== --------------------------- ====================================
Russell A. Salton, III $92 $77,000
---------------------------
======================================== --------------------------- ====================================
Michael S. Scofield $116 $102,500
---------------------------
---------------------------------------- --------------------------- ====================================
Richard J. Shima $90 $75,000
---------------------------------------- --------------------------- ====================================
---------------------------
Richard K. Wagoner** $0 $0
======================================== --------------------------- ====================================
</TABLE>
* Certain Trustees have elected to defer all or part of their total
compensation for the calendar year ended December 31, 1999. The
amounts listed below will be payable in later years to the
respective Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,000
McVerry $85,000
Pettit $75,000
Salton $77,000
Scofield $61,200
** Arnold H. Dreyfuss, Louis W. Moelchert, Jr. and Richard K.
Wagoner were elected to the Board of Trustees on December
16, 1999.
*** As of January 1, 2000, James S. Howell retired and became Trustee
Emeritus.
PERFORMANCE
Total Return
Below are the average annual total returns for the Funds as of December
31, 1999. The returns for Equity Index Fund, High Income Fund, Masters Fund and
Special Equity Fund are cumulative. For more information, see "Total Return"
under "Performance Calculations" in Part 2 of this SAI.
<PAGE>
<TABLE>
<CAPTION>
===================================== ------------------ --------------------- ======================
Fund One Year Since Inception Inception Date
------------------ ---------------------
===================================== ------------------ --------------------- ======================
<S> <C> <C> <C>
Capital Growth Fund 6.50% 8.29% 3/3/1998
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Equity Index Fund N/A 15.47% 9/29/1999
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Evergreen Fund 23.03% 20.78% 3/1/1996
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Foundation Fund 10.64% 16.62% 3/1/1996
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Global Leaders Fund 24.72% 18.48% 3/6/1997
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Growth and Income Fund 18.57% 19.66% 3/1/1996
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Growth Fund 21.21% 5.93% 3/3/1998
------------------ ---------------------
===================================== ------------------ --------------------- ======================
High Income Fund N/A 4.46% 6/30/1999
------------------ ---------------------
===================================== ------------------ --------------------- ======================
International Growth Fund 38.22% 20.92% 8/17/1998
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Masters Fund N/A 27.58% 1/29/1999
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Omega Fund 47.24% 27.80% 3/6/1997
------------------ ---------------------
===================================== ------------------ --------------------- ======================
Perpetual International Fund 39.99% 27.90% 3/3/1998
------------------ ---------------------
- ------------------------------------- ------------------ --------------------- ======================
Small Cap Value Fund 12.07% 5.22% 5/1/1998
- ------------------------------------- ------------------ --------------------- ======================
------------------ ---------------------
Special Equity Fund N/A 18.87% 9/29/1999
- ------------------------------------- ------------------ --------------------- ======================
================== ---------------------
Strategic Income Fund 1.64% 4.53% 3/6/1997
===================================== ================== --------------------- ======================
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street,
Boston, MA 02116 serves as administrator to the Funds, subject to the
supervision and control of the Trust's Board of Trustees. EIS provides the Funds
with facilities, equipment and personnel and is entitled to receive a fee from
each Fund at the rate of 0.10% of each Fund's average daily net assets
<PAGE>
Below are the administrative service fees paid (under prior fee
arrangements) for the last three fiscal years:
=============================================================================
Administrative Fee
Fund Paid
==============================
=============================================================================
Year or Period Ended December 31, 1999
=============================================================================
Blue Chip Fund(a) N/A
==============================
=============================================================================
Capital Growth Fund(b) $24,691
==============================
=============================================================================
Equity Index Fund(c) $674
==============================
=============================================================================
Evergreen Fund $10,838
==============================
=============================================================================
Foundation Fund $21,435
==============================
=============================================================================
Global Leaders Fund $2,656
==============================
=============================================================================
Growth and Income Fund $13,379
==============================
=============================================================================
Growth Fund(d) $11,348
==============================
=============================================================================
High Income Fund(e) $2,576
==============================
=============================================================================
International Growth Fund $427
==============================
=============================================================================
Masters Fund(f) $2,137
==============================
=============================================================================
Omega Fund $1,687
==============================
=============================================================================
Perpetual International Fund(g) $17,275
==============================
=============================================================================
Small Cap Value Fund $690
==============================
- -----------------------------------------------==============================
Special Equity Fund(c) $93
- -----------------------------------------------==============================
==============================
Strategic Income Fund $2,914
=============================================================================
<PAGE>
=============================================================================
Year or Period Ended December 31, 1998
=============================================================================
Capital Growth Fund(h) $7,018
==============================
=============================================================================
Evergreen Fund $9,416
==============================
=============================================================================
Foundation Fund $15,429
==============================
=============================================================================
Global Leaders Fund $1,670
==============================
=============================================================================
Growth and Income Fund $13,127
==============================
=============================================================================
Growth Fund(I) $3,691
==============================
=============================================================================
International Growth Fund(j) $110
==============================
=============================================================================
Omega Fund $771
==============================
=============================================================================
Perpetual International Fund(k) $4,323
==============================
=============================================================================
Small Cap Value Fund(l) $274
==============================
=============================================================================
Strategic Income Fund $2,075
==============================
=============================================================================
Year or Period Ended December 31, 1997
=============================================================================
Evergreen Fund $3,373
==============================
=============================================================================
Foundation Fund $8,318
==============================
=============================================================================
Global Leaders Fund(m) $515
==============================
=============================================================================
Growth and Income Fund $7,404
==============================
- -----------------------------------------------==============================
Omega Fund(m) $354
- -----------------------------------------------==============================
==============================
Strategic Income Fund(m) $371
=============================================================================
(a) The Fund commenced operations on April 28, 2000.
(b) Of the total amount paid, $10,120 was paid to a prior administrator.
(c) For the period from September 29, 1999 (commencement of operations) to
December 31, 1999.
(d) Of the total amount paid, $4,654 was paid to a prior administrator.
(e) For the period from June 30, 1999 (commencement of operations) to December
31, 1999.
(f) For the period from January 29, 1999 (commencement of operations) to
December 31, 1999.
(g) Of the total amount paid, $6,794 was paid to a prior administrator.
(h) For the period from March 3, 1998 (commencement of operations) to December
31, 1998. The total amount was paid to a prior administrator.
(i) The total amount was paid to a prior administrator.
(j) For the period from August 17, 1998 (commencement of operations) to
December 31, 1998.
(k) The total amount was paid to a prior administrator.
(l) For the period from May 1, 1998 (commencement of operations) to December
31, 1998.
(m) For the period from March 6, 1997 (commencement of operations) to December
31, 1997.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Funds' transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Funds pay ESC annual fees as follows:
================================ -------------------- ====================
Fund Type Annual Fee Per Annual Fee Per
Open Account* Closed Account**
--------------------
================================ -------------------- ====================
Monthly Dividend Funds $25.50 $9.00
--------------------
================================ -------------------- ====================
Quarterly Dividend Funds $24.50 $9.00
--------------------
================================ -------------------- ====================
Semiannual Dividend Funds $23.50 $9.00
--------------------
-------------------------------- -------------------- ====================
Annual Dividend Funds $23.50 $9.00
-------------------------------- -------------------- ====================
--------------------
Money Market Funds $25.50 $9.00
================================ -------------------- ====================
* For shareholder accounts only. The Fund pays ESC cost plus 15% for broker
accounts.
** Closed accounts are maintained on the system in order to facilitate
historical and tax information.
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of each Fund.
Custodian
State Street Bank and Trust Company keeps custody of each Fund's
securities and cash and performs other related duties. The custodian's address
is 225 Franklin Street, Boston, Massachusetts 02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund in which you are interested.
Unless specifically stated, each Fund may invest in or use the strategies listed
below.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality short-term
obligations, such as notes, commercial paper, certificates of deposit, banker's
acceptances, bank deposits or U.S. government securities if, in the opinion of
the investment advisor, market conditions warrant a temporary defensive
investment strategy.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S. government
agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Fund may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
<PAGE>
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. government securities, they may be less effective as a
means of locking in attractive long- term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the intention
of actually acquiring them, but may enter into a separate agreement to sell the
securities before the settlement date. Since the value of securities purchased
may fluctuate prior to settlement, the Fund may be required to pay more at
settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Preferred Stocks
The Fund may purchase preferred stock. Preferred stock, unlike common
stock, has a stated dividend rate payable from the corporation's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions required all or a portion of
prior unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Options and Futures Strategies (Evergreen Fund and Foundation Fund are excluded
from Futures Strategies)
The Fund may at times seek to hedge against either a decline in the
value of its portfolio securities or an increase in the price of securities
which the investment advisor plans to purchase through the writing and purchase
of options and the purchase or sale of futures contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
the Fund's current return.
The ability of the Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes stated below.
Writing Covered Options on Securities. The Fund may write covered call options
and covered put options on optionable securities of the types in which it is
permitted to invest from time to time as the investment advisor determines is
appropriate in seeking to attain the Fund's investment objective. Call options
written by the Fund give the holder the right to buy the underlying security
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund at a stated price.
The Fund may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Fund owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all time while the put option is
outstanding. A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the Fund owns or has the right to acquire. In the case of a call written
for cross-hedging purposes or a put option, the Fund will maintain in a
segregated account at the Fund's custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Fund's
obligation under the option. The Fund may also write combinations of covered
puts and covered calls on the same underlying security.
The Fund will receive a premium from writing an option, which increases
the Fund's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, the Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds
market price plus the amount of the premium received.
The Fund may terminate an option which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund will
realize a profit (or loss) from such transaction if the cost of such transaction
is less (or more) than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option may be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. The Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. This protection is provided during the life of the put option
since the Fund, as holder of the put, is able to sell the underlying security at
the exercise price regardless of any decline in the underlying security's market
price. For the purchase of a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
any profit which the Fund might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
The Fund may also purchase a call option to hedge against an increase
in price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund might
have realized had it bought the underlying security at the time it purchased the
call option will be reduced by the premium paid for the call option and by
transaction costs.
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the Fund, the value of the contract will tend to rise when
the value of the underlying securities declines and to fall when the value of
such securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures contract
is purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions. Unlike the purchase or sale of a security, the
Fund does not pay or receive money upon the purchase or sale of a futures
contract. Rather the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Limitations. The Fund will not purchase or sell futures contracts or options on
futures contracts for non-hedging purposes if, as a result, the sum of the
initial margin deposits on its existing futures contracts and related options
positions and premiums paid for options on futures contracts would exceed 5% of
the net assets of the Fund.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on the Fund's ability to
terminate options and futures positions at times when the investment advisor
deems it desirable to do so. Although the Fund will not enter into an option or
futures position unless the investment advisor believes that a liquid market
exists for such option or future, there can be no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price. The investment advisor generally expects that options and
futures transactions for the Fund will be conducted on recognized exchanges. In
certain instances, however, the Fund may purchase and sell options in the
over-the-counter market. The staff of the SEC considers over-the-counter options
to be illiquid. The Fund's ability to terminate option positions established in
the over-the-counter market may be more limited than in the case of exchange
traded options and may also involve the risk that securities dealers
participating in such transactions would fail to meet their obligations to the
Fund.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of the securities that are the subject of the hedge. The successful use of
these strategies also depends on the ability of the Fund's investment advisor to
forecast correctly interest rate movements and general stock market price
movements. The risk increases as the composition of the securities held by the
Fund diverges from the composition of the relevant option or futures contract.
Swaps, Caps, Floors and Collars (High Income Fund only)
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. As a result, the
swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Foreign Securities (excluding Evergreen Fund and Growth Fund)
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions (excluding Evergreen Fund and Growth Fund)
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund generally does not convert its holdings to U.S.
dollars or any other currency. Foreign exchange dealers may realize a profit on
the difference between the price at which a Fund buys and sells currencies.
The Fund may engage in foreign currency exchange transactions in
connection with its portfolio investments. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or through forward
contracts to purchase or sell foreign currencies.
Foreign Currency Futures Transactions (excluding Equity Index Fund, Evergreen
Fund, Growth and Income Fund, Growth Fund and Foundation Fund)
By using foreign currency futures contracts and options on such
contracts, a Fund may be able to achieve many of the same objectives as it would
through the use of forward foreign currency exchange contracts. The Fund may be
able to achieve these objectives possibly more effectively and at a lower cost
by using futures transactions instead of forward foreign currency exchange
contracts.
A foreign currency futures contract sale creates an obligation by the
Fund, as seller, to deliver the amount of currency called for in the contract at
a specified future time for a specified price. A currency futures contract
purchase creates an obligation by the Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of currency futures
contracts is effected by entering into an offsetting purchase or sale
transaction. An offsetting transaction for a currency futures contract sale is
effected by the Fund entering into a currency futures contract purchase for the
same aggregate amount of currency and same delivery date. If the price of the
sale exceeds the price of the offsetting purchase, the Fund is immediately paid
the difference and realizes a gain. If the offsetting sale price is less than
the purchase price, the Fund realizes a loss. Similarly, the closing out of a
currency futures contract purchase is effected by the Fund entering into a
currency futures contract sale. If the offsetting sale price exceeds the
purchase price, the Fund realizes a gain, and if the offsetting sale price is
less than the purchase price, the Fund realizes a loss.
Special Risks Associated with Foreign Currency Futures Contracts and Related
Options
Buyers and sellers of foreign currency futures contracts are subject to
the same risks that apply to the use of futures generally. In addition, there
are risks associated with foreign currency futures contracts and their use as a
hedging device similar to those associated with options on futures currencies,
as described above.
Options on foreign currency futures contracts may involve certain
additional risks. Trading options on foreign currency futures contracts is
relatively new. The ability to establish and close out positions on such options
is subject to the maintenance of a liquid secondary market. To reduce this risk,
the Fund will not purchase or write options on foreign currency futures
contracts unless and until, in the opinion of the investment advisor, the market
for such options has developed sufficiently that the risks in connection with
such options are not greater than the risks in connection with transactions in
the underlying foreign currency futures contracts. Compared to the purchase or
sale of foreign currency futures contracts, the purchase of call or put options
on futures contracts involves less potential risk to the Fund because the
maximum amount at risk is the premium paid for the option (plus transaction
costs). However, there may be circumstances when the purchase of a call or put
option on a futures contract would result in a loss, such as when there is no
movement in the price of the underlying currency or futures contract.
High Yield, High Risk Bonds (only Growth and Income Fund, High Income Fund,
International Growth Fund and Strategic Income Fund)
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments.
Investors should be aware of the following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books. The Fund may invest in
"restricted" securities, i.e., securities subject to restrictions on resale
under federal securities laws. Rule 144A under the Securities Act of 1933 ("Rule
144A") allows certain restricted securities to trade freely among qualified
institutional investors. Since Rule 144A securities may have limited markets,
the Board of Trustees will determine whether such securities should be
considered illiquid for the purpose of determining the Fund's compliance with
the limit on illiquid securities indicated above. In determining the liquidity
of Rule 144A securities, the Trustees will consider: (1) the frequency of trades
and quotes for the security; (2) the number of dealers willing to purchase or
sell the security and the number of other potential buyers; (3) dealer
undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. The Fund may effect
a short sale in connection with an underwriting in which the Fund is a
participant.
Payment-in-kind Securities (only Blue Chip Fund, International Growth Fund and
Strategic Income Fund)
Payment-in-kind ("PIK") securities pay interest in either cash or
additional securities, at the issuer's option, for a specified period. The
issuer's option to pay in additional securities typically ranges from one to six
years, compared to an average maturity for all PIK securities of eleven years.
Call protection and sinking fund features are comparable to those offered on
traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds (only Growth and Income Fund, International Growth
Fund and Strategic Income Fund)
A zero coupon "stripped" bond represents ownership in serially maturing
interest payments or principal payments on specific underlying notes and bonds,
including coupons relating to such notes and bonds. The interest and principal
payments are direct obligations of the issuer. Interest zero coupon bonds of any
series mature periodically from the date of issue of such series through the
maturity date of the securities related to such series. Principal zero coupon
bonds mature on the date specified therein, which is the final maturity date of
the related securities. Each zero coupon bond entitles the holder to receive a
single payment at maturity. There are no periodic interest payments on a zero
coupon bond. Zero coupon bonds are offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing interest in the same underlying issue of
securities, a special basis allocation rule (requiring the aggregate basis to be
allocated among the items sold and retained based on their relative fair market
value at the time of sale) may apply to determine the gain or loss on a sale of
any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities (only High Income Fund and Strategic
Income Fund)
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments (only Global Leaders Fund, International
Growth Fund, Masters Fund, Small Cap Value Fund and Strategic Income Fund)
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Brady Bonds (only Strategic Income Fund and International Growth Fund)
<PAGE>
The Fund may invest in Brady Bonds. Brady Bonds are created through the
exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities. The investment characteristics of each convertible
security vary widely, which allow convertible securities to be employed for a
variety of investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
adviser evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment adviser considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
<PAGE>
Preferred Stocks
The Fund may purchase preferred stock. Preferred stock, unlike common
stock, has a stated dividend rate payable from the corporation's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Warrants (excluding Strategic Income Fund)
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Sovereign Debt Obligations (only Global Leaders Fund, Growth and Income Fund,
International Growth Fund and Strategic Income Fund)
The Fund may purchase sovereign debt instruments issued or guaranteed
by foreign governments or their agencies, including debt of Latin American
nations or other developing countries. Sovereign debt may be in the form of
conventional securities or other types of debt instruments such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
<PAGE>
Derivatives
To the extent provided for elsewhere in this SAI, the Fund may use
derivatives while seeking to achieve its investment objective. Derivatives are
financial contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index. These assets, rates, and indices may
include bonds, stocks, mortgages, commodities, interest rates, currency exchange
rates, bond indices and stock indices. Derivatives can be used to earn income or
protect against risk, or both. For example, one party with unwanted risk may
agree to pass that risk to another party who is willing to accept the risk, the
second party being motivated, for example, by the desire either to earn income
in the form of a fee or premium from the first party, or to reduce its own
unwanted risk by attempting to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Fund to earn income
and enhance returns, to hedge or adjust the risk profile of the portfolio, and
in place of more traditional direct investments to obtain exposure to otherwise
inaccessible markets. The Fund is permitted to use derivatives for one or more
of these purposes. The use of derivatives for non-hedging purposes entails
greater risks. The Fund uses futures contracts and related options as well as
forwards for hedging purposes. Derivatives are a valuable tool, which, when used
properly, can provide significant benefit to Fund shareholders. However, the
Fund may take positions in those derivatives that are within its investment
policies if, in the investment advisor's judgment, this represents an effective
response to current or anticipated market conditions. An investment advisor's
use of derivatives is subject to continuous risk assessment and control from the
standpoint of the Fund's investment objectives and policies.
Derivatives may be (1) standardized, exchange-traded contracts or (2)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments - options,
futures, forwards and swaps - from which virtually any type of derivative
transaction can be created. Further information regarding options, futures,
forwards and swaps is provided elsewhere in this section.
Debt instruments that incorporate one or more of these building blocks
for the purpose of determining the principal amount of and/or rate of interest
payable on the debt instruments are often referred to as "structured
securities". An example of this type of structured security is indexed
commercial paper. The term is also used to describe certain securities issued in
connection with the restructuring of certain foreign obligations.
The term "derivative" is also sometimes used to describe securities
involving rights to a portion of the cash flows from an underlying pool of
mortgages or other assets from which payments are passed through to the owner
of, or that collateralize, the securities. See "Mortgage- Backed and
Asset-Backed Securities," above.
While the judicious use of derivatives by experienced investment
managers such as the Fund's investment advisors can be beneficial, derivatives
also involve risks different from, and, in certain cases, greater than, the
risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in the Funds.
<PAGE>
* Market Risk - This is the general risk attendant to all investments
that the value of a particular investment will decline or otherwise change in a
way which is detrimental to the Fund's interest.
* Management Risk - Derivative products are highly specialized
instruments that require investment techniques and risk analyses different from
those associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the derivative
itself, without the benefit of observing the performance of the derivative under
all possible market conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to monitor the
transactions entered into, the ability to assess the risk that a derivative adds
to the Fund's portfolio and the ability to forecast price, interest rate or
currency exchange rate movements correctly.
* Credit Risk - This is the risk that a loss may be sustained by the
Fund as a result of the failure of another party to a derivative (usually
referred to as a "counterparty") to comply with the terms of the derivative
contract. The credit risk for exchange-traded derivatives is generally less than
for privately negotiated derivatives, since the clearing house, which is the
issuer or counterparty to each exchange-traded derivative, provides a guarantee
of performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Fund's investment advisor considers the
creditworthiness of each counterparty to a privately negotiated derivative in
evaluating potential credit risk.
* Liquidity Risk - Liquidity risk exists when a particular instrument
is difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
* Leverage Risk - Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate or index can
result in a loss substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss generally is related
to a notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
* Other Risks - Other risks in using derivatives include the risk of
mispricing or improper valuation and the inability of derivatives to correlate
perfectly with underlying assets, rates and indices. Many derivatives, in
particular privately negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in increased cash payment
requirements to counterparties or a loss of value to the Fund. Derivatives do
not always perfectly or even highly correlate or track the value of the assets,
rates or indices they are designed to closely track. Consequently, the Fund's
use of derivatives may not always be an effective means of, and sometimes could
be counterproductive to, furthering the Fund's investment objective.
Equipment Trust Certificates (Strategic Income Fund only)
Equipment Trust Certificates are a mechanism for financing the purchase
of transportation equipment, such as railroad cars and locomotives, trucks,
airplanes and oil tankers.
Under an equipment trust certificate, the equipment is used as the
security for the debt and title to the equipment is vested in a trustee. The
trustee leases the equipment to the user, i.e. the railroad, airline, trucking
or oil company. At the same time equipment trust certificates in an aggregate
amount equal to a certain percentage of the equipment's purchase price are sold
to lenders. The trustee pays the proceeds from the sale of certificates to the
manufacturer. In addition, the company using the equipment makes an initial
payment of rent equal to their balance of the purchase price to the trustee,
which the trustee then pays to the manufacturer. The trustee collects lease
payments from the company and uses the payments to pay interest and principal on
the certificates. At maturity, the certificates are redeemed and paid, the
equipment is sold to the company and the lease is terminated.
Generally, these certificates are regarded as obligations of the
company that is leasing the equipment and are shown as liabilities in its
balance sheet. However, the company does not own the equipment until all the
certificates are redeemed and paid. In the event the company defaults under its
lease, the trustee terminates the lease. If another lessee is available, the
trustee leases the equipment to another user and makes payments on the
certificates from new lease rentals.
Limited Partnerships (only Blue Chip Fund and Strategic Income Fund)
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Internal
Revenue Code of 1986, as amended (the "Code"), each item of income, gain, loss,
deduction, and credit is not taxed at the partnership level but flows through to
the holder of the partnership unit. This allows the partnership to avoid double
taxation and to pass through income to the holder of the partnership unit at
lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the Securities and Exchange Commission
("SEC") and are freely exchanged on a securities exchange or in the
over-the-counter market.
Leverage (High Income Fund only)
The Fund may borrow money to invest in additional portfolio securities
to seek current income. The use of borrowed money, know as "leverage," increases
a fund's market exposure and risk and may result in losses. When a fund has
borrowed money for leverage and its investments increase or decrease more than
if it had not borrowed money for this purpose. The interest that a fund must pay
on borrowed money will reduce its net investment income, and may also either
offset any potential capital gains or increase any losses. The Fund may use
leverage in order to adjust its dollar-weighted average duration. The Fund will
not always borrow money for investment and the extent to which the Fund will
borrow money, and the amount it may borrow, depends on market conditions and
interest rates. Successful use of leverage depends on the investment advisor's
ability to predict market movements correctly. The amount of leverage that can
exist at any one time will not exceed one-third of the value of the Fund's total
assets.
ADDITIONAL INFORMATION CONCERNING THE INVESTMENTS OF EVERGREEN VA MASTERS FUND
Because each sub-advisor will be managing its segment of the portfolio
independently from the other sub-advisors, the same security may be held in two
different segments of the portfolio, or may be acquired for one segment of the
portfolio at a time when the sub-advisor of another segment deems it appropriate
to dispose of the security from the other segment. Similarly, under some market
conditions, one or more of the sub-advisors may believe that temporary,
defensive investments in short-term instruments or cash are appropriate when
another sub-advisor or sub-advisors believe continued exposure to the equity
markets is appropriate for their segments of the portfolio.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Shares of the Trust are sold continuously to variable annuity and
variable life insurance accounts of participating insurance companies and to
qualified pension and retirement plans. The Trust may suspend the right of
redemption or postpone the date of payment for shares during any period when (1)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC, (2) the Exchange is closed for other than customary weekend and holiday
closings, (3) the SEC has by order permitted such suspension, or (4) an
emergency exists as determined by the SEC.
The Trust may redeem shares involuntarily if redemption appears
appropriate in light of the Trust's responsibilities under the 1940 Act.
Calculation of Net Asset Value
The Fund calculates its Net Asset Value ("NAV") once daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days the New York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded or
on the NMS prior to the time of the valuation, provided that a sale has
occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than sixty days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in the investment advisor's opinion, the last sales price does not
reflect an accurate current market value; and other assets are valued
at prices deemed in good faith to be fair under procedures established
by the Board of Trustees.
Foreign securities are generally valued on the basis of valuations provided by a
pricing service, approved by the Trust's Board of Trustees, which uses
information with respect to transactions in such securities, quotations from
broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods. The following
is the formula used to calculate average annual total return:
n
P(1+T) =ERV
P= initial payment of $1,000
T= average total return
n= number of years
ERV= ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b
Yield = 2[(----- +1)6 - 1]
cd
Where:
a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
Non-Standardized Performance
From time to time, the Fund may quote its performance in advertising
and other types of literature as compared to the performance of the S&P 500
Composite Stock Price Index, the Dow Jones Industrial Average, Russell 2000
Index or any other commonly quoted index of common stock or fixed income prices.
The Fund's performance may also be compared to those of other mutual funds
having similar objectives. This comparative performance would be expressed as a
ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. The Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare the Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
TAX INFORMATION
Requirements for Qualification as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code. (Such
qualification does not involve supervision of management or investment practices
or policies by the Internal Revenue Service.) In order to qualify as a RIC, the
Fund must, among other things, (i) derive at least 90% of its gross income from
dividends, interest, payments with respect to proceeds from securities loans,
gains from the sale or other disposition of securities or foreign currencies and
other income (including gains from options, futures or forward contracts)
derived with respect to its business of investing in such securities; and (ii)
diversify its holdings so that, at the end of each quarter of its taxable year,
(a) at least 50% of the market value of the Fund's total assets is represented
by cash, U.S. government securities and other securities limited in respect of
any one issuer, to an amount not greater than 5% of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and (b) not more than
25% of the value of its total assets is invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies). By so qualifying, the Fund is not subject to federal
income tax if it timely distributes its investment company taxable income and
any net realized capital gains.
The Fund will not be subject to the 4% federal excise tax imposed on
regulated investment companies that do not distribute all of their income and
gains each calendar year because such tax does not apply to a registered
investment company whose only shareholders are segregated asset accounts of
participating insurance companies held in connection with the variable annuity
contracts and/or variable life insurance policies.
Certain Requirements for Qualification as a Variable Annuity Contract or
Variable Life Insurance Policy. Section 817(h) of the Code imposes certain
diversification standards on the underlying assets of variable annuity contracts
and variable life insurance policies. The Code provides that variable annuity
contracts and/or variable life insurance policies shall not be treated as an
annuity contract or life insurance policy for the current or any prior period
for which the investments are not, in accordance with regulations prescribed by
the U.S. Treasury Department, adequately diversified. Disqualification of the
contract or policy as an annuity contract or life insurance policy would result
in immediate imposition of federal income tax on variable annuity contracts and
variable life insurance policy owners with respect to earnings allocable to the
contract or policy (including, upon disqualification, accumulated earnings), and
the tax liability would generally arise prior to the receipt of payments under
the contract. Section 817(h)(2) of the Code is a safe harbor provision which
provides that variable annuity contracts and variable life insurance policies
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than 55% of the total assets consists of cash, cash items,
U.S. government securities and securities of other regulated investment
companies. The U.S. Treasury Department has issued Regulations (Treas. Reg.
section 1.817-5) that establish diversification requirements for the investment
portfolios underlying variable insurance contracts. The Regulations amplify the
diversification requirements for variable annuity contracts and variable life
insurance policies set forth in Section 817(h) of the Code and provide an
alternative to the safe harbor provision described above. Under the Regulations,
an investment portfolio will be deemed adequately diversified if: (1) no more
than 55% of the value of the total assets of the portfolio is represented by any
one investment; (2) no more than 70% of such value is represented by any two
investments; (3) no more than 80% of such value is represented by any three
investments; and (4) no more than 90% of such value is represented by any four
investments. For purposes of these Regulations all securities of the same issuer
are treated as a single investment. The Regulations provide that, in the case of
a regulated investment company whose shares are available to the public only
through variable insurance contracts which meet certain other requirements, the
diversification tests are applied by reference to the underlying assets owned by
the regulated investment company rather than by reference to the shares of the
regulated investment company owned under the annuity contract. The Fund intends
to meet the requirements for application of the diversification tests on this
look-through basis. The Code provides that for purposes of determining whether
or not the diversification standards imposed on the underlying assets of
variable insurance contracts by Section 817(h) of the Code have been met, each
U.S. government agency or instrumentality shall be treated as a separate issuer.
The Fund will be managed in such a manner as to comply with the
diversification requirements. It is possible that in order to comply with the
diversification requirements, less desirable investment decisions may be made
which would affect the investment performance of the Fund.
Other Tax Considerations
For a discussion of the tax consequences of investing in variable
annuity contracts or variable life insurance policies, refer to the prospectus
of the variable annuity contracts and variable life insurance policies offered
by the participating insurance company. Variable annuity contracts and variable
life insurance policies purchased through insurance company separate accounts
provide for the accumulation of all earnings from interest, dividends, and
capital appreciation without current federal income tax liability for an
individual owner. Different rules apply to corporations, taxable trusts, or
other entities which own variable annuity contracts. Depending on the variable
annuity contract or variable life insurance policy, distributions from the
contract or policy may be subject to ordinary income tax and, in addition, a 10%
penalty tax on distributions before age 59-1/2. Only the portion of a
distribution attributable to income on the investment in the contract or policy
is subject to federal income tax. Investors should consult with competent tax
advisors for a more complete discussion of possible tax consequences in a
particular situation.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Masters Fund may incur higher brokerage costs than would be the case if
a single investment advisor or sub-advisor were managing the entire portfolio.
Selection of Brokers
When buying and selling portfolio securities, the investment advisor
seeks brokers who can provide the most benefit to the Fund. When selecting a
broker, an investment advisor will primarily look for the best price at the
lowest commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
<PAGE>
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by Evergreen Asset Management Corp. ("EAMC"),
Lieber & Company, an affiliate of EAMC and a member of the New York and American
Stock Exchanges, will to the extent practicable effect substantially all of the
portfolio transactions effected on those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for an investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The foregoing is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of the Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining shares
voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Code of Ethics
The Trust and its various advisors have each adopted a code of ethics
per Rule 17j-1 of the 1940 Act ("Code of Ethics"). Each of these Codes of Ethics
permits Fund personnel to invest in securities for their own accounts and is on
file with, and available from, the SEC.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund
investment advisory, management and administrative services, office facilities,
and equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The investment advisor pays for all of the
expenses incurred in connection with the provision of its services. The Fund
pays for all charges and expenses, other than those specifically referred to as
being borne by the investment advisor, including, but not limited to, (1)
custodian charges and expenses; (2) bookkeeping and auditors' charges and
expenses; (3) transfer agent charges and expenses; (4) fees and expenses of
Independent Trustees (Trustees who are not "interested" persons of the Trust as
defined in the 1940 Act); (5) brokerage commissions, brokers' fees and expenses;
(6) issue and transfer taxes; (7) taxes and trust fees payable to governmental
agencies; (8) the cost of share certificates; (9) fees and expenses of the
registration and qualification of the Fund and its shares with the SEC or under
state or other securities laws; (10) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of the
Fund; (11) expenses of shareholders' and Trustees' meetings; (12) charges and
expenses of legal counsel for the Fund and for the Independent Trustees on
matters relating to the Fund; (13) charges and expenses of filing annual and
other reports with the SEC and other authorities; and (14) all extraordinary
charges and expenses of the Fund. For information on advisory fees paid by the
Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (only Masters Fund)
Masters Fund's investment program is based upon the investment
advisor's multi-manager concept. The investment advisor allocates the Fund's
portfolio assets on an equal basis among a number of investment management
organizations - currently four in number - each of which employs a different
investment style, and periodically rebalances the Fund's portfolio among the
Managers so as to maintain an approximate equal allocation of the portfolio
among them throughout all market cycles. Each Manager provides these services
under a Portfolio Management Agreement. Each Manager has discretion, subject to
oversight by the Trustees and the investment advisor, to purchase and sell
portfolio assets consistent with the Fund's investment objectives, policies and
restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, K. Dun Gifford and Russell Salton, each of whom
is an Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/28/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc. (real estate development.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) (investment advice) former Director, Executive Vice
President and Treasurer, State Street Research & Management
Company (investment advice); Director, The Andover
Companies (insurance); and Trustee, Arthritis Foundation of
New England.
Arnold H. Dreyfuss Trustee Former Chairman, Eskimo Pie Corporation (food
(DOB: 9/2/28) manufacturer); formerly, Chairman and Chief Executive
Officer, Hamilton Beach/Proctor-Silex, Inc. (small
appliance manufacturer).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/23/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President, Oldways
Preservation and Exchange Trust (education); former Chairman
of the Board, Director, and Executive Vice President, The
London Harness Company; former Managing Partner, Roscommon
Capital Corp.; former Chief Executive Officer, Gifford Gifts
of Fine Foods; and former Chairman, Gifford, Drescher &
Associates (environmental consulting).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company; Director of Phoenix Total Return Fund and
Equifax, Inc.; Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and former Director of Carolina
Cooperative Federal Credit Union.
Louis W. Moelchert, Jr. Trustee President, Private Advisors, LLC; Vice President of
Investments, University of Richmond; Trustee, The Common
Fund.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Thomas Richardson Runden & Company (executive search
(DOB: 9/14/41) and advisory services); former Vice Chairman, DHR
International, Inc. (executive recruitment); former Senior
Vice President, Boyden International Inc. (executive
recruitment); and Director, Commerce and Industry
Association of New Jersey, 411 International, Inc.
(communications), and J&M Cumming Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); Executive Consultant,
Drake Beam Morin, Inc. (executive outplacement); Director
of CTG Resources, Inc., Hartford Hospital, Old State House
Association, Middlesex Mutual Assurance Company, and
Enhance Financial Services, Inc.; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA;
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, First Union
Corporation; former consultant to the Board of Trustees of
the Evergreen Funds; former member, New York Stock
Exchange; member, North Carolina Securities Traders
Association; member, Financial Analysts Society.
William M. Ennis President President and Chief Executive Officer, Evergreen Investment
(DOB: 6/26/60) Company, Inc. and Chief Operating Officer, Capital
Management Group, First Union Corporation.
Carol Kosel Treasurer Senior Vice President, Evergreen Investment Services, Inc.
(DOB: 12/25/63) and Treasurer, Vestaur Securities, Inc.; former Senior
Manager, KPMG LLP.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/First Union Bank; former Senior Tax
Consulting/Acting Manager, Investment Companies Group,
Pricewaterhouse-Coopers LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Michael H. Koonce Secretary Senior Vice President and Assistant General Counsel, First
(DOB: 4/20/60) Union Corporation; former Senior Vice President and General
Counsel, Colonial Management Associates, Inc.
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The `Credit Quality'
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<PAGE>
COMPARISON OF LONG-TERM BOND RATINGS
- ----------- ---------- --------- =============================================
MOODY`S S&P FITCH Credit Quality
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
Aaa AAA AAA Excellent Quality (lowest risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
Aa AA AA Almost Excellent Quality (very low risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
A A A Good Quality (low risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
Baa BBB BBB Satisfactory Quality (some risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
Ba BB BB Questionable Quality (definite risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
B B B Low Quality (high risk)
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
- ----------- ---------- --------- =============================================
- ----------- ---------- --------- =============================================
D DDD/DD/D In Default
- ----------- ---------- --------- =============================================
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as `gilt
edged.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
<PAGE>
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid. An
exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category. Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
<PAGE>
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid. An
exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is made if
S&P expects that debt service payments will continue to be made on a
specific issue. In the absence of a payment default or bankruptcy filing, a
technical default (i.e., covenant violation) is not sufficient for
assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added `+' to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN VARIABLE ANNUITY TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description Location
- ------- ----------- --------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998.
(b) By-Laws Incorporated by reference to
Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998.
(c) Provisions of instruments Incorporated by reference to
defining the rights of holders Registrant's Post-Effective
of the securities being Amendment No. 7 filed on June 5, 1998.
registered are contained in the
Declaration of Trust Articles II,
III.(6)(c), VI.(3), IV.(8), V, VI,
VII, VIII and By-laws Articles II,
III and VIII
(d)(1) Investment Advisory and Incorporated by reference to
Management Agreement between Registrant's Post-Effective
the Registrant and First Amendment No. 16 filed on September 28, 1999.
Union National Bank
(d)(2) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Asset Amendment No. 5 filed on March 20, 1998.
Management Corp.
(d)(3) Sub-Advisory Agreement between Incorporated by reference to
Evergreen Asset Management Corp. Registrant's Post-Effective
and Lieber & Company Amendment No. 8 filed on October 19, 1998.
(d)(4) Portfolio Management Incorporated by reference to
Agreement between sub-advisors Registrant's Post-Effective
to Evergreen VA Masters Fund and Amendment No. 9 filed on February 26, 1999.
First Union National Bank.
(d)(5) Form of Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Evergreen Amendment No. 18 filed on February 3, 2000.
Investment Management Company
(formerly Keystone Investment
Management Company)
(d)(6) Investment Advisory and Incorporated by reference to
Management Agreement between Registrant's Post-Effective
the Registrant and Meridian Amendment No. 16 filed on September 28, 1999.
Investment Company
(d)(7) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Mentor Investment Amendment No. 17 filed on September 29, 1999.
Advisors LLC
(d)(8) Investment Advisory and Incorporated by reference to
Management Agreement between the Registrant's Post-Effective
Registrant and Mentor Perpetual Amendment No. 17 filed on September 29, 1999.
Advisors LLC
(e) Not applicable
(f) Not applicable
(g)(1) Custodian Agreement between the Incorporated by reference to
Registrant and State Street Bank Registrant's Post-Effective
and Trust Company Amendment No. 6 filed on April 28, 1998.
(g)(2) Letter Amendment to Custodian Incorporated by reference to
Agreement between Registrant and Registrant's Post-Effective
State Street Bank and Trust Amendment No. 16 filed on September 28, 1999.
Company (VA Equity Index Fund
and VA Special Equity Fund)
(g)(3) Letter Amendment to Custodian Incorporated by reference to
Agreement between Registrant and Registrant's Post-Effective
State Street Bank and Trust Amendment No. 17 filed on
Company (VA Capital Growth Fund, September 29, 1999.
VA Growth Fund, VA High Income
Fund and VA Perpetual
International Fund)
(g)(4) Form of Letter Amendment to Incorporated by reference to
Custodian Agreement between Registrant's Post-Effective
Registrant and State Street Bank Amendment No. 18 filed on
and Trust Company (VA Blue Chip February 3, 2000.
Fund)
(h)(1) Administration Services Agreement Incorporated by reference to
between Evergreen Investment Registrant's Post-Effective
Services, Inc. and the Amendent No. 17 filed on
Registrant (VA Capital Growth September 29, 1999.
Fund, VA Equity Index Fund, VA
Fund, VA Foundation Fund, VA
Global Leaders Fund, VA Growth
and Income Fund, VA Growth Fund,
VA High Income Fund, VA
International Growth Fund, VA
Masters Fund, VA Omega Fund, VA
Perpetual International Fund,
VA Strategic Income Fund, VA
Special Equity Fund)
(h)(2) Form of Administration Services Incorporated by reference to.
Agreement between Evergreen Registrant's Post-Effective
Investment Services, Inc. and Amendment No. 18 filed on
the Registrant (VA Blue Chip Fund) February 3, 2000.
(h)(3) Transfer Agent Agreement Incorporated by reference to
between the Registrant and Registrant's Post-Effective
Evergreen Service Company Amendment No. 6 filed on April 28, 1998.
(h)(4) Letter Amendment to Transfer Incorporated by reference to
Agent Agreement between the Registrant's Post-Effective
Registrant and Evergreen Service Amendment No. 16 filed on September 28, 1999.
Company (VA Equity Index Fund
and VA Special Equity Fund)
(h)(5) Letter Amendment to Transfer Incorporated by reference to
Agent Agreement between the Registrant's Post-Effective
Registrant and Evergreen Service Amendment No. 17 filed on September 29, 1999.
Company (VA Capital Growth Fund,
and VA Growth Fund, VA High Income
Fund and VA Perpetual International
Fund)
(h)(6) Letter Amendment to Incorporated by reference to
Transfer Agent Agreement between Registrant's Post-Effective
the Registrant and Evergreen Amendment No. 18 filed on
Service Company (VA Blue Chip Fund) February 3, 2000.
(i) Opinion and Consent of Sullivan Incorporated by reference to
& Worcester LLP Registrant's Post-Effective
Amendment No. 5 filed on March 20, 1998.
(j) Consent of KPMG LLP Contained herein.
(Evergreen VA Capital Growth
Fund, Evergreen Equity Index
Fund, Evergreen VA Fund,
Evergreen VA Foundation
Fund, Evergreen VA Global
Leaders Fund, Evergreen VA
Growth and Income Fund,
Evergreen VA Growth Fund,
Evergreen VA International
Growth Fund, Evergreen VA
Masters Fund, Evergreen VA
Omega Fund, Evergreen VA
Perpetual International Fund,
Evergreen VA Small Cap Value
Fund, Evergreen VA Special
Equity Fund and Evergreen VA
Strategic Income Fund)
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Not applicable
(o) Not applicable
(p) Code of Ethics Contained herein.
</TABLE>
Item 24. Persons Controlled by or Under Common Control with
Registrant.
None
Item 25. Indemnification
Registrant has obtained from a major insurance carrier and trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustee and
officers are also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of Registrant's Investment Advisors
are contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in each Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provisions for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank and Trust
Company, the Registrant's custodian, are contained in the Custodian Agreement
between State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Adviser.
The Directors and principal executive officers of First Union National
Bank are:
Edward E. Crutchfield, Jr. Chairman, First Union Corporation and First
Union National Bank
G. Kennedy Thompson Chief Executive Officer, President and
Director, First Union Corporation and First
Union National Bank
Mark C. Treanor Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First
Union National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Asset
Management Corp. is incorporated by reference to the Form ADV (File No.
801-46522) of Evergreen Asset Management Corp.
The information required by this item with respect to Evergreen
Investment Management Company (formerly Keystone Investment Management Company)
is incorporated by reference to the Form ADV (File No. 801-8327) of Evergreen
Investment Management Company.
Item 27. Principal Underwriters.
Evergreen Distributor, Inc., acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen
Distributor, Inc. are:
Dennis Sheehan Director, Chief Financial Officer
Maryann Bruce President
Kevin J. Dell Vice President, General Counsel and Secretary
Messrs. Sheehan and Dell are located at the following address:
Evergreen Distributor, Inc., 90 Park Avenue, New York, New York 10019.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and
Evergreen Investment Management Company (formerly Keystone Investment Management
Company), all located at 200 Berkeley Street, Boston, Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College
Street, Charlotte, North Carolina 28288
Evergreen Asset Management Corp., 1311 Mamaroneck Avenue, White Plains,
New York 10605
Meridian Investment Company, 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355
Mentor Investment Advisors LLC, 901 East Byrd Street, Richmond,
Virginia 23219.
Mentor Perpetual Advisors LLC, 901 East Byrd Street, Richmond, Virginia
23219.
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York, and State of New York, on the 26th day of
April, 2000.
EVERGREEN VARIABLE ANNUITY TRUST
By: /s/ William M. Ennis
---------------------------
Name: William M. Ennis*
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of April, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William M. Ennis /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ---------------------- --------------------- -------------------------
William M. Ennis* Laurence B. Ashkin* Charles A. Austin III *
President Trustee Trustee
(Principal Financial and
Accounting Officer)
/s/ K. Dun Gifford /s/ Arnold H. Dreyfuss /s/ William Walt Pettit
- ------------------ ---------------------- ------------------------
K. Dun Gifford* Arnold H. Dreyfuss* William Walt Pettit*
Trustee Trustee Trustee
/s/ Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ---------------------- --------------------- ----------------------
Gerald M. McDonnell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Chairman of the Board
and Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ---------------------- ---------------------------- ----------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee Trustee
/s/ Richard J. Shima /s/ Louis W. Moelchert, Jr. /s/ Richard K. Wagoner
- -------------------- ---------------------------- ----------------------
Richard J. Shima* Louis W. Moelchert, Jr.* Richard K. Wagoner*
Trustee Trustee Trustee
/s/ Carol Kosel
- ----------------------
Carol Kosel*
Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
*By: /s/ Beth K. Werths
- --------------------------------
Beth K. Werths
Attorney-in-Fact
*Beth Werths, by signing her name hereto, does hereby sign this document on
behalf of each of the above-named individuals pursuant to powers of attorney
duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
(j) Consent of KPMG LLP
(p) Code of Ethics
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Variable Trust:
We consent to the use of our report dated February 4, 2000 incorporated herein
by reference and to the references to our firm under the captions "FINANCIAL
HIGHLIGHTS" in the prospectus and "Independent Auditors" in the Statement of
Additional Information.
/s/ KPMG LLP
Boston, Massachusetts
April 26, 2000
December 17, 1999
CODE OF ETHICS
Evergreen Select Fixed Income Trust
Evergreen Select Equity Trust
Evergreen Select Money Market Trust
Evergreen Municipal Trust
Evergreen Equity Trust
Evergreen Fixed Income Trust
Evergreen International Trust
Evergreen Money Market Trust
Evergreen Variable Annuity Trust
Mentor Funds
Mentor Cash Resource Trust
Mentor Income Fund, Inc.
1. Definitions
(A) "Access Person" -- any trustee or officer of the Evergreen
Trusts.
(B) The "Act" -- the Investment Company Act of 1940.
(C) "Beneficial Ownership" -- A direct or indirect financial
interest in an investment giving a person the opportunity
directly or indirectly to participate in the risks and rewards
of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership
include, but are not limited to:
(1) Securities owned by a spouse, by or for
minor children or by relatives of the person
or his/her spouse who live in his/her home,
including Securities in trusts of which such
persons are beneficiaries;
(2) A proportionate interest in Securities held
by a partnership of which the person is a
general partner;
(3) Securities for which a person has a right to
dividends that is separated or separable
from the underlying securities; and
(4) Securities that a person has a right to
acquire through the exercise or conversion
of another Security.
(D) "Compliance Officer" - James Angelos, Compliance Department,
Evergreen Investment Management Company, 200 Berkeley Street,
Boston, MA 02116 - (617)210-3690.
(E) "Disinterested Trustee" -- a trustee of any Evergreen Trust
who is not an "interested person" of the Evergreen Trust
within Section 2(a)(19) of the Act.
(F) "Fund" -- any portfolio established by any of the Evergreen
Trusts.
(G) "Purchase or sale of a security" -- includes the writing of an
option to purchase or sell a security.
(H) "Security" -- the same meaning as it has in Section 2(a)(36)
of the Act, but excluding securities issued by the United
States Government, bankers= acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
2. Prohibited Securities Transactions
(A) No Access Person shall, in connection with the purchase or
sale, directly or indirectly, by such person of a Security
held or to be acquired by any Fund:
(1) Employ any device, scheme or artifice to defraud the
Fund;
(2) Make to the Trust in connection with any Fund any
untrue statement of a material fact or omit to state
a material fact necessary in order to make the
statements made, in light of the circumstances under
which they are made, not misleading;
(3) Engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit
upon any Fund; or
(4) Engage in any manipulative practice with respect to
any Fund.
(B) Inside Information
It is a violation of Federal Securities Laws to enter into
transactions when in possession of material non-public
information (i.e. inside information). Inside Information is
information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC
filing or widely distributed news release, and which a
reasonable investor would consider important in making an
investment decision or which is reasonably likely to impact
the trading price of the Security. Inside Information
includes, but is not limited to, information about (i)
dividend changes, (ii) earnings estimates and changes to
previously released estimates, (iii) other changes in
financial status, (iv) proposed mergers or acquisitions, (v)
purchases or sales of material amounts of assets, (vi)
significant new business, products or discoveries or losses of
business, (vii) litigation or investigations, (viii) liquidity
difficulties or (ix) management changes
From time to time, Trustees may learn about transactions in
which a Fund may engage and other information that may be
considered Inside Information.
(C) No Access Person shall purchase or sell, directly or
indirectly, any security in which he or she has or thereby
acquires any direct or indirect Beneficial Ownership and which
to his or her actual knowledge at the time of such purchase or
sale is being purchased or sold by any Fund or has been
recommended or is being purchased or sold by any Fund.
(D) Section 2(B) shall not apply to the following:
(1) Transactions for any account over which the Access
Person has no direct or indirect influence or
control.
(2) Involuntary transactions by the Access Person or any
Fund.
(3) Purchases under an automatic dividend reinvestment
plan.
(4) Purchases effected by the exercise of rights, issued
by an issuer pro-rata to all holders of a class of
its securities, to the extent such rights were
acquired from such issuer, and sale of such rights.
(5) Transactions approved in advance in writing by the
Chairman of the Board of any Trust (and in his
absence or unavailability by the President of the
Trust) which he or she finds to be:
(a) Only remotely potentially harmful to a Fund
because they would be very unlikely to
affect a highly institutional market, or
(b) Clearly not related economically to the
securities to be purchased, sold or held by
a Fund.
3. Reports
(A) Subject to subsection (B) below, each Access Person shall make
the reports required by section 270.17j-1(d) of the rules and
regulations issued under the Act.
(B) A Disinterested Trustee of any Fund need only report a
transaction in a Security if he or she knows at the time of
such transaction or, in the ordinary course of fulfilling his
or her official duties as trustee, should have known that
during the 15 day period immediately preceding or after the
date of the transaction, such Security was or would be
purchased or sold by any Fund or was or would be considered
for purchase or sale by any Fund or its investment adviser.
4. Enforcement
(A) Each violation of or issue arising under this Code shall be
reported to the Board of Trustees at or before the next
regular meeting of the Boards.
(B) The Board of Trustees may impose such sanctions or penalties
upon a violator of this Code as it deems appropriate
circumstances.
(C) The Compliance Officer shall review reports filed under the
Code to determine whether any violation may have occurred.
5. Recordkeeping
The Compliance Officer shall maintain the appropriate records and
reports of the Code, any violations and/or sanctions for at least 5
years.
<PAGE>
CODE OF ETHICS
CAPITAL MANAGEMENT GROUP OF FIRST UNION NATIONAL BANK
EVERGREEN INVESTMENT MANAGEMENT
FIRST CAPITAL GROUP
FIRST INVESTMENT ADVISORS
EVERGREEN ASSET MANAGEMENT CORP.
EVERGREEN INVESTMENT MANAGEMENT COMPANY
LIEBER & COMPANY MENTOR INVESTMENT ADVISORS MENTOR PERPETUAL ADVISORS MERIDIAN
INVESTMENT COMPANY TATTERSALL ADVISORY GROUP, INC.
Effective December 17, 1999
As an Employee of any of the CMG Covered Companies, you are required to read,
understand and abide by this Code of Ethics. The Code contains affirmative
requirements as well as prohibitions that you are required to adhere to in
connection with securities transactions effected on your behalf and on behalf of
clients (including the Evergreen Funds). Such requirements include, among other
things, (i.) notifying the Compliance Department upon establishing a personal
securities account with a broker/dealer, (ii.) in certain cases, obtaining
permission prior to engaging in a personal securities transaction, and (iii.)
reporting personal securities transactions to the Compliance Department. FAILURE
TO ADHERE TO THE CODE COULD RESULT IN SANCTIONS, INCLUDING DISMISSAL FROM
EMPLOYMENT, AND COULD ALSO IN CERTAIN CASES EXPOSE YOU TO CIVIL OR CRIMINAL
PENALTIES SUCH AS FINES AND/OR IMPRISONMENT.
No written code can explicitly cover every situation that possibly may arise.
Even in situations not expressly described, the Code and your fiduciary
obligations generally require you to put the interests of your clients ahead of
your own. If you have any questions regarding the appropriateness of any action
under this Code or under your fiduciary duties generally, you should contact
your Compliance Officer or Assistant General Counsel to discuss the matter
before taking the action in question. Similarly, you should consult with your
Compliance or Legal officer if you have any questions concerning the meaning or
interpretation of any provision of the Code.
Finally, as an Employee of First Union Corporation or one of its divisions or
subsidiaries, you should consult First Union's Code of Conduct contained in your
Employee Handbook. This Code uses many defined terms that are defined in Section
V.
I. PROHIBITED ACTIVITIES
A. No Employee shall engage in any Security transactions, activity or
relationship that creates or has the appearance of creating a conflict of
interest (financial or other) between the Employee and a Covered Company or a
Client Account. Each Employee shall always place the financial and business
interests of the Covered Companies and Client Accounts before his or her own
personal financial and business interests.
B. No Employee shall:
(1) employ any device, scheme or artifice to defraud a Client Account;
(2) engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon a Client Account; or
(3) engage in any fraudulent, deceptive or manipulative practice with
respect to a Client Account.
C. No Employee shall purchase or sell, directly or indirectly, any Security for
any Personal Account, any Client Account, the account of a Covered Company, or
any other account, while in possession of Inside Information concerning that
Security or the issuer without the prior written approval of the Compliance
Officer and the Assistant General Counsel and (per First Union's Code of
Conduct) First Union's Conflict of Interest Committee, which approval shall
specifically determine that such trading would not constitute an improper use of
such Inside Information. Employees possessing Inside Information shall take
reasonable precautions to ensure that such information is not disseminated
beyond those Employees with a need to know such information. Any questions
should be directed to the Compliance Officer or Assistant General Counsel.
D. No Employee shall recommend or cause a Covered Company or Client Account to
take action or refrain from taking action for the Employee's own personal
benefit.
E. It is presumed that Employees in one geographic location will not have
knowledge of transactions effected in another geographic location, but use of
any such information would likewise be prohibited.
(1) No Employee shall purchase or sell any Security for any Personal
Account if he or she knows such Security (i.) is being purchased or
sold for any Covered Company or Client Account or (ii.) is being
actively considered for purchase or sale by any Covered Company or
Client account.
(2) A Covered Company shall not purchase or sell any Security for its own
account if the Employee making such purchase or sale knows such
Security (i.) is being purchased or sold for any Client Account or
(ii.) is being actively considered for purchase or sale by any Client
Account.
The prohibitions contained in E.(1) and E.(2) shall not apply to:
(a) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder
or depositor;
(b) purchases of Securities through the exercise of rights issued to
the Employee as part of a pro rata issue to all holders of such
Securities, and the sale of such rights;
(c) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long
as collateral was not withdrawn from such account within 10 days
prior to the call; and
(d) transactions previously approved in writing by the Compliance
Officer that have been determined not to be harmful to any Client
Account because of the volume of trading in the Security.
F. No Employee shall purchase a Security for any Personal Account in an initial
public offering, except for initial public offerings where the individual has a
right to purchase the Security based on a preexisting status as a security
holder, policy holder or depositor.
G. No Employee shall maintain or open a brokerage account constituting a
Personal Account unless duplicate confirmations and statements of all account
activity are forwarded to the Compliance Officer.
H. No Employee shall use any Derivative to evade the restrictions of this Code
of Ethics.
I. No Investment Person shall be a director of a publicly traded company other
than First Union Corporation without prior written approval of the Compliance
Officer. Approval generally will not be granted.
J. No Access Person shall make investments for any Personal Account in any
investment club without prior written approval from the Compliance Officer.
K. No Access Person may purchase a Security for any Personal Account in a
private offering without prior written approval of the person's Chief Investment
Officer or the Compliance Officer. In considering whether to grant such
approval, the Compliance Officer or Chief Investment Officer will consider
several factors, including but not limited to:
(1) whether the investment opportunity should be reserved for a Client
Account; and
(2) whether the opportunity is being offered to the Access Person by virtue
of his or her position with respect to a Client Account or a Covered
Company.
If approval is granted, the Access Person must disclose the investment to the
appropriate Chief Investment Officer before participating in any way in any
decision as to whether a Client Account should invest in such Security or in
another Security issued by the same issuer. In such circumstances, the Chief
Investment Officer will conduct a review by investment personnel with no
interest in the issuer prior to a purchase on behalf of a Client Account. The
Compliance Officer shall retain a record of this approval and the rationale
supporting it.
L. No Access Person may offer investment advice or manage any person's portfolio
in which he or she does not have Beneficial Ownership other than a Client
Account without prior written approval from the Compliance Officer.
M. No Investment Person may profit from the purchase and sale or sale and
purchase of the same (or equivalent) Securities (other than securities issued by
First Union Corporation) in a Personal Account within 60 calendar days. Any
resulting profits will be disgorged as instructed by the Compliance Officer.
N. No Investment Person may buy or sell a Security for any Personal Account
within seven calendar days before or after a Client Account that he or she
manages, or provides information or advice to, or executes investment decisions
for, trades in that Security, except:
(1) purchases pursuant to a dividend reinvestment program or purchases
based upon preexisting status as a security holder, policy holder or
depositor;
(2) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(3) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call; and
(4) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
Any related profits from such transaction will be disgorged as instructed by
the Compliance Officer.
O. No Employee shall, directly or indirectly, in connection with any purchase or
sale of any Security by a Client Account or a Covered Company or in connection
with the business of a Client Account or a Covered Company, accept or receive
from a third party any gift or other thing of more than de minimis value, other
than (i.) business entertainment such as meals and sporting events involving no
more than ordinary amenities and (ii.) unsolicited advertising or promotional
materials that are generally available. An Employee also should consult First
Union Corporation's Code of Conduct relating to acceptance of gifts from
customers and suppliers. An Employee shall refer questions regarding the
permissibility of accepting items of more than de minimis value to the
Compliance Officer.
II. PRE-CLEARING PERSONAL TRADES
Pre-Clearance Procedures and Standards
A. No Access Person may engage in a Securities transaction (other than a
transaction described in Section B. below) involving a Personal Account unless
he/she has first pre-cleared the transaction by completing a Personal Investment
Pre-Clearance Form and had the form signed and/or initialed as set forth
therein. Approval shall be indicated by the Access Person's Chief Investment
Officer or other designated supervisor signing and dating the Form where
indicated at the bottom. Any such approval shall only be valid until the end of
the next trading day. The time allotment is limited to the actual time of
purchase or sale of the Security. If execution of the trade does not take place
by the end of the next trading day, then another pre-clearance request must be
processed and approved. "Good till cancelled" orders are forbidden and "no -
limit" orders must be cancelled or pre-cleared again by the end of the next
trading day after the approval if the trade is not executed.
B. The following transactions are excluded from the pre-clearance requirement:
(1) any transactions in Securities traded on a national securities exchange
or NASDAQ NMS with an aggregate amount of (i.) 500 shares or less or
(ii.) $25,000 or less (whichever is a lessor amount) of a particular
security within a seven-day window. The de minimis is not valid for an
Investment Person who has knowledge of recent purchases and sales of
the same security within Client accounts.
(2) purchases pursuant to a dividend reinvestment program (DRIP) or
purchases based upon preexisting status as a security holder, policy
holder or depositor;
(3) purchases of Securities through the exercise of rights issued to the
Employee as part of a pro rata issue to all holders of such Securities,
and the sale of such rights;
(4) transactions that are non-volitional, including any sale out of a
brokerage account resulting from a bona fide margin call as long as
collateral was not withdrawn from such account within ten days prior to
the call;
(5) transactions in Securities issued by First Union Corporation;
(6) transactions by an Investment Person in a Security that all Client
Accounts for which the person makes or executes investment decisions or
recommendations are prohibited under their investment guidelines from
purchasing; and
(7) transactions previously approved in writing by the Compliance Officer
that have been determined not to be harmful to any Client Account
because of the volume of trading in the Security.
C. Failure to receive pre-approval on applicable trades will result in the
following actions:
(1) First Failure: Letter of Reprimand;
(2) Second Failure: $100.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(3) Third Failure: $250.00 fine, payable to a charity agreeable to the
Compliance Officer and the Access Person;
(4) Fourth Failure: Referral to appropriate management for action.
D. All employees should consult the First Union Code of Conduct regarding the
permissibility of investing in other financial institutions.
III. REPORTING REQUIREMENTS
A. Each year every Employee must sign an acknowledgment stating that he/she has
received and reviewed and will comply with this Code of Ethics. New Employees
should read and sign the policy within 30 days of employment.
B. Each Employee shall give written instructions to every broker with whom he or
she transacts for any Personal Account to provide duplicate confirmation for all
purchases and sales of Securities to:
For First Union Capital Management Group, First Capital Group, and Evergreen
Investment Management (not EIMCO) Employees:
First Union National Bank
201 South College St./CP3
Charlotte, NC 28202-0137
ATTN: CMG Compliance
For Lieber & Company and Evergreen Asset Management Corp. Employees:
Evergreen Funds
2500 Westchester Avenue
Purchase, NY 10577
ATTN: Compliance Department
For Evergreen Investment Management Company, Inc. Employees:
Evergreen Funds
200 Berkeley Street
Boston, MA 02116
ATTN: Compliance Department
For Mentor Investment Advisor and Mentor Perpetual Advisors Employees:
Evergreen Funds
901 E. Byrd St.
Richmond, VA 23219
ATTN: Compliance Department
For Tattersall Advisory Group, Inc. Employees:
Tattersall Advisory Group, Inc.
6802 Paragon Place, Suite 200
Richmond, VA 23230
ATTN: Compliance Department
For Meridian Investment Company Employees:
Vicki Calhoun
First Union National Bank/Trust Compliance
PO Box 7558
Philadelphia, PA 19101-7558
C. Employees who are not Investment Persons or Access Persons must report all
transactions for their Personal Account annually for each year ending December
31 by the following January 31.
D. Each Access Person must report all Securities holdings in all Personal
Accounts upon commencement of employment (or within ten days of becoming an
Access Person) and thereafter annually, for each year ending December 31 by the
following January 31. A separate holdings list need not be provided if all
personal security holdings are otherwise listed on copies of brokerage
statements received by Compliance.
E. Each Access Person shall file with the Compliance Officer within ten calendar
days after the end of each calendar quarter (March 31, June 30, September 30,
December 31) a report listing each Security transaction (including those exempt
from the pre-clearance requirements) effected during the quarter for any
Personal Account; provided, however, a Security transaction need not be
separately reported under this paragraph if a copy of a broker confirmation for
the transaction was forwarded to the appropriate Compliance Officer as required
under Section 1.G.
F. Any Employee who becomes aware of any person trading on or communicating
Inside Information (or contemplating such actions) must report such event to the
Compliance Officer or the Assistant General Counsel.
G. Any Employee who becomes aware of any person violating this Code of Ethics
must report such event to the Compliance Officer or the Assistant General
Counsel.
IV. ENFORCEMENT
A. Review - The Compliance Officer shall review reports filed under the Code of
Ethics to determine whether any violation of this Code of Ethics may have
occurred.
B. Investigation - The Assistant General Counsel shall investigate any
substantive alleged violation of the Code of Ethics. An Employee allegedly
involved in a violation of the Code of Ethics may be required to deliver to the
Assistant General Counsel or his/her designee all tax returns involving any
Personal Account or any Securities for which the Employee has Beneficial
Ownership for all years requested. Failure to comply may result in termination.
C. Sanctions - In determining the sanctions to be imposed for a violation of
this Code of Ethics, the following factors, among others, may be considered:
(1) the degree of willfulness of the violation;
(2) the severity of the violation;
(3) the extent, if any, to which an Employee profited or benefited from the
violation;
(4) the adverse effect, if any, of the violation on a Covered Company or a
Client Account; and
(5) any history of prior violation of the Code.
The following sanctions, among others, may be considered:
(1) disgorgement of profits;
(2) fines;
(3) letter of reprimand;
(4) suspension or termination of employment; and
(5) such other actions as the Compliance Officer in concert with
appropriate legal counsel, or the Boards of Trustees of the Evergreen
Funds, shall determine.
D. All violations of the Code of Ethics involving Employees with
responsibilities relating to the Evergreen Funds or otherwise involving the
Evergreen Funds, and any sanctions imposed shall be reported to the Boards of
Trustees of the Evergreen Funds. All violations of the Code and any sanctions
also shall be reported to the Employee's supervisor, and any regulatory agency
requiring such reporting, and shall be filed in the Employee's personnel record.
E. Potential Legal Penalties for Misuse of Inside Information
(1) civil penalties up to three times the profit gained or loss avoided;
(2) disgorgement of profits;
(3) injunctions, including being banned from the securities industry;
(4) criminal penalties up to $1 million; and/or
(5) jail sentences.
V. DEFINITIONS
ACCESS PERSON: Access Person includes: (i.) any director of a Covered Company or
any officer of a Covered Company with the title of Vice President or above, but
excluding any such director or officer excluded in writing by the Covered
Company's Compliance Officer with the approval of the Assistant General Counsel;
(ii.) any Investment Person, but excluding any such person excluded in writing
by the appropriate person's Compliance Officer with the approval of the
Assistant General Counsel; and (iii.) any Employee of a Covered Company who, in
connection with his or her regular duties, makes, participates in, or obtains
information regarding the purchase or sale of a Security by a Client Account or
a Covered Company. Upon being notified of the hiring of a new Employee or of a
change in an Employee's job title or responsibilities, the appropriate
Compliance Officer will determine and notify the Employee as to whether he/she
is or has become an Access Person under the Code.
ASSISTANT GENERAL COUNSEL: Michael H. Koonce - 617/210-3663
BENEFICIAL OWNERSHIP: A direct or indirect financial interest in an investment
giving a person the opportunity directly or indirectly to participate in the
risks and rewards of the investment, regardless of the actual owner of record.
Securities of which a person may have Beneficial Ownership include, but are not
limited to:
(1) securities owned by a spouse, by or for minor children, or by relatives
of the person or his/her spouse who live in his/her home, including
Securities in trusts of which such persons are beneficiaries;
(2) a proportionate interest in Securities held by a partnership of which
the person is a general partner;
(3) securities for which a person has a right to dividends that are
separated or separable from the underlying securities; and
(4) securities that a person has a right to acquire through the exercise or
conversion of another Security.
CLIENT ACCOUNT: Any account of any person or entity (including an investment
company) for which a Covered Company provides investment advisory or investment
management services. Client Account does not include brokerage or other accounts
not involving investment advisory or management services.
COMPLIANCE OFFICER: The Compliance Officers for each Covered Company are set
forth below:
First Union Capital Management Group
Evergreen Investment Management, and
First Capital Group
------------------------------------
Clint Lackey 704/374-3476
Karen Knudtsen 704-374-2249
Joni McCabe 704/374-6404
Donna Mooney 704/383-8197
Vicki Calhoun 215/985-8742
Evergreen Asset Management Corp.
Lieber & Company
-------------------------------
Christina Carroll 914/641-2301
Jim Angelos 617/210-3690
Evergreen Investment Management Company, Inc.
--------------------------------------------
Cathy White 617/210-3606
Jim Angelos 617/210-3690
Meridian Investment Company
---------------------------
Vicki Calhoun 215/985-8742
Tattersall Advisory Group
-------------------------
Margaret Corwin 804/289-2663
Mentor Investment Advisors
Mentor Perpetual Advisors
--------------------------
Taylor Nelson 804/782-3209
COVERED COMPANY: Includes Evergreen Asset Management Company, Evergreen
Investment Management Company, Inc., Lieber & Company, Mentor Investment
Advisors, Mentor Perpetual Advisors, Meridian Investment Company, Tattersall
Advisory Group, Inc. and the investment groups included within the Capital
Management Group of First Union National Bank, which currently include Evergreen
Investment Management, First Capital Group, and First Investment Advisors.
Covered Company also includes any CMG advisors that are acquired during the time
this Code is in effect.
DERIVATIVE: Every financial arrangement whose value is linked to, or derived
from, fluctuations in the prices of stock, bonds, currencies or other assets.
Derivatives include but are not limited to futures, forward contracts, options
and swaps on interest rates, currencies, and stocks.
DIRECT OR INDIRECT INFLUENCE OR CONTROL: The power on the part of an Employee,
his/her spouse or a relative living in his/her home to directly or indirectly
influence the selection or disposition of investments.
EMPLOYEE: Any director, officer, or employee of a Covered Company, including
temporary or part-time employees and employees on short-term disability or leave
of absence. Independent contractors and their employees providing services to a
Covered Company, if designated by the Compliance Officer, shall be treated as
Employees under this Code.
EVERGREEN FUNDS: The open and closed-end investment companies advised or
administered by the Covered Companies.
INSIDE INFORMATION: Information regarding a Security or its issuer that has not
yet been effectively communicated to the public through an SEC filing or widely
distributed news release, and which a reasonable investor would consider
important in making an investment decision or which is reasonably likely to
impact the trading price of the Security. Inside Information includes, but is
not limited to, information about (i.) dividend changes, (ii.) earnings
estimates and changes to previously released estimates, (iii.) other changes in
financial status, (iv.) proposed mergers or acquisitions, (v.) purchases or
sales of material amounts of assets, (vi.) significant new business, products or
discoveries or losses of business, (vii.) litigation or investigations, (viii.)
liquidity difficulties or (ix.) management changes.
INVESTMENT PERSON: An Employee who is a portfolio manager, securities analyst,
or trader, or who otherwise makes recommendations regarding or effects the
purchase or sale of securities by a Client Account.
PERSONAL ACCOUNT: Any holding of Securities constituting Beneficial Ownership,
other than a holding of Securities previously approved by the Compliance Officer
over which the Employee has no Direct Influence or Control. A Personal Account
is not limited to securities accounts maintained at brokerage firms, but also
includes holdings of Securities owned directly by an Employee.
SECURITY: Any type of equity or debt instrument and any rights relating
thereto, such as derivatives, warrants and convertible securities.
Unless otherwise noted, Security does not include:
(1) US Government Securities (see definition below);
(2) commercial paper, certificates of deposit, repurchase agreements,
bankers' acceptances, or any other money market instruments;
(3) shares of registered open-end investment companies (i.e., mutual
funds);
(4) commodities (except the Security that does include options on
individual equity or debt securities);
(5) real estate investment trusts;
(6) guaranteed insurance contracts/ bank investment contracts; or
(7) index based securities;
(8) derivatives based on any instruments listed above.
Shares issued by all closed end funds (excluding index-based derivatives) are
included in the definition of Security.
U.S. Government Securities: All direct obligations of the U.S. Government and
its agencies and instrumentalities (for instance, obligations of GNMA, FHLCC, or
FHLBs).
