1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN SELECT EQUITY TRUST
(Evergreen Select Core Equity Income Fund)
(Exact name of registrant as specified in charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
----------------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
Evergreen Investment Management Company
200 Berkeley Street
Boston, Massachusetts 02116
----------------------------------------
(Name and address of agent for service)
Approximate date of proposed public offering: As soon as possible after the
effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24(f) of the Investment Company Act
of 1940 (File No. 333-36033); accordingly, no fee is payable herewith. Pursuant
to Rule 429, this Registration Statement relates to the aforementioned
registration on Form N-1A. A Rule 24f-2 Notice for the Registrant's most recent
fiscal year ended June 30, 1998 was filed with the Commission on or about
September 28, 1998.
It is proposed that this filing will become effective on June 23, 1999
pursuant to Rule 488 of the Securities Act of 1933.
<PAGE>
EVERGREEN SELECT EQUITY TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/Proxy
Item of Part A of Form N-14 Statement
- ---------------------------- ----------------------------------
1. Beginning of Registration Statement Cross Reference Sheet; Cover Page
and Outside Front Cover Page of
Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Fee Table, Synopsis Information and Comparison of Fees and Expenses;
Risk Factors Summary; Comparison of Investment
Objectives and Policies; Risks
4. Information About the Transaction Summary; Reasons for the
Reorganization; Comparative
Information on Shareholders' Rights;
Exhibit A (Agreement and Plan of
Reorganization)
5. Information about the Registrant Cover Page; Summary; Risks;
Comparison of Investment Objectives
and Policies; Comparative Information
on Shareholders' Rights; Additional
Information
6. Information about the Company Cover Page; Summary; Risks;
Being Acquired Comparison of Investment Objectives
and Policies; Comparative
Information on Shareholders' Rights;
Additional Information
7. Voting Information Cover Page; Summary; Voting
Information Concerning the Meeting
8. Interest of Certain Persons Financial Statements and Experts;
and Experts Legal Matters
9. Additional Information Required for Inapplicable
Reoffering by Persons Deemed to be
Underwriters
Item of Part B of Form N-14
- ---------------------------
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information About the Statement of Additional Information
Registrant of Evergreen Select Core Equity
Fund dated November 1, 1998
<PAGE>
13. Additional Information about Statement of Additional Information
the Company Being Acquired of Evergreen Select Equity Income
Fund dated November 1, 1998
14. Financial Statements Financial Statements dated December
31, 1998 and June 30, 1998
(unaudited) of Evergreen Select
Core Equity Fund; Financial
Statements dated December 31, 1998
and June 30, 1998 (unaudited) of
Evergreen Select Equity Income Fund
Item of Part C of Form N-14
- ---------------------------
15. Indemnification Incorporated by Reference to Part A
Caption - "Comparative Information
on Shareholders' Rights - Liability
and Indemnification of Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART A
PROSPECTUS/PROXY
<PAGE>
[Logo]
Prospectus/Proxy Statement June 1999
Important News For Evergreen Shareholders
<PAGE>
LOGO
EVEGREEN SELECT EQUITY INCOME FUND
200 Berkeley Street
Boston, MA 02116
June 25, 1999
Dear Shareholder,
As a shareholder of Evergreen Select Equity Income Fund ("Equity Income
Fund"), you are invited to vote on an important matter affecting your Fund.
Specifically, you are invited to vote on a proposal to merge Equity Income Fund
into Evergreen Select Core Equity Fund ("Core Equity Fund"). Core Equity Fund is
another mutual fund managed by the First Capital Group of First Union National
Bank that invests primarily in common stocks of U.S. companies.
If the merger is approved you will receive shares of Core Equity Fund
having the same total value as the shares of Equity Income Fund you currently
own. Details about Core Equity Fund's investment objective, portfolio management
team, performance, etc., along with additional information about the proposed
merger, are contained in the attached Prospectus/Proxy Statement. You will not
incur any Federal income taxes as a result of the merger.
The Board of Trustees of Evergreen Select Equity Trust has approved the
merger and recommends that you vote FOR this proposal.
I realize that the attached Prospectus/Proxy Statement will take time to
review, but your vote is very important. Please take the time to familiarize
yourself with this information. Votes on the proposal will be cast at a special
meeting of Equity Income Fund shareholders to be held on July 30, 1999. Although
you are welcome to attend the meeting in person, you do not need to do so in
order to vote your shares. If you do not expect to attend the meeting, please
complete, date, sign and return the enclosed proxy card in the enclosed postage
paid envelope. Instructions on how to complete the proxy card are included
immediately after the Notice of Special Meeting.
If you have any questions about the proposal or the proxy card, please call
Evergreen Service Company at 1-800-343-2898.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
[Signature]
William M. Ennis
Managing Director
Evergreen Funds
<PAGE>
EVERGREEN SELECT EQUITY INCOME FUND
200 Berkeley Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1999
You are hereby notified that a Special Meeting (the "Meeting") of
Shareholders of Evergreen Select Equity Income Fund ("Equity Income Fund"), will
be held at the offices of the Evergreen Funds, 26th Floor, 200 Berkeley Street,
Boston, Massachusetts 02116, on July 30, 1999 at 2:00 p.m. for the following
purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") providing for the merger of Equity Income Fund into Evergreen
Select Core Equity Fund ("Core Equity Fund"), and the distribution of
shares of Core Equity Fund to shareholders of Equity Income Fund in
liquidation of their shares of Equity Income Fund. A vote in favor of the
Plan is a vote in favor of the liquidation and dissolution of Equity Income
Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of Equity Income Fund, the Trustees of Evergreen Select Equity
Trust have fixed the close of business on May 28, 1999 as the record date for
the determination of shareholders of the Fund entitled to notice of and to vote
at the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
[Signature]
Michael H. Koonce
Secretary
June 25, 1999
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
F/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
<PAGE>
[SUBJECT TO COMPLETION, May 24, 1999-PRELIMINARY COPY]
PROSPECTUS/PROXY STATEMENT DATED JUNE 25, 1999
Acquisition of Assets of
EVERGREEN SELECT EQUITY INCOME FUND
a series of
Evergreen Select Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN SELECT CORE EQUITY FUND
a series of
Evergreen Select Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being sent to shareholders of Evergreen
Select Equity Income Fund ("Equity Income Fund") to ask them to approve the
Agreement and Plan of Reorganization (the "Plan") at a Special Meeting of
Shareholders to be held on July 30, 1999 at 2:00 p.m. at the offices of the
Evergreen Funds, 200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116,
and any adjournments thereof (the "Meeting").
Under the Plan, Equity Income Fund will be merged into Evergreen Select
Core Equity Fund ("Core Equity Fund"). This will be accomplished by Core Equity
Fund acquiring all of the assets of Equity Income Fund in exchange for shares of
Core Equity Fund. Along with acquiring the assets of Equity Income Fund, Core
Equity Fund will also assume the identified liabilities of Equity Income Fund.
This transaction will be referred to as the "Merger" for the rest of this
Prospectus/Proxy Statement. Equity Income Fund and Core Equity Fund are
sometimes referred to each as the "Fund" or together as the "Funds" in this
Prospectus/Proxy Statement. After the Merger, Equity Income Fund shareholders
will receive shares of Core Equity Fund and Equity Income Fund will be
terminated. Equity Income Fund shareholders will receive Core Equity Fund shares
that have the same description (i.e. Institutional or Institutional Service) and
the same shareholder servicing-related fee, if any, as the shares they currently
hold. Equity Income Fund shareholders will incur no fees in connection with
receiving the Core Equity Fund shares. Equity Income Fund shareholders will
receive Core Equity Fund shares that have the same aggregate net asset value as
the shares they hold. The Merger is being structured as a tax-free
reorganization for federal income tax purposes.
Equity Income Fund and Core Equity Fund are each a separate series of
Evergreen Select Equity Trust, an open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The investment objective of Core Equity Fund is to seek long-term capital
appreciation. The investment objective of Equity Income Fund is, primarily, to
seek high current income and, secondarily, to seek long-term capital
appreciation.
This Prospectus/Proxy Statement, which should be kept for future reference,
sets forth concisely the information about Core Equity Fund that Equity Income
Fund shareholders should know before voting on the Merger. Certain relevant
documents listed below, which have been filed with the Securities and Exchange
Commission ("SEC"), are incorporated in whole or in part by reference to (which
means, legally considered to be part of) this Prospectus/Proxy Statement. A
Statement of Additional Information dated June 25, 1999 relating to this
Prospectus/Proxy Statement and the Merger, which includes the most recent annual
and semi-annual financial statements of Core Equity Fund and Equity Income Fund,
has been filed with the SEC and is legally considered to be part of this
Prospectus/Proxy Statement. A copy of such Statement of Additional Information
is available upon request and without charge by writing to Core Equity Fund at
200 Berkeley Street, Boston, Massachusetts 02116 or by calling toll-free
1-800-645-7816.
The two Prospectuses of Core Equity Fund, one offering Institutional shares
and the other offering Institutional Service shares, dated November 1, 1998, its
Annual Report for the fiscal year ended June 30, 1998 and its semi-annual report
for the six month period ended December 31, 1998 are legally considered to be
part of this Prospectus/Proxy Statement insofar as they relate to Core Equity
Fund only and not to any other fund described therein. Along with this
Prospectus/Proxy Statement, shareholders of Equity Income Fund will receive
copies of the Prospectus pertaining to the class of shares of Core Equity Fund
that they will receive as a result of the Merger. Additional information about
Core Equity Fund is contained in its Statement of Additional Information dated
November 1, 1998, which has been filed with the SEC and which is available upon
request and without charge by writing to or calling Core Equity Fund at the
address or telephone number listed in the paragraph above.
The two Prospectuses of Equity Income Fund, one offering Institutional
shares and the other offering Institutional Service shares, dated November 1,
1998, its Annual Report for the fiscal year ended June 30, 1998 and its
semi-annual report for the six month period ended December 31, 1998 are legally
considered to be part of this Prospectus/Proxy Statement insofar as they relate
to Equity Income Fund only and not to any other fund described therein. Copies
of the Prospectuses, the related Statement of Additional Information, the Annual
Report for the fiscal year ended June 30, 1998 and the Semi-Annual Report for
the six-month period ended December 31, 1998 are available upon request and
without charge by writing to Equity Income Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-645-7816.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits or
obligations of any bank and are not insured or otherwise protected by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency and involve investment risk, including possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES..........................................
SUMMARY .................................................................
Proposed Plan of Reorganization.....................................
Tax Consequences....................................................
Investment Objectives and Policies of the Funds.....................
Comparative Performance Information for each Fund...................
Management of the Funds.............................................
Investment Advisor..................................................
Administrator.......................................................
Portfolio Management.............................................
Distribution of Shares..............................................
Purchase and Redemption Procedures..................................
Exchange Privileges.................................................
Dividend Policy.....................................................
Risks...............................................................
REASONS FOR THE MERGER...................................................
Agreement and Plan of Reorganization................................
Federal Income Tax Consequences.....................................
Pro-forma Capitalization............................................
Shareholder Information.............................................
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES.........................
INFORMATION ON SHAREHOLDERS' RIGHTS......................................
Form of Organization................................................
Capitalization......................................................
Shareholder Liability...............................................
Shareholder Meetings and Voting Rights..............................
Liquidation or Dissolution..........................................
Liability and Indemnification of Trustees...........................
ADDITIONAL INFORMATION...................................................
VOTING INFORMATION CONCERNING THE MEETING................................
FINANCIAL STATEMENTS AND EXPERTS.........................................
LEGAL MATTERS............................................................
OTHER BUSINESS...........................................................
EXHIBIT A................................................................ A-1
EXHIBIT B................................................................ B-1
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts of fees and expenses for Institutional and Institutional
Service shares of Core Equity Fund and Equity Income Fund are set forth in the
following tables and in the examples. The amounts given are based on the actual
expenses of Core Equity Fund and Equity Income Fund for the twelve months ended
December 31, 1998. The pro forma amounts for Institutional and Institutional
Service shares of Core Equity Fund are based on what the estimated combined
expenses of Core Equity Fund would have been for the twelve months ended
December 31, 1998.
The following tables show:
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Institutional and
Institutional Service shares each of Core Equity Fund and Equity
Income Fund, and
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in Institutional and
Institutional Service shares of Core Equity Fund assuming the
Merger takes place ("Core Equity Fund Pro Forma").
Comparison of
Institutional and Institutional Service Shares of Core Equity Fund
With
Institutional and Institutional Service Shares of Equity Income Fund
Core Equity Fund Equity Income Fund
Institutional Institutional Institutional Institutional
Service Service
Shareholder Transaction Expenses
Maximum Sales
Load Imposed on
Purchases (as a
Percentage of
Offering price)........... N/A N/A N/A N/A
Contingent Deferred
Sales Charge (as
a percentage of
original purchase
price or
redemption
proceeds,
whichever is
lower).................... N/A N/A N/A N/A
<TABLE>
<CAPTION>
Core Equity Fund Equity Income Fund
Institutional Institutional Institutional Institutional
Service Service
<S> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
Percentage of average daily net assets)
Management Fee............................ 0.70% 0.70% 0.70% 0.70%
12b-1 Fees................................ N/A 0.25% N/A 0.25%
Other Expenses............................ 0.09% 0.09% 0.15% 0.15%
----- ----- ----- -----
Annual Fund Operating Expenses (1)........ 0.79% 1.04% 0.85% 1.10%
</TABLE>
Core Equity Fund Pro Forma
Institutional Institutional
Service
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)................... N/A N/A
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower)................... N/A N/A
Annual Fund Operating Expenses (as a
percentage of average daily net assets)
Management Fee..................................... 0.70% 0.70%
12b-1 Fees......................................... N/A 0.25%
Other Expenses..................................... 0.09% 0.09%
----- -----
Annual Fund Operating Expenses (2)................. 0.79% 1.04%
(1) FCG, the investment advisor of each Fund, has agreed to voluntarily
waive a portion of each Fund's management fee in addition to limiting
expenses. Including such waivers and reimbursements, Annual Fund Operating
Expenses were as follows: Core Equity Fund Institutional shares: 0.69%,
Core Equity Fund Institutional Service shares: 0.94%, Equity Income Fund
Institutional shares: 0.75%, Equity Income Fund Institutional Service
shares: 1.00%.
(2) FCG, the investment advisor of the Core Equity Fund after the proposed
Merger, has agreed to voluntarily waive a portion of the Fund's management
fee in addition to limiting expenses. Including such waivers and
reimbursements, Annual Fund Operating Expenses would have been as follows:
Institutional shares 0.69%, Institutional Service shares 0.94%.
Examples. The following tables show for Core Equity Fund and Equity Income Fund,
and for Core Equity Fund pro forma, assuming the Merger takes place, examples of
the cumulative effect of shareholder transaction expenses and annual fund
operating expenses indicated above on a $10,000 investment in each class of
shares for the periods specified, assuming (i) a 5% annual return, and (ii)
redemption at the end of such period.
Core Equity Fund
Three Five
One Year Years Years Ten Years
Institutional...................... $81 $252 $439 $978
Institutional Service.............. $106 $331 $574 $1,271
Equity Income Fund
Three Five
One Year Years Years Ten Years
Institutional...................... $87 $271 $471 $1,049
Institutional Service.............. $112 $350 $606 $1,340
Core Equity Fund Pro Forma
Three Five
One Year Years Years Ten Years
Institutional...................... $81 $252 $439 $978
Institutional Service.............. $106 $331 $574 $1,271
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of Core Equity Fund and Equity Income Fund dated November 1, 1998
(which are legally considered to be a part of this Prospectus/Proxy Statement)
and the Plan, the form of which is attached to this Prospectus/Proxy Statement
as Exhibit A.
Proposed Plan of Reorganization
The Plan generally provides for the following:
o the transfer of all of the assets of Equity Income
Fund in exchange for shares of Core Equity Fund,
and
o the assumption by Core Equity Fund of the identified liabilities
of Equity Income Fund. (The identified liabilities consist only of
those liabilities reflected on Equity Income Fund's statement of
assets and liabilities determined immediately preceding the
Merger.)
The Plan also calls for the distribution of shares of Core Equity Fund to
Equity Income Fund's shareholders in liquidation of Equity Income Fund as part
of the Merger. After the Merger, the shareholders of Equity Income Fund will own
Corresponding Shares of Core Equity Fund having the same aggregate net asset
value as that of the shareholders' shares of Equity Income Fund, as of the close
of business immediately prior to the date that Equity Income Fund's assets are
exchanged for shares of Core Equity Fund. See "Reasons for the
Merger--Agreement and Plan of Reorganization."
The Trustees of Evergreen Select Equity Trust, including the Trustees who
are not "interested persons," as such term is defined in the 1940 Act (the
"Independent Trustees"), have concluded that the Merger would be in the best
interests of Equity Income Fund's shareholders, and that their interests will
not be diluted as a result of the Merger. Accordingly, the Trustees have
submitted the Plan for the approval of Equity Income Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN SELECT EQUITY TRUST
RECOMMENDS APPROVAL BY SHAREHOLDERS OF EQUITY INCOME FUND
OF THE PLAN EFFECTING THE MERGER.
The Trustees of Evergreen Select Equity Trust have also approved the Plan
on behalf of Core Equity Fund.
Approval of the Merger will require the following:
o In order to have the Meeting, at least 25% (a "quorum") of the
outstanding shares of Equity Income Fund entitled to vote must be
represented at the Meeting in person or by shareholders sending in a
proxy card.
o All classes of Equity Income Fund will vote together as if they were a
single class.
o A majority (greater than 50%) of Equity Income Fund shares voted must
vote FOR the Merger.
See "Voting Information Concerning the Meeting."
The Merger is scheduled to take place on or about July 30, 1999. If Equity
Income Fund shareholders do not vote to approve the Merger, the Trustees will
consider other possible courses of action in the best interests of shareholders.
Tax Consequences
Prior to or at the completion of the Merger, Equity Income Fund will have
received an opinion of Sullivan & Worcester LLP that the Merger has been
structured so that no gain or loss will be realized by the Fund or its
shareholders for federal income tax purposes as a result of receiving Core
Equity Fund shares in connection with the Merger. The holding period and
aggregate tax basis of shares of Core Equity Fund that are received by Equity
Income Fund's shareholders will be the same as the holding period and aggregate
tax basis of shares of the Fund previously held by such shareholders, provided
that shares of the Fund are held as capital assets. In addition, the holding
period and tax basis of the assets of Equity Income Fund in the hands of Core
Equity Fund as a result of the Merger will be the same as in the hands of the
Fund immediately prior to the Merger, and no gain or loss will be recognized by
Core Equity Fund upon the receipt of the assets of the Fund in exchange for
shares of Core Equity Fund and the assumption by Core Equity Fund of Equity
Income Fund's identified liabilities.
Investment Objectives and Policies of the Funds
The investment objective of Core Equity Fund is to seek long-term capital
appreciation. The Fund invests at least 65% of its total assets in common stocks
of 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 investment objective of Equity Income Fund is to seek high current
income as a primary investment objective, and long-term capital appreciation as
a secondary objective. The Fund invests at least 65% of its total assets in
income-producing equity securities that are generally characterized by having
below-average price to earnings ratios and higher dividend yields relative to
their industry groups. 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.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained in
the Prospectuses and Statement of Additional Information of the Funds. The
following tables set forth, as applicable, the total return of the Institutional
and Institutional Service shares of Core Equity Fund and Equity Income Fund for
the periods of time specified below. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses that were charged
to shareholders' accounts.
<TABLE>
<CAPTION>
Average Annual Total Return
1 Year Ended 5 Years Ended 10 Years From Inception Inception
December 31, December 31, Ended To December 31, Date of
1998 1998 December 31, 1998 1998 Class
----------- ----------- ----------------- -------------- --------
<S> C> <C> <C> <C> <C>
Core Equity Fund(1)
Institutional shares......
12.96% 17.97% 15.22% 15.59% 11/24/97
Institutional Service
shares...................... 12.72% 17.71% 14.95% 15.31% 2/4/98
Equity Income Fund(2)
Institutional shares........ -3.24% 13.29% 12.44% 14.01% 11/24/97
Institutional Service
shares...................... -3.41% 13.03% 12.17% 13.74% 3/11/98
</TABLE>
(1) Historical performance shown for Institutional Service shares from
11/24/97 to its inception date of 2/4/98 is based on the performance of
Institutional shares and has not been adjusted to reflect the effect of the
0.25% 12b-1 fee applicable to Institutional Service shares. Institutional
shares pay no 12b-1 fee. If these fees had been reflected, returns would
have been lower. Prior to 11/24/97, the returns for Institutional shares
and Institutional Service shares are based on the Fund's predecessor common
trust fund's (CTF) performance, adjusted for estimated mutual fund
expenses. The CTF was not registered under the 1940 Act and was not subject
to certain investment restrictions. If the CTF had been registered, its
performance might have been adversely affected. Performance for the CTF has
been adjusted to include the effect of estimated mutual fund class gross
expense ratios at the time the Fund was converted to a mutual fund. If fee
waivers and expense reimbursements had been calculated into the mutual fund
class expense ratio, the total returns would be as follows: Institutional
shares 5 year =18.07%, 10 year =15.32% and since 12/31/81 =15.69%;
Institutional Service shares 5 Year =17.80%, 10 Year =15.05% and since
12/31/81 =15.42%.
(2) Historical performance shown for Institutional Service shares from
11/24/97 to its inception date of 3/11/98 is based on the performance of
Institutional shares and has not been adjusted to reflect the effect of the
0.25% 12b-1 fee applicable to Institutional Service shares. Institutional
shares pay no 12b-1 fee. If these fees had been reflected, returns would
have been lower. Prior to 11/24/97, the returns for Institutional shares
and Institutional Service shares are based on the Fund's predecessor common
trust fund's (CTF) performance, adjusted for estimated mutual fund
expenses. The CTF was not registered under the 1940 Act and was not subject
to certain investment restrictions. If the CTF had been registered, its
performance might have been adversely affected. Performance for the CTF has
been adjusted to include the effect of estimated mutual fund class gross
expense ratios at the time the Fund was converted to a mutual fund. If fee
waivers and expense reimbursements had been calculated into the mutual fund
class expense ratio, the total returns would be as follows: Institutional
shares 5 year =13.38% 10 year =12.54% and since 12/31/78 =14.12%;
Institutional Service shares 5 Year =13.12%, 10 Year =12.27% and since
12/31/78 =13.84%.
Important information about Core Equity Fund (formerly named Evergreen
Select Common Stock Fund) is also contained in management's discussion of Core
Equity Fund's performance, attached hereto as Exhibit B. This information also
appears in Core Equity Fund's most recent Annual Report.
Management of the Funds
The overall management of Core Equity Fund and of Equity Income Fund is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Select Equity Trust.
Investment Advisor
The investment advisor to Core Equity Fund and Equity Income Fund is First
Capital Group ("FCG"). FCG is a division of First Union National Bank ("FUNB").
FUNB is a subsidiary of First Union Corporation ("First Union"), the 6th largest
bank holding company in the United States based on total assets of $223 billion
as of March 31, 1999. FCG with its predecessors, has been managing money for
over 50 years and currently manages $28.8 billion in assets for 44 of the
Evergreen Funds as of March 31, 1999. FCG is located at 201 South College
Street, Charlotte, North Carolina 28288-0630. For further information regarding
FCG, FUNB and First Union, see "Fund Organization and Service Providers -
Advisors" in the Prospectuses of Core Equity Fund and Equity Income.
FCG manages investments and supervises the daily business affairs of Core
Equity Fund and Equity Income Fund subject to the authority of the Trustees. FCG
is entitled to receive from each of the Funds an annual fee equal to 0.70% of
the Fund's average daily net assets.
FCG may, at its discretion, reduce or waive its fee or reimburse a Fund for
certain of its other expenses in order to reduce its expense ratios. Currently,
FCG has voluntarily agreed to reduce its advisory fee for the Funds, resulting
in a net advisory fee of 0.60% with respect to Core Equity Fund and 0.60% with
respect to Equity Income Fund. FCG may also reduce or cease these voluntary
waivers and reimbursements at any time. After the Merger, FCG has agreed to
voluntarily waive a portion of the management fee in addition to limiting
expenses, resulting in the Annual Fund Operating Expenses being limited to 0.70%
for the Institutional shares and 0.95% for the Institutional Service Shares.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, Core Equity Fund could be
adversely affected if the computer systems used by FCG and the Fund's other
service providers do not properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the `'Year
2000 Problem." FCG is taking steps to address the Year 2000 Problem with respect
to the computer systems that it uses and to obtain assurances that comparable
steps are being taken by the Fund's other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Fund. In addition, issuers of securities in which the
Fund invests may be adversely affected by Year 2000 problems. Such problems
could negatively impact the value of the Fund's portfolio securities.
Administrator
Evergreen Investment Services, Inc. (EIS"), 200 Berkeley Street, Boston,
Massachusetts 02116-5034, serves as administrator to Core Equity Fund and Equity
Income Fund, subject to the supervision and control of the Trustees. EIS
provides the Funds with facilities, equipment and personnel. For its services as
administrator, EIS is entitled to receive a fee based on the aggregate average
daily net assets of each Fund at a rate based on the total assets of all the
mutual funds administered by EIS for which any affiliate of FUNB serves as
investment advisor. The administration fee is calculated in accordance with the
following schedule: 0.50% on the first $7 billion, 0.35% on the next $3 billion,
0.30% on the next $5 billion, 0.20% on the next $10 billion, 0.015% on the next
$5 billion, and 0.10% on assets in excess of $30 billion.
Portfolio Management
The day-to-day management of Core Equity Fund is handled by Mark C. Sipe
and Hanspeter Giger. Mark Sipe is a Senior Vice President of FUNB, and Director
of Equity Management for First Investment Advisors, the investment group at FUNB
responsible for managing private capital portfolios. He has over 20 years
investment experience, 16 years with FUNB. He has managed or co-managed the Fund
since 1994. Aside from co-managing the Fund, Mr. Sipe is responsible for the
oversight of equity research efforts and all equity investment processes.
Hanspeter Giger has 13 years of investment management experience. He joined FUNB
as an Equity Analyst in 1987. For the past five years Mr. Giger has been
Director of Equity Research, responsible for overseeing and coordinating FUNB's
Investment Research/Core Team, in addition to co-managing the Fund.
Distribution of Shares
Evergreen Distributor, Inc. (`'EDI"), an affiliate of BISYS Fund Services
("BISYS"), acts as underwriter of shares of Core Equity Fund and Equity Income
Fund. EDI distributes each Fund's shares directly or through broker-dealers,
banks (including FUNB), or other financial intermediaries. Each Fund offers two
classes of shares: Institutional and Institutional Service. Each Fund has a
distribution arrangement with EDI with respect to its Institutional Service
shares and bears its own distribution expenses. (See "Shareholder
Servicing-Related Expenses" below.)
In the proposed Merger, Equity Income Fund shareholders will receive the
Corresponding Shares of Core Equity Fund. Any Institutional Service shares of
Core Equity Fund that Equity Income Fund shareholders receive will have
identical arrangements with respect to the imposition of Rule 12b-1 service fees
as the shares they currently hold. The Merger will be effected at net asset
value.
Institutional and Institutional Service shares of Core Equity Fund and
Equity Income Fund have no initial or contingent deferred sales charges.
Institutional Service shares of both Funds are subject to an annual service fee
of up to 0.25% of the average daily net assets of the class for personal
services rendered to shareholders and/or the maintenance of accounts. A more
detailed description of the distribution arrangements applicable to
Institutional Service shares can be found below and is contained in the Core
Equity Fund and Equity Income Fund Prospectuses and in the Funds' Statement of
Additional Information.
Shareholder Servicing-Related Expenses.
Each Fund has adopted a Rule 12b-1 plan with respect to its Institutional
Service shares under which the Class may pay for shareholder servicing-related
expenses at an annual rate which may not exceed 0.75% of the average daily net
assets attributable to the class. Payments with respect to Institutional Service
shares are currently limited to 0.25% of average daily net assets attributable
to the class. This amount may be increased to the full plan rate for each Fund
by the Trustees without shareholder approval. Consistent with the requirements
of Rule 12b-1 and the applicable rules of the National Association of Securities
Dealers, Inc., following the Merger, Core Equity Fund may make shareholder
servicing-related payments with respect to Equity Income Fund shares sold prior
to the Merger.
Additional information regarding the Rule 12b-1 plans adopted by each Fund
with respect to its Institutional Service shares is included in its Prospectuses
and Statement of Additional Information.
No 12b-1 plan has been adopted for the Institutional shares of either Fund.
Purchase and Redemption Procedures
Information concerning applicable shareholder servicing-related fees is
provided above. Investments in the Funds are not insured. The minimum initial
purchase requirement for each Fund is $1 million, which may be waived in certain
situations. There is no minimum for subsequent purchases of shares of either
Fund. For more information, see "How To Buy Shares--Offering Price and Other
Purchase Information" on the Funds' Prospectuses. Each Fund provides for
telephone, mail or wire redemption of shares at net asset value, as next
determined after receipt of a redemption request on each day the New York Stock
Exchange ("NYSE") is open for trading. Additional information concerning
purchases and redemptions of shares, including how each Fund's net asset value
is determined, is contained in the Funds' Prospectuses. The Funds may, at their
discretion, pay your redemption proceeds with securities instead of cash.
However, each Fund is obligated to redeem shares solely in cash, up to the
lesser of $250,000 or 1% of a Fund's total net assets during any 90 day period
for any one shareholder. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Holders of shares of a class of each Fund may exchange their shares for
shares of the same class of any other Evergreen Select Fund. Each Fund limits
exchanges to five per calendar year and three per calendar quarter. An exchange
which represents an initial investment in another Evergreen Select Fund must
amount to at least $1 million. The current exchange privileges, and the
requirements and limitations attendant thereto, are described in the Funds'
Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund declares and pays dividends from its net investment income
monthly. Each Fund pays shareholders its net capital gains at least once a year.
Shareholders begin to earn dividends on the first business day after shares are
purchased unless shares were not paid for, in which case dividends are not
earned until the next business day after payment is received. Dividends and
distributions are reinvested in additional shares of the same class of the
respective Fund, or paid in cash, as a shareholder has elected. See the Funds'
Prospectuses for further information concerning dividends and distributions.
After the Merger, shareholders of Equity Income Fund who have elected to
have their dividends and/or distributions reinvested will have dividends and/or
distributions received from Core Equity Fund reinvested in shares of Core Equity
Fund. Shareholders of Equity Income Fund who have elected to receive dividends
and/or distributions in cash will receive dividends and/or distributions from
Core Equity Fund in cash after the Merger, although they may, after the Merger,
elect to have such dividends and/or distributions reinvested in additional
shares of Core Equity Fund.
Each of Core Equity Fund and Equity Income Fund has qualified and intends
to continue to qualify to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, so
long as each Fund distributes all of its net investment company taxable income
and any net realized gains to shareholders, it is expected that a Fund will not
be required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
Risks
Many of the risks involved in investing in each Fund's shares are similar.
There is no assurance that investment performances will be positive and that the
Funds will meet their investment objectives. For a discussion of each Fund's
objectives and policies, see "Comparison of Investment Objectives and Policies."
Both Funds invest substantially all of their assets in common stocks.
Investments in stocks are subject to market risk, which is the possibility that
stock prices in general will decline over short or even extended periods. Stock
markets tend to move in cycles, with periods of rising stock prices and periods
of falling stock prices. A Fund's investment in equity securities 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 could
also 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 an investment
in a Fund would likely decline. Even if general economic conditions do not
change, an investment in a Fund may decline in value if the particular
industries, issues or sectors the Fund invests in do not perform well.
Since Equity Income Fund seeks high current income by investing in income
producing equity securities, it is subject to interest rate risk. When interest
rates go up, the value of dividend-paying stocks tend to fall, which decrease
the value of the Fund. Since Equity Income Fund invests in stocks that are
purchased for yield, when interest rates rise, share prices may decline
resulting in a loss of value to the Fund shares.
Both the Funds may invest up to 10% of their assets in foreign securities,
including securities issued by foreign branches of U.S. banks and foreign banks,
Canadian commercial paper and Europaper (U.S. dollar-denominated commercial
paper of foreign issuers), American Depositary Receipts, European Depositary
Receipts and Global Depositary Receipts. The Funds may also buy and sell futures
and options on futures relating to foreign currencies. There are special risks
associated with international investing which include:
(1) Currency Risk - The possibility that changes in foreign exchange rates
will affect, favorably or unfavorably, the value of foreign securities;
(2) Volatility - Investments in foreign stock markets can be more volatile
than investments in U.S. markets. Diplomatic, political or economic developments
could affect investment in foreign countries;
(3) Expense Considerations - Fixed commissions on many foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges.
Expenses for custodial arrangements of foreign securities may be somewhat
greater than typical expenses for custodial arrangements for handling U.S.
securities of equal value;
(4) Foreign Taxes - Certain foreign governments levy withholding taxes
against dividend and interest income. Although in some countries a portion of
these taxes is recoverable, the non-recovered portion of foreign withholding
taxes will reduce the income received from the securities comprising the
portfolio; and
(5) Regulatory Environment - Foreign companies generally are not subjected
to uniform accounting, auditing and financial reporting standards comparable to
those applicable to U.S. domestic companies. There is generally less government
regulation of securities exchanges, brokers and listed companies abroad than in
the U.S. Foreign branches of U.S. banks, foreign banks and foreign issuers may
be subject to less stringent reserve requirements and to different accounting,
auditing, reporting and record keeping standards than those applicable to
domestic branches of U.S banks and U.S. domestic issuers.
The risks involved in the above mentioned strategies are further described
in the Prospectuses and Statement of Additional Information of the Funds.
REASONS FOR THE MERGER
At a special meeting held on May 14, 1999, all of the Trustees of Evergreen
Select Equity Trust, including the Independent Trustees, considered and approved
the Merger as in the best interests of shareholders of Equity Income Fund and
determined that the interests of existing shareholders of Equity Income Fund
will not be diluted as a result of the transactions contemplated by the Merger.
During their consideration of the Merger, the Trustees met with Fund counsel to
the Independent Trustees regarding the legal issues involved.
Before approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Merger. The Trustees considered among other things:
o the terms and conditions of the Merger;
o whether the Merger would result in the dilution of shareholders'
interests;
o expense ratios, fees and expenses of Core Equity Fund and Equity
Income Fund;
o the comparative performance records of each of the Funds; o
compatibility of their investment objectives and policies;
o the investment experience, expertise and resources of FCG;
o the service and distribution resources available to the Evergreen
Funds and the broad array of investment alternatives available to
shareholders of the Evergreen Funds;
o the personnel and financial resources of First Union and its
affiliates;
o the fact that FUNB will bear the expenses incurred by Equity Income
Fund in connection with the Merger;
o the fact that Core Equity Fund will assume the identified liabilities
of Equity Income Fund;
o the expected federal income tax consequences of the Merger; and
o alternatives available to shareholders of Equity Income Fund,
including the ability to redeem their shares.
In approving the Merger, the Trustees considered in particular the relative
size of Equity Income Fund and compared the expenses of the Funds and their
historical performance returns. The Trustees also evaluated the potential
economies of scale associated with larger mutual funds and concluded that
operational efficiencies may be achieved by combining Equity Income Fund with
Core Equity Fund. As of April 30, 1999, Equity Income Fund's total assets were
approximately $160.2 million and Core Equity Fund's total assets were
approximately $1,896.1 million. (The annual expenses of Equity Income Fund are
currently running, and for the past two years have run, higher than those of
Core Equity Fund.) The Trustees also compared the relative performance of the
Funds. Core Equity Fund's performance has consistently been higher than the
performance of Equity Income Fund. See "Comparison of Fees and Expenses" and
"Comparative Performance Information for each Fund".
THE TRUSTEES OF EVERGREEN SELECT EQUITY TRUST
RECOMMEND THAT THE SHAREHOLDERS OF
EQUITY INCOME FUND APPROVE
THE PROPOSED MERGER.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that Core Equity Fund will acquire all of the assets of
Equity Income Fund in exchange for shares of Core Equity Fund and the assumption
by Core Equity Fund of the identified liabilities of Equity Income Fund on or
about July 30, 1999 or such other date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, Equity Income Fund will endeavor to
discharge all of its known liabilities and obligations. Core Equity Fund will
not assume any liabilities or obligations of Equity Income Fund other than those
reflected in an unaudited statement of assets and liabilities of Equity Income
Fund prepared as of the close of regular trading on the NYSE, currently 4:00
p.m. Eastern time, on the business day immediately prior to the Closing Date.
The number of full and fractional shares of each class of Core Equity Fund to be
received by the shareholders of Equity Income Fund will be determined by
multiplying the respective outstanding class of shares of Equity Income Fund by
a factor which shall be computed by dividing the net asset value per share of
the respective class of shares of Equity Income Fund by the net asset value per
share of the respective class of shares of Core Equity Fund. Such computations
will take place as of the close of regular trading on the NYSE on the business
day immediately prior to the Closing Date. The net asset value per share of each
class will be determined by dividing assets, less liabilities, in each case
attributable to the respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of Core Equity Fund, Rule
22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, Equity Income Fund will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Equity Income
Fund will liquidate and distribute pro rata to shareholders of record as of the
close of business on the Closing Date the full and fractional shares of Core
Equity Fund received by Equity Income Fund. Such liquidation and distribution
will be accomplished by the establishment of accounts in the names of Equity
Income Fund's shareholders on Core Equity Fund's share records of its transfer
agent. Each account will represent the respective pro rata number of full and
fractional shares of Core Equity Fund due to the Fund's shareholders. All issued
and outstanding shares of Equity Income Fund, including those represented by
certificates, will be canceled. The shares of Core Equity Fund to be issued will
have no preemptive or conversion rights. After these distributions and the
winding up of its affairs, Equity Income Fund will be terminated.
The consummation of the Merger is subject to the conditions set forth in
the Plan, including approval by Equity Income Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in `'Federal Income
Tax Consequences" below. Notwithstanding approval of Equity Income Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of Equity
Income Fund and Core Equity Fund; or (b) at or prior to the Closing Date by
either party (i) because of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date if not cured within 30 days, or (ii) because a condition to the
obligation of the terminating party has not been met and it reasonably appears
that it cannot be met.
Whether or not the Merger is consummated, FUNB will pay the expenses
incurred by Equity Income Fund in connection with the Merger. No portion of the
expenses will be borne directly or indirectly by Equity Income Fund or its
shareholders.
If Equity Income Fund shareholders do not approve the Merger, the Trustees
will consider other possible courses of action which may be in the best
interests of shareholders.
Federal Income Tax Consequences
The Merger is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a) of the Code. As a condition to the
closing of the Merger, Equity Income Fund will receive an opinion of Sullivan &
Worcester LLP to the effect that, on the basis of the existing provisions of the
Code,
The purpose of the foregoing examples is to assist Equity Income Fund
shareholders in understanding the various costs and expenses that an investor in
Core Equity Fund as a result of the Merger would bear directly and indirectly,
as compared with the various direct and indirect expenses currently borne by a
shareholder in Equity Income Fund. These examples should not be considered a
representation of past or future expenses or annual return. Actual expenses may
be greater or less than those shown.
(1) The transfer of all of the assets of Equity Income Fund solely in
exchange for shares of Core Equity Fund and the assumption by Core
Equity Fund of the identified liabilities, followed by the
distribution of Core Equity Fund's shares in dissolution and
liquidation of Equity Income Fund, will constitute a "reorganization"
within the meaning of section 368(a)(1)(C) of the Code, and Core
Equity Fund and Equity Income Fund will each be a "party to a
reorganization" within the meaning of section 368(b) of the Code;
(2) No gain or loss will be recognized by Equity Income Fund on the
transfer of all of its assets to Core Equity Fund solely in exchange
for Core Equity Fund's shares and the assumption by Core Equity Fund
of the identified liabilities of Equity Income Fund or upon the
distribution of Core Equity Fund's shares to Equity Income Fund's
shareholders in exchange for their shares of Equity Income Fund;
(3) The tax basis of the assets transferred will be the same to Core
Equity Fund as the tax basis of such assets to Equity Income Fund
immediately prior to the Merger, and the holding period of such assets
in the hands of Core Equity Fund will include the period during which
the assets were held by Equity Income Fund;
(4) No gain or loss will be recognized by Core Equity Fund upon the
receipt of the assets from Equity Income Fund solely in exchange for
the shares of Core Equity Fund and the assumption by Core Equity Fund
of the identified liabilities of Equity Income Fund;
(5) No gain or loss will be recognized by Equity Income Fund's
shareholders upon the issuance of the shares of Core Equity Fund to
them, provided they receive solely such shares (including fractional
shares) in exchange for their shares of Equity Income Fund; and
(6) The aggregate tax basis of the shares of Core Equity Fund, including
any fractional shares, received by each of the shareholders of Equity
Income Fund pursuant to the Merger will be the same as the aggregate
tax basis of the shares of Equity Income Fund held by such shareholder
immediately prior to the Merger, and the holding period of the shares
of Core Equity Fund, including fractional shares, received by each
such shareholder will include the period during which the shares of
Equity Income Fund exchanged therefor were held by such shareholder
(provided that the shares of Equity Income Fund were held as a capital
asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If a Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of Equity Income Fund would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Fund shares and the fair market value of Core Equity Fund
shares he or she received. Shareholders of Equity Income Fund should consult
their tax advisers regarding the effect, if any, of the proposed Mergers in
light of their individual circumstances. Since the foregoing discussion relates
only to the federal income tax consequences of the Merger, shareholders of
Equity Income Fund should also consult their tax advisers as to the state and
local tax consequences, if any, of the Merger.
As of April 30, 1999, Equity Income Fund had a capital loss carryforward of
approximately $678,000. The utilization of the capital loss carryforward by Core
Equity Fund following the merger will be subject to various limitations, which
cannot be calculated precisely at this time. On a proforma basis, the
limitations would be approximately as follows:
o For Core Equity Fund's taxable year which includes the merger date,
utilization of the capital loss carryforward would be limited to Core
Equity Fund's net capital gain for the year multiplied by a fraction,
the numerator of which is the days in the taxable year following the
merger date and the denominator of which is 365.
o The capital loss carryforwards may be used only to offset gains
attributable to post-merger appreciation of the combined assets and
pre-merger appreciation of Equity Income Fund's assets. This
limitation expires after five years.
The foregoing limitations must be applied independently, and the lowest of
the calculated limitations will apply in any year.
Pro-forma Capitalization
The following table sets forth the capitalization of Core Equity Fund
and Equity Income Fund as of December 31, 1998 and the capitalization of Core
Equity Fund on a pro forma basis as of that date, giving effect to the proposed
acquisition of assets at net asset value. The pro forma data reflects an
exchange ratio of approximately 0.929 and 0.991 for Institutional and
Institutional Service shares, respectively, of Core Equity Fund Shares issued
for each Institutional and Institutional Service share, respectively, of Equity
Income Fund.
Capitalization of Core Equity Fund,
Equity Income Fund and Core Equity
Fund (Pro Forma)
<TABLE>
<CAPTION>
Core Equity Income Equity Core Equity
Fund Fund Fund
(After Merger)
--------------- -------------- ---------------
<S> <C> <C> <C>
Net Assets
Institutional.............. $1,868,254,237 $ 186,810,374 $2,055,064,611
Institutional Service...... $ 24,583,510 $ 1,429,038 $ 26,012,548
-------------- -------------- --------------
Total Net Assets........... $1,892,837,747 $ 188,239,412 $2,081,077,159
============== ============== ==============
Net Asset Value Per Share
Institutional............ $85.00 $78.94 $85.00
Institutional Service.... $79.73 $78.98 $79.73
Shares Outstanding
Institutional............ 21,978,928 2,366,384 24,176,603
Institutional Service.... 308,337 18,093 326,259
---------- --------- ----------
All Classes.............. 22,287,265 2,384,477 24,502,862
========== ========= ==========
</TABLE>
The pro forma capitalization data does not reflect the effect of the
proposed acquisition of common trust fund assets managed by CoreStates Advisors
on July 9, 1999.
The table set forth above should not be relied upon to reflect the number
of shares to be received in the Merger; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Merger.
Shareholder Information
As of May 28, 1999 (the "Record Date"), the following number of each class
of shares of beneficial interest of Equity Income Fund was outstanding:
Class of Shares
Institutional .................
Institutional Service .......
All Classes........................
As of the "Record Date", the officers and Trustees of Evergreen Select
Equity Trust beneficially owned as a group less than 1% of the outstanding
shares of Equity Income Fund. To Evergreen Select Equity Trust's knowledge, the
following persons owned beneficially or of record more than 5% of Equity Income
Fund's total outstanding shares as of the "Record Date":
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares of Shares of
Class Before Class After
Name and Class No. of Shares Merger Merger
Address
<S> <C> <C> <C> <C> <C>
[ to be supplied]
</TABLE>
<PAGE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the Prospectuses and Statement of Additional Information of the
Funds. The investment objectives, policies and restrictions of each Fund can be
found in the Prospectuses for Core Equity Fund and Equity Income Fund under the
caption "Fund Descriptions." The Prospectuses for Core Equity Fund and Equity
Income Fund also offer additional funds advised by FUNB or its affiliates. These
additional funds are not involved in the Merger, their investment objectives and
policies are not discussed in this Prospectus/Proxy Statement and their shares
are not offered hereby. The investment objective of each Fund is non-fundamental
and can be changed by the Board of Trustees without shareholder approval.
The investment objective of Core Equity Fund is to seek long-term capital
appreciation. The Fund invests at least 65% of its total assets in common stocks
of 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 investment objective of Equity Income Fund is to seek high current
income, primarily, and long-term capital appreciation secondarily. The Fund
invests at least 65% of its total assets in income-producing equity securities
that are generally characterized by having below-average price to earnings
ratios and higher dividend yields relative to their industry groups. 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.
Long-term capital appreciation is a focus of each Fund's investment
objective. Core Equity Fund seeks long-term capital appreciation as its primary
objective, while Equity Income Fund seeks long-term capital appreciation
secondarily to high current income. The Funds' investment policies are similar
in that both Funds base policies of stock selection on a diversified style of
equity management that allows it to invest in both value and growth-oriented
equity securities, and both Funds invest substantially all of their assets in
common stocks of companies which have potential for growth. However, the primary
investment goal of Equity Income Fund is income, while Core Equity Fund's
primary investment goal is capital appreciation.
The characteristics of each investment policy and the associated risks are
described in the Funds' Prospectuses and in the Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Statement of Additional Information.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Evergreen Select Equity Trust is an open-end management investment
company registered with the SEC under the 1940 Act, which continuously offers
shares to the public. Evergreen Select Equity Trust is organized as a Delaware
business trust and is governed by its Declaration of Trust, By-Laws, a Board
of Trustees and by applicable Delaware and federal law. Core Equity Fund and
Equity Income Fund are series of Evergreen Select Equity Trust.
Capitalization
The beneficial interests in Core Equity Fund and Equity Income Fund are
represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Select Equity Trust's
Declaration of Trust permits the Trustees to allocate shares into an unlimited
number of series, and classes thereof, with rights determined by the Trustees,
all without shareholder approval. Fractional shares may be issued by either
Fund. Each Fund's shares represent equal proportionate interests in the assets
belonging to the Fund. Shareholders of each Fund are entitled to receive
dividends and other amounts as determined by the Trustees. Shareholders of
each Fund vote separately, by class, as to matters, such as approval of or
amendments to Rule 12b-1 distribution plans, that affect only their particular
class and by Fund as to matters, such as approval of or amendments to
investment advisory agreements or proposed mergers, that affect only their
particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. No similar statutory or other authority limiting
business trust shareholder liability exists in any other state. As a result,
to the extent that Evergreen Select Equity Trust or a shareholder is subject
to the jurisdiction of courts in those states, it is possible that a court may
not apply Delaware law, and may thereby subject shareholders of Evergreen
Select Equity Trust to liability. To guard against this risk, the Declaration
of Trust of Evergreen Select Equity Trust: (a) provides that any written
obligation of the Trust may contain a statement that such obligation may only
be enforced against the assets of the Trust or the particular series in
question and the obligation is not binding upon the shareholders of the Trust;
however, the omission of such a disclaimer will not operate to create personal
liability for any shareholder; and (b) provides for indemnification out of
Trust property of any shareholder held personally liable for the obligations
of the Trust. Accordingly, the risk of a shareholder of Evergreen Select
Equity Trust incurring financial loss beyond that shareholder's investment
because of shareholder liability is limited to circumstances in which: (I) the
court refuses to apply Delaware law; (ii) no contractual limitation of
liability was in effect; and (iii) the Trust itself is unable to meet its
obligations. In light of Delaware law, the nature of the Trust's business, and
the nature of its assets, the risk of personal liability to a shareholder of
Evergreen Select Equity Trust is remote.
Shareholder Meetings and Voting Rights
Evergreen Select Equity Trust on behalf of Core Equity Fund and Equity
Income Fund is not required to hold annual meetings of shareholders. However,
a meeting of shareholders for the purpose of voting upon the question of
removal of a Trustee must be called when requested in writing by the holders
of at least 10% of the outstanding shares of Evergreen Select Equity Trust. In
addition, Evergreen Select Equity Trust is required to call a meeting of
shareholders for the purpose of electing Trustees if, at any time, less than a
majority of the Trustees then holding office were elected by shareholders.
Evergreen Select Equity Trust does not currently intend to hold regular
shareholder meetings. Cumulative voting is not permitted. Except when a larger
quorum is required by applicable law, with respect to both Funds, 25% of the
outstanding shares entitled to vote constitutes a quorum for consideration of
such matter. For each Fund, a majority (greater than 50%) of the votes cast
and entitled to vote is sufficient to act on a matter (unless otherwise
specifically required by the applicable governing documents or other law,
including the 1940 Act).
Under the Declaration of Trust of Evergreen Select Equity Trust, each
share of Core Equity Fund and Equity Income Fund will be entitled to one vote
for each dollar of net asset value applicable to such share.
Liquidation or Dissolution
In the event of the liquidation of Core Equity Fund or Equity Income
Fund, the shareholders are entitled to receive, when and as declared by the
Trustees, the excess of the assets belonging to such Fund or attributable to
the class over the liabilities belonging to the Fund or attributable to the
class. In either case, the assets so distributable to shareholders of the Fund
will be distributed among the shareholders in proportion to the number of
shares of a class of the Fund held by them and recorded on the books of the
Fund.
Liability and Indemnification of Trustees
Under the Declaration of Trust of Evergreen Select Equity Trust, a
Trustee is liable to the Trust and its shareholders only for such Trustee's
own willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of the office of Trustee or the discharge
of such Trustee's functions. As provided in the Declaration of Trust, each
Trustee of the Trust is entitled to be indemnified against all liabilities
against him or her, including the costs of litigation, unless it is determined
that the Trustee (i) did not act in good faith in the reasonable belief that
such Trustee's action was in or not opposed to the best interests of the
Trust; (ii) had acted with willful misfeasance, bad faith, gross negligence or
reckless disregard of such Trustee's duties; and (iii) in a criminal
proceeding, had reasonable cause to believe that such Trustee's conduct was
unlawful (collectively, "disabling conduct"). A determination that the Trustee
did not engage in disabling conduct and is, therefore, entitled to
indemnification may be based upon the outcome of a court action or
administrative proceeding or by (a) a vote of a majority of those Trustees who
are neither "interested persons" within the meaning of the 1940 Act nor
parties to the proceeding or (b) an independent legal counsel in a written
opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct
is later determined to preclude indemnification and certain other conditions
are met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Select Equity Trust, its
By-Laws and Delaware law and is not a complete description of those documents
or law. Shareholders should refer to the provisions of such Declaration of
Trust, By-Laws and Delaware law directly for more complete information.
ADDITIONAL INFORMATION
Core Equity Fund. Information concerning the operation and management of
Core Equity Fund is incorporated herein by reference from the Prospectuses
dated November 1, 1998, copies of which are enclosed, and the Statement of
Additional Information of the same date. A copy of such Statement of
Additional Information is available upon request and without charge by writing
to Core Equity Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-645-7816.
Equity Income Fund. Information about the Fund is included in its current
Prospectuses dated November 1, 1998 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to Equity Income Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-645-7816.
Core Equity Fund and Equity Income Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934 and the 1940
Act, and in accordance therewith file reports and other information including
proxy material, and charter documents with the SEC. These items can be
inspected and copies obtained at the Public Reference Facilities maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices located at Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511 and Seven World Trade Center, Suite 1300, New
York, New York 10048.
The SEC maintains a Web site (http://www.sec.gov) that contains the
Funds' Statement of Additional Information and other material incorporated by
reference herein together with other information regarding Core Equity Fund
and Equity Income Fund.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of Equity
Income Fund in connection with a solicitation of proxies by the Trustees of
Evergreen Select Equity Trust, to be used at the Special Meeting of Shareholders
to be held at 2:00 p.m., July 30, 1999, at the offices of the Evergreen Funds,
200 Berkeley Street, 26th Floor, Boston, Massachusetts 02116, and at any
adjournments thereof. This Prospectus/Proxy Statement, along with a Notice of
the Meeting and a proxy card, is first being mailed to shareholders of Equity
Income Fund on or about June 25, 1999. Only shareholders of record as of the
close of business on the Record Date will be entitled to notice of, and to vote
at, the Meeting or any adjournment thereof. The holders of 25% of the
outstanding shares entitled to vote at the close of business on the Record Date
present in person or represented by proxy will constitute a quorum for the
Meeting. If the enclosed form of proxy is properly executed and returned in time
to be voted at the Meeting, the proxies named therein will vote the shares
represented by the proxy in accordance with the instructions marked thereon.
Unmarked proxies will be voted FOR the proposed Merger and FOR any other matters
deemed appropriate. Proxies that reflect abstentions and "broker non-votes"
(i.e., shares held by brokers or nominees as to which (i) instructions have not
been received from the beneficial owners or the persons entitled to vote or (ii)
the broker or nominee does not have discretionary voting power on a particular
matter) will be counted as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but will not have the effect
of being counted as votes against the Plan, which must be approved by a majority
of the votes cast and entitled to vote. A proxy may be revoked at any time on or
before the Meeting by written notice to the Secretary of Evergreen Select Equity
Trust at the address set forth on the cover of this Prospectus/Proxy Statement.
Unless revoked, all valid proxies will be voted in accordance with the
specifications thereon or, in the absence of such specifications, FOR approval
of the Plan and the Merger contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority of the
votes cast and entitled to vote, with all classes voting together as a single
class at the Meeting at which a quorum of the Fund's shares is present. Each
share outstanding is entitled to one vote for each dollar of net asset value
applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone or personal solicitations conducted by officers
and employees of FUNB, its affiliates or other representatives of Equity Income
Fund (who will not be paid for their soliciting activities). If you wish to
participate in the Meeting, you may submit the proxy card included with this
Prospectus/Proxy Statement, vote by fax or attend in person.
Any proxy given by you is revocable.
In the event that sufficient votes to approve the Merger are not received
by July 30, 1999, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy at the Meeting. The persons
named as proxies will vote upon such adjournment after consideration of all
circumstances which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Merger will not be entitled under
either Delaware law or the Declaration of Trust of Evergreen Select Equity Trust
to demand payment for, or an appraisal of, his or her shares. However,
shareholders should be aware that the Merger as proposed is not expected to
result in recognition of gain or loss to shareholders for federal income tax
purposes and that, if the Merger is consummated, shareholders will be free to
redeem the shares of Core Equity Fund which they receive in the transaction at
their then-current net asset value. Shares of Equity Income Fund may be redeemed
at any time prior to the consummation of the Merger. Shareholders of Equity
Income Fund may wish to consult their tax advisers as to any differing
consequences of redeeming Fund shares prior to the Merger or exchanging such
shares in the Merger.
Equity Income Fund does not hold annual shareholder meetings. If the Merger
is not approved, shareholders wishing to submit proposals to be considered for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of Evergreen Select Equity Trust at the
address set forth on the cover of this Prospectus/Proxy Statement so that they
will be received by the Fund in a reasonable period of time prior to the
meeting.
The votes of the shareholders of Core Equity Fund are not being solicited
by this Prospectus/Proxy Statement and are not required to carry out the Merger.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Equity Income Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Core Equity Fund (formerly Evergreen Select Common
Stock Fund) as of June 30, 1998, and the financial statements and financial
highlights for the periods indicated therein, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The Annual Report of Equity Income Fund as of June 30, 1998, and the
financial highlights and financial statements for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Core Equity Fund
will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Select Equity Trust do not intend to present any
other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
THE TRUSTEES OF EVERGREEN SELECT EQUITY TRUST RECOMMEND APPROVAL OF THE
PLAN AND ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED
IN FAVOR OF APPROVAL OF THE PLAN.
June 25, 1999
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of May, 1999, by and between Evergreen Select Equity Trust, a
Delaware business trust, with its principal place of business at 200 Berkeley
Street, Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen
Select Core Equity Fund series (the "Acquiring Fund"), and the Trust, with
respect to its Evergreen Select Equity Income Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization (the "Reorganization") will consist of (i) the transfer of all of
the assets of the Selling Fund in exchange solely for Institutional and
Institutional Service shares of beneficial interest, $.001 par value per share,
of the Acquiring Fund (the "Acquiring Fund Shares"); (ii) the assumption by the
Acquiring Fund of the identified liabilities of the Selling Fund; and (iii) the
distribution, after the Closing Date hereinafter referred to, of the Acquiring
Fund Shares to the shareholders of the Selling Fund in liquidation of the
Selling Fund as provided herein, all upon the terms and conditions hereinafter
set forth in this Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Selling Fund for Acquiring Fund Shares and the assumption
of the identified liabilities of the Selling Fund by the Acquiring Fund on the
terms and conditions hereinafter set forth are in the best interests of the
Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND
LIABILITIES AND LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including, without limitation,
all cash, securities, commodities, interests in futures and dividends or
interest receivables, that is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
1.4 Liquidation and Distribution. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Institutional and
Institutional Service shares of the Selling Fund will receive Institutional and
Institutional Service shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or about
July 30, 1999 or such other date as the parties may agree to in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously immediately prior to the opening of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the
offices of the Evergreen Funds, 200 Berkeley Street, Boston, MA 02116, or at
such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing
under the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as
a management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectuses and statement of additional information
of the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission
thereunder and do not include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not
result, in violation of any provision of the Trust's Declaration of Trust
or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date, except for liabilities, if any, to be
discharged or reflected in the Statement of Assets and Liabilities as
provided in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Selling Fund or any of
its properties or assets, which, if adversely determined, would
materially and adversely affect its financial condition, the conduct of
its business, or the ability of the Selling Fund to carry out the
transactions contemplated by this Agreement. The Selling Fund knows of no
facts that might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree,
or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated.
(g) The unaudited semi-annual financial statements of the Selling
Fund at December 31, 1998 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies
of which have been furnished to the Acquiring Fund) fairly reflect the
financial condition of the Selling Fund as of such date, and there are no
known contingent liabilities of the Selling Fund as of such date not
disclosed therein.
(h) Since December 31, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Selling Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Acquiring Fund. For the
purposes of this subparagraph (h), a decline in the net asset value of
the Selling Fund shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such
dates shall have been filed, and all federal and other taxes shown due on
said returns and reports shall have been paid, or provision shall have
been made for the payment thereof. To the best of the Selling Fund's
knowledge, no such return is currently under audit, and no assessment has
been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Selling Fund. All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records
of the transfer agent as provided in paragraph 3.4. The Selling Fund does
not have outstanding any options, warrants, or other rights to subscribe
for or purchase any of the Selling Fund shares, nor is there outstanding
any security convertible into any of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer, and deliver such assets hereunder,
and, upon delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise
under the 1933 Act, other than as disclosed to the Acquiring Fund and
accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Selling Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws
relating to or affecting creditors' rights and to general equity
principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection
with the transactions contemplated hereby shall be accurate and complete
in all material respects and shall comply in all material respects with
federal securities and other laws and regulations thereunder applicable
thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7)
(other than information therein that relates to the Acquiring Fund) will,
on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as
a management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force
and effect.
(c) The current prospectuses and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the
Trust's Declaration of Trust or By-Laws or of any material agreement,
indenture, instrument, contract, lease, or other undertaking to which the
Acquiring Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
of its properties or assets, which, if adversely determined, would
materially and adversely affect its financial condition and the conduct
of its business or the ability of the Acquiring Fund to carry out the
transactions contemplated by this Agreement. The Acquiring Fund knows of
no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions contemplated herein.
(f) The unaudited semi-annual financial statements of the Acquiring
Fund at December 31, 1998 are in accordance with generally accepted
accounting principles consistently applied, and such statements (copies
of which have been furnished to the Selling Fund) fairly reflect the
financial condition of the Acquiring Fund as of such date, and there are
no known contingent liabilities of the Acquiring Fund as of such date not
disclosed therein.
(g) Since December 31, 1998 there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities,
or business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of indebtedness
maturing more than one year from the date such indebtedness was incurred,
except as otherwise disclosed to and accepted by the Selling Fund. For
the purposes of this subparagraph (g), a decline in the net asset value
of the Acquiring Fund shall not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such
dates shall have been filed, and all federal and other taxes shown due on
said returns and reports shall have been paid or provision shall have
been made for the payment thereof. To the best of the Acquiring Fund's
knowledge, no such return is currently under audit, and no assessment has
been asserted with respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has
met the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any
Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of
the Acquiring Fund enforceable in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency, reorganization, moratorium,
and other laws relating to or affecting creditors' rights and to general
equity principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant
to the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in connection
with the transactions contemplated hereby shall be accurate and complete
in all material respects and shall comply in all material respects with
federal securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates
to the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the
1940 Act, and such of the state Blue Sky or securities laws as it may
deem appropriate in order to continue its operations after the Closing
Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by KPMG LLP and
certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any case
within sixty days after the Closing Date, the Acquiring Fund and the Selling
Fund shall cause KPMG LLP to issue a letter addressed to the Acquiring Fund and
the Selling Fund, in form and substance satisfactory to the Funds, setting forth
the federal income tax implications relating to capital loss carry forwards (if
any) of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of
its properties and assets and to carry on its business as presently
conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission
as an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net
asset value thereof has been paid, the Acquiring Fund Shares to be issued
and delivered to the Selling Fund on behalf of the Selling Fund
Shareholders as provided by this Agreement are duly authorized and upon
such delivery will be legally issued and outstanding and fully paid and
non-assessable, and no shareholder of the Acquiring Fund has any
preemptive rights in respect thereof.
(e) The Registration Statement, to such counsel's knowledge, has
been declared effective by the Commission and no stop order under the
1933 Act pertaining thereto has been issued, and to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States or the State of Delaware is
required for consummation by the Acquiring Fund of the transactions
contemplated herein, except such as have been obtained under the 1933
Act, the 1934 Act and the 1940 Act, and as may be required under state
securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in
a violation of the Trust's Declaration of Trust or By-Laws or any
provision of any material agreement, indenture, instrument, contract,
lease or other undertaking (in each case known to such counsel) to which
the Acquiring Fund is a party or by which it or any of its properties may
be bound or to the knowledge of such counsel, result in the acceleration
of any obligation or the imposition of any penalty, under any agreement,
judgment, or decree to which the Acquiring Fund is a party or by which it
is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing
on or before the effective date of the Registration Statement or the
Closing Date required to be described in the Registration Statement or to
be filed as exhibits to the Registration Statement which are not
described or filed as required.
(i) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring
Fund or any of its properties or assets and the Acquiring Fund is not a
party to or subject to the provisions of any order, decree or judgment of
any court or governmental body, which materially and adversely affects
its business, other than as previously disclosed in the Registration
Statement.
Such opinion shall contain such assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the power to own all of
its properties and assets and to carry on its business as presently
conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act,
and, to such counsel's knowledge, such registration with the Commission
as an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered
by the Selling Fund and, assuming due authorization, execution, and
delivery of this Agreement by the Acquiring Fund, is a valid and binding
obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the
United States or the State of Delaware is required for consummation by
the Selling Fund of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and
as may be required under state securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in
a violation of the Trust's Declaration of Trust or By-Laws, or any
provision of any material agreement, indenture, instrument, contract,
lease or other undertaking (in each case known to such counsel) to which
the Selling Fund is a party or by which it or any of its properties may
be bound or, to the knowledge of such counsel, result in the acceleration
of any obligation or the imposition of any penalty, under any agreement,
judgment, or decree to which the Selling Fund is a party or by which it
is bound.
(f) Only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
government proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement
which are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Selling
Fund or any of its respective properties or assets and the Selling Fund
is neither a party to nor subject to the provisions of any order, decree
or judgment of any court or governmental body, which materially and
adversely affects its business other than as previously disclosed in the
Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are
legally issued and fully paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall
be in the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution
of the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund
and the Selling Fund will each be a "party to a reorganization" within
the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the reorganization will be
the same as the aggregate tax basis of the Selling Fund shares held by
such shareholder immediately prior to the reorganization, and the holding
period of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling
Fund shares were held as capital assets on the date of the
reorganization).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Selling Fund immediately prior to the reorganization, and the holding
period of the assets of the Selling Fund in the hands of the Acquiring
Fund will include the period during which those assets were held by the
Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from KPMG LLP a letter addressed
to the Acquiring Fund, in form and substance satisfactory to the Acquiring Fund,
to the effect that:
(a) they are independent certified public accountants with respect
to the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy
Statement has been obtained from and is consistent with the accounting
records of the Selling Fund;
(c) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the data utilized in the
calculations of the pro-forma expense ratios appearing in the
Registration Statement and Prospectus and Proxy Statement agree with the
underlying accounting records of the Selling Fund or with written
estimates provided by Selling Fund's management and were found to be
mathematically correct; and
In addition, unless waived by the Acquiring Fund, the Acquiring Fund shall
have received from KPMG LLP a letter addressed to the Acquiring Fund dated on
the Closing Date, in form and substance satisfactory to the Acquiring Fund, to
the effect that on the basis of limited procedures agreed upon by the Acquiring
Fund (but not an examination in accordance with generally accepted auditing
standards), the of net asset value per share of the Selling Fund as of the
Valuation Date was computed and the valuation of the portfolio was consistent
with the valuation policy of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG LLP a letter addressed
to the Selling Fund, in form and substance satisfactory to the Selling Fund, to
the effect that:
(a) they are independent certified public accountants with respect
to the Acquiring Fund within the meaning of the 1933 Act and the
applicable published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Selling
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy
Statement has been obtained from and is consistent with the accounting
records of the Acquiring Fund; and
(c) on the basis of limited procedures agreed upon by the Selling
Fund (but not an examination in accordance with generally accepted
auditing standards), the data utilized in the calculations of the
pro-forma expense ratios appearing in the Registration Statement and
Prospectus and Proxy Statement agree with written estimates provided by
each Fund's management and were found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing
Date, if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears that
it will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund and
the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of
the date first written above.
EVERGREEN SELECT EQUITY TRUST
On behalf of Evergreen Select
Core Equity Fund
By:_____________________________
Name:
Title:
EVERGREEN SELECT EQUITY TRUST
On behalf of Evergreen Select
Equity Income Fund
By:_____________________________
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT B
- -------------------------------------------------------------------------------
EVERGREEN
Select Common Stock Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Common Stock Fund utilizes a diversified style of equity
management which capitalizes on opportunities in both value- and growth-oriented
stocks. In serving the investment needs of individual investors, the Fund
remains sensitive to tax Implications.
PROCESS
The Fund uses a bottom-up stock selection process, focusing on security
fundamentals rather than broad economic forecasts. The Fund is managed using a
team approach; investment managers locate attractive holdings using a unique
blend of quantitative and traditional fundamental analysis skills.
BENCHMARK
S & P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
1 year 24.37% 24.16%
5 years 18.98% 18.71%
10 years 15.28% 15.00%
Since Inception 16.16% 15.87%
Fiscal YTD income dividends per share $0.51 $0.31
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class I
6/30/88 $10,000 $10,000
6/30/89 12,055 11,267
6/30/90 14,042 13,404
6/30/91 15,081 13,998
6/30/92 17,104 15,609
6/30/93 19,435 17,376
6/30/94 19,708 16,610
6/30/95 24,846 20,336
6/30/96 31,306 25,466
6/30/97 42,169 33,318
6/30/98 54,888 41,437
Comparison of change in value of a $10,000 investment in Evergreen Select Common
Stock Fund, Class I, and the S&P 500 Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was December 31, 1981.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. Performance information for Class IS also includes
performance of the Fund's Class I for the period from November 24, 1997 to
February 4, 1998 (commencement of Class IS operations), adjusted for differences
between class expenses. Returns of Class I and IS since their respective
commencement of class operations were 12.23% and 9.27%, respectively. The common
trust fund was not registered under the Investment Company Act of 1940 (the
"1940 Act") or subject to certain investment restrictions that are imposed by
the 1940 Act. If the common trust fund had been registered under the 1940 Act,
its performance may have been adversely affected. Index returns do not reflect
expenses, which have been deducted from the Fund's return.
B-1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Common Stock Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
The Fund is managed by Mark C. Sipe and Hanspeter Giger who have over 31 years
of combined investment experience. Their disciplined approach assures
consistency of results and superior service.
[PHOTO OF MARK C. SIPE] [PHOTO OF HANSPETER GIGER]
MARKET UPDATE AND FUND PERFORMANCE
The stock market's resilience over the past 12 months has been matched only by
its steadfast narrowness. Replaying, yet again, the record of the prior three
years, a select number of very large capitalization stocks accounted for most of
the market's first half advance: the ten largest stocks in the S&P 500 rose
31.7%, while the equally weighted average of all 500 stocks rose just 8.6%;
amazingly, nearly a third actually declined.
Against this backdrop, the Evergreen Select Common Stock Fund Class I shares'
24.4% 12-month return, as of June 30, 1998, trailed the 30.2% return for the S&P
500 Index. The Fund outperformed the 15.2% average return, of all equity mutual
funds tracked by Lipper Analytical Services, Inc. a mutual fund performance
monitoring company.
Portfolio
Characteristics
-----------------
Total Net Assets $1,970,659,937
Number of Issues 118
P/E Ratio 26.7x
Beta 1.0
VICTIMS OF THE ASIAN CRISIS
The stock market's seemingly split personality disorder is clearly reflected in
disparate performance between various sectors of the market so far this year.
After leading the market in the first quarter, industrial cyclicals such as
paper, chemical and machinery stocks rolled over from a relapse of Asian fears.
Another major casualty of the Asian fallout, energy, appears to offer tremendous
long-term opportunity. Similar to the experience in other sectors, however,
those segments that appear to present the best fundamentals or opportunity for
improvement have tended to be laggards relative to the larger names. For
example, large cap stocks such as Texaco held up well versus smaller names such
as Diamond Offshore and R&B Falcon. Despite weak oil prices and negative
near-term sentiment, for the long haul we continue to find the best values in
some drillers such as the latter two stocks above, refiners such as Tosco, and
exploration and production companies such as Anadarko Petroleum. This is due to
a combination of valuation, restructuring opportunities, management strengths,
and/or industry positioning.
B-2
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Common Stock Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
TOP 5 INDUSTRIES
----------------
(as a percentage of net assets)
Information Services & Technology 12.2%
Healthcare Products & Services 11.1%
Banks 10.2%
Oil/Energy 8.5%
Food & Beverage Products 7.4%
AREAS OF STRENGTH
On the other hand, the better performing sectors, primarily those more closely
linked to the domestic consumer, surged ahead. The share prices of stocks
related to retailing, autos, and housing all echoed the enthusiasm in reaching a
30-year high in consumer confidence. In the Fund, names such as Black & Decker,
Dayton Hudson and Sears led the group's performance.
Another strong segment, but more tied to technology than to the consumer, was
telecommunications, where strong performances by LCI International, prior to its
takeover by Qwest Communications, and Century Telephone, contributed to the
overall Fund's returns. And all along, the health care and technology sectors or
more precisely the very large stocks in those sectors charged ahead; 25% or more
during the past twelve months alone.
TOP 10 HOLDINGS
---------------
(as a percentage of net assets)
General Electric Co. 2.3%
Ford Motor Co. 2.2%
CiscoSystems, Inc. 1.8%
International Business Machines Corp. 1.7%
Du Pont (E.I.) De Nemours & Co. 1.7%
Coca Cola Co. (The) 1.7%
GTE Corp. 1.6%
Smith Kline Beecham Plc, ADR 1.6%
Texaco, Inc. 1.6%
Chase Manhattan Corp. 1.6%
PERFORMANCE EVALUATION
It is this last distinction that is perhaps most important in dissecting the
performance of the Evergreen Select Common Stock Fund this year. While the
Fund's comparatively modest sector "bets" versus the S&P 500 netted out to have
a slight positive impact, it was participation in stocks beyond the very largest
within primarily the technology and healthcare sectors that accounted for much
of the Fund's underperformance relative to the S&P 500. Forays into smaller
stocks such as MedPartners, Varian Associates and Adaptec diminished the
positive contributions from participation in larger stocks such as Schering-
Plough, Abbott Labs, Dell Computer and Microsoft. While the current drag by some
of these smaller positions is disappointing, we believe many still represent
uncommon values relative to their strong fundamental outlooks and represent the
best potential for strong comparative returns in subsequent periods.
B-3
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN SELECT EQUITY INCOME FUND
a Series of
EVERGREEN SELECT EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN SELECT CORE EQUITY FUND
a Series of
EVERGREEN SELECT EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen Select Equity
Income Fund ("Equity Income"), a series of Evergreen Select Equity Trust, to
Evergreen Select Core Equity Fund ("Core Equity"), also a series of
Evergreen Select Equity Trust, in exchange for Institutional and Institutional
Service shares (to be issued to holders of Institutional and Institutional
Service shares, respectively, of Core Equity,) of beneficial interest, $.001
par value per share, of Core Equity, consists of this cover page and the
following described documents, each of which is attached hereto and incorporated
by reference herein:
(1) The Statement of Additional Information of Core Equity and Equity
Income dated November 1, 1998;
(2) Annual Report of Core Equity and Equity Income for the year ended
June 30, 1998;
(3) Semi-Annual Report of Core Equity for the six-month period ended
December 31, 1998;
(4) Semi-Annual Report of Equity Income for the six-month period ended
December 31, 1998;
This Statement of Additional Information, which is not a prospectus,
supplements, and should be read in conjunction with, the Prospectus/Proxy
Statement of Equity Income and Core Equity dated June 25, 1999. A copy of the
Prospectus/Proxy Statement may be obtained without charge by calling or writing
to Evergreen Select Equity Trust at the telephone number or address set forth
above.
The date of this Statement of Additional Information is June 25, 1999.
<PAGE>
EVERGREEN SELECT EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1998
Evergreen Select Strategic Value Fund
Evergreen Select Diversified Value Fund
Evergreen Select Large Cap Blend Fund
Evergreen Select Common Stock Fund
Evergreen Select Strategic Growth Fund
Evergreen Select Equity Income Fund
Evergreen Select Small Company Value Fund
Evergreen Select Social Principles Fund
Evergreen Select Balanced Fund
Evergreen Select Equity Index Fund
Evergreen Select Special Equity Fund
Evergreen Select Small Cap Growth Fund
(Each a "Fund" Together the "Funds")
Each Fund is a series of an open-end management investment company, known
as Evergreen Select Equity Trust (the "Trust").
Each Fund offers at least two classes of shares: Institutional Shares
and Institutional Service Shares. In addition, Evergreen Select Large Cap Blend
Fund and Evergreen Select Social Principles Fund offer Charitable Shares, and
Evergreen Select Equity Index Fund offers Class A and Class B shares. This
statement of additional information ("SAI") provides additional information
about the applicable classes of shares for the Funds listed above. It is not a
prospectus but should be read in conjunction with Fund prospectuses dated
November 1, 1998, as supplemented from time to time. You may obtain prospectuses
from Evergreen Distributor, Inc.
24723
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES..........................................................3
Fundamental Investment Policies.....................................3
Additional Information on Securities and Investment Practices.......5
MANAGEMENT OF THE TRUST.....................................................17
PRINCIPAL HOLDERS OF FUND SHARES............................................21
INVESTMENT ADVISORY AND OTHER SERVICES......................................27
Investment Advisors....................................................27
Distributor............................................................29
Distribution Plan......................................................29
Additional Service Providers...........................................31
BROKERAGE...................................................................31
Selection of Brokers...................................................31
Brokerage Commissions..................................................32
General Brokerage Policies.............................................32
TRUST ORGANIZATION..........................................................33
Form of Organization...................................................33
Description of Shares..................................................33
Voting Rights..........................................................33
Limitation of Trustees' Liability......................................34
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES.............................34
How the Fund Offers Its Shares to the Public (Equity Index
Class A and B).......................................................34
Contingent Deferred Sales Charge (Equity Index Class A and B)..........35
Sales Charge Waivers or Reductions (Equity Index Class A and B)........35
Exchanges..............................................................37
How and When the Funds Calculate Their Net Asset Value Per Share.......37
How The Funds Value The Securities They Own............................37
Shareholder Services...................................................38
PRINCIPAL UNDERWRITER.......................................................38
ADDITIONAL TAX INFORMATION..................................................39
Requirement for Qualification as a Regulated Investment Company........39
Taxes on Distributions.................................................39
Taxes on the Sale or Exchange of Fund Shares...........................40
Other Tax Considerations...............................................41
FINANCIAL INFORMATION.......................................................41
Expenses...............................................................41
Brokerage Commissions Paid.............................................43
Performance Data.......................................................44
ADDITIONAL INFORMATION......................................................47
24723
<PAGE>
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
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, as amended
(the "1940 Act"). Where necessary, an explanation beneath a fundamental policy
describes a 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
Each 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, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the 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.
24723
3
<PAGE>
Further Explanation of Borrowing Policy
Each Fund may borrow from banks or enter into reverse repurchase agreements
in an amount up to 33 1/3% of its total assets, taken at market value. Each Fund
may also borrow up to an additional 5% of its total assets from banks or others.
Each Fund may borrow only as a temporary measure for extraordinary or emergency
purposes such as the redemption of Fund shares. Each Fund may not purchase
securities while outstanding borrowings exceed 5% of its total assets. Each Fund
may obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities. Each Fund may purchase securities
on margin and engage in short sales to the extent permitted by applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except insofar as
each 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, each 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 each 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 each 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, each 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 a Fund any income accruing on the security. Each
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 a 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. A Fund has the right to call a
loan and obtain the securities lent at any time on notice of not more than five
business days.
A Fund may pay reasonable fees in connection with such loans.
24688
4
<PAGE>
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
The investment objectives of each Fund and a description of the securities
in which each Fund may invest is set forth in the Funds' prospectuses. The
following expands upon the discussion in the prospectuses regarding certain
investments of the Funds.
Equity Securities
Equity securities consist primarily of common stocks and securities
convertible into common stocks. Investing in common stocks, particularly those
having growth characteristics, frequently involves greater risks (and possibly
greater rewards) than investing in other types of securities. Common stock
prices tend to be more volatile and companies having growth characteristics may
sometimes be unproven.
Investing in companies with small or medium market capitalizations involves
greater risk than investing in larger companies. The stock prices of small and
mid-cap companies can rise quickly and drop substantially in a short period of
time. This volatility results from a number of factors, including reliance by
these companies on relatively limited product lines, markets, and financial and
management resources. These and other factors may make small and mid-cap
companies more susceptible to setbacks or downturns. These companies may
experience higher rates of bankruptcy or other failures than larger companies.
They may be more likely to be negatively affected by changes in management. In
addition, the stock of small and mid-cap companies may be thinly traded.
Derivatives
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 may
be standardized, exchange-traded contracts or 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. 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.
The Funds can use derivatives to earn income, to enhance returns, to hedge
or adjust the risk profile of the portfolio, in place of more traditional direct
investments or to obtain exposure to otherwise inaccessible markets. A Fund's
use derivatives for non-hedging purposes entails greater risks than if a Fund
were to use derivatives solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to a Fund's shareholders. Each Fund's investment advisor is
not an aggressive user of derivatives with
24688
5
<PAGE>
respect to the Funds. However, a Fund may take positions in those derivatives
that are within its investment policies if, in the judgment of the Advisor (as
hereinafter defined), this represents an effective response to current or
anticipated market conditions. The Advisor's use of derivatives is subject to
continuous risk assessment and control from the standpoint of a Fund's
investment objective and policies. While the judicious use of derivatives by
experienced investment managers, such as the Advisor, 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 a Fund.
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
detrimental to a Fund's interest.
Management Risk -- Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument, but also of the derivative
itself, without the benefit of observing the performance of the derivative under
all possible market conditions. Because derivatives are complex, each Fund and
its Advisor must (1) maintain controls to monitor the transactions entered into,
(2) assess the risk that a derivative adds to a Fund's portfolio and (3)
forecast price, interest rate or currency exchange rate movements correctly.
Credit Risk -- This is the risk that a Fund may lose money because the
other party to a derivative (usually called a "counter party") failed 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 counter party to each exchange-traded
derivative, guarantees performance. This guarantee is supported by a daily
payment system (i.e., margin requirements) operated by the clearing house to
reduce overall credit risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, a Fund considers the
creditworthiness of each counter party to a privately negotiated derivative in
evaluating potential credit risk.
Liquidity Risk -- Liquidity risk is the possibility that a Fund will have
difficult buying or selling a particular instrument. If a derivative transaction
is particularly large or if the relevant market is illiquid (as is the case with
many privately negotiated derivatives), a Fund may not be able 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 counter parties or a loss of value to a Fund. Derivatives do not
always perfectly or even highly correlate or track the value of the assets,
rates or indices they are designed to closely track. Consequently, a Fund's use
of derivatives may not always be an effective means of, and sometimes could be
counterproductive to, furthering a Fund's investment objective.
24688
6
<PAGE>
Options Transactions
Writing Covered Options. The Funds may write (i.e., sell) covered call and
put options. By writing a call option, a Fund becomes obligated during the term
of the option to deliver the securities underlying the option upon payment of
the exercise price. Writing a put option obligates the Fund during the term of
the option to purchase the securities underlying the option at the exercise
price if the option buyer exercises the option. A Fund also may write straddles
(combinations of covered puts and calls on the same underlying security).
The Funds may only write "covered" options. This means that while a Fund is
obligated as the writer of a call option it will own the underlying securities
subject to the option or, with call options on U.S. Treasury bills, it might own
similar U.S. Treasury bills. If a Fund has written options against all of its
securities that are available for writing options, the Fund may be unable to
write additional options unless it sells some of its portfolio holdings to
obtain new securities against which it can write options. If this were to occur,
higher portfolio turnover and correspondingly greater brokerage commissions and
other transaction costs may result. The Funds do not expect, however, that this
will occur. A Fund will be considered "covered" with respect to a put option it
writes if, while it is obligated as the writer of the put option, it deposits
and maintains with its custodian in a segregated account liquid assets having a
value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. A Fund receives a premium from writing a call or
put option, which it retains whether or not the option is exercised. By writing
a call option, a Fund might lose the potential for gain on the underlying
security while the option is open, and, by writing a put option, a Fund might
become obligated to purchase the underlying security for more than its current
market price upon exercise.
Purchasing Options. The Funds may purchase put or call options, including
put or call options for offsetting previously written put or call options of the
same series. Once a Fund has written a covered option, it will continue to hold
the segregated securities or assets until it effects a closing purchase
transaction. If the Fund is unable to close the option position, it must hold
the segregated securities or assets until the option expires or is exercised. An
option position may be closed out only in a secondary market for an option of
the same series. Although a Fund generally writes only those options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market will exist for any particular option at any particular
time, and, for some options, no secondary market may exist. In such event,
effecting a closing transaction for a particular option might not be possible.
Options on some securities are relatively new, and predicting how much
trading interest there will be for such options is impossible. There can be no
assurance that viable markets will develop or continue. The failure of such
markets to develop or continue could significantly impair a Fund's ability to
use such options to achieve its investment objective.
Options Trading Markets. The Funds trade in options that are generally
listed on national securities exchanges, currently including the Chicago Board
Options Exchange and the New York, American, Pacific and Philadelphia Stock
Exchanges. Options on some securities are traded in the over-the-counter market,
and may not be listed on any exchange. Options traded in the over-the-counter
market involve a greater risk that the securities dealers participating in the
transactions could fail to meet their obligations to a Fund.
24688
7
<PAGE>
A Fund will include the premiums it has paid for the purchase of unlisted
options and the value of securities used to cover options it has written for
purposes of calculating whether the Fund has complied with its policies on
illiquid securities.
Futures Transactions and Related Options Transactions
The Funds intend to enter into financial futures contracts as a hedge
against changes in prevailing levels of interest rates to seek relative
stability of principal and to establish more definitely the effective return on
securities held or intended to be acquired by the Funds or as a hedge against
changes in the prices of securities held by a Fund or to be acquired by a Fund.
A Fund's hedging may include sales of futures as an offset against the effect of
expected increases in interest rates or securities prices and purchases of
futures as an offset against the effect of expected declines in interest rates.
For example, when a Fund anticipates a significant market or market sector
advance, it will purchase a stock index futures contract as a hedge against not
participating in such advance at a time when a Fund is not fully invested. The
purchase of a futures contract serves as a temporary substitute for the purchase
of individual securities which may then be purchased in an orderly fashion. As
such purchases are made, an equivalent amount of index based futures contracts
would be terminated by offsetting sales. In contrast, a Fund would sell stock
index futures contracts in anticipation of or in a general market or market
sector decline that may adversely affect the market value of the Fund's
portfolio. To the extent that the Fund's portfolio changes in value in
correlation with a given index, the sale of futures contracts on that index
would substantially reduce the risk to the portfolio of a market decline or
change in interest rates, and, by doing so, provide an alternative to the
liquidation of the Fund's securities positions and the resulting transaction
costs.
The Funds intend to engage in options transactions which are related to
financial futures contracts for hedging purposes and in connection with the
hedging strategies described above.
Although techniques other than sales and purchases of futures contracts and
related options transactions could be used to reduce the Funds' exposure to
interest rate and/or market fluctuations, the Funds may be able to hedge their
exposure more effectively and perhaps at a lower cost through using futures
contracts and related options transactions. While the Funds do not intend to
take delivery of the instruments underlying futures contracts they hold, the
Funds do not intend to engage in such futures contracts for speculation.
Futures Contracts
Futures contracts are transactions in the commodities markets rather than
in the securities markets. A futures contract creates an obligation by the
seller to deliver to the buyer the commodity specified in the contract at a
specified future time for a specified price. The futures contract creates an
obligation by the buyer to accept delivery from the seller of the commodity
specified at the specified future time for the specified price. In contrast, a
spot transaction creates an immediate obligation for the seller to deliver and
the buyer to accept delivery of and pay for an identified commodity. In general,
futures contracts involve transactions in fungible goods such as wheat, coffee
and soybeans. However, in the last decade an increasing number of futures
contracts have been developed which specify financial instruments or financially
based indexes as the underlying commodity.
24688
8
<PAGE>
U.S. futures contracts are traded only on national futures exchanges and are
standardized as to maturity date and underlying financial instrument. The
principal financial futures exchanges in the United States are The Board of
Trade of the City of Chicago, the Chicago Mercantile Exchange, the International
Monetary Market (a division of the Chicago Mercantile Exchange), the New York
Futures Exchange and the Kansas City Board of Trade. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership, which is also
responsible for handling daily accounting of deposits or withdrawals of margin.
A futures commission merchant ("Broker") effects each transaction in connection
with futures contracts for a commission. Futures exchanges and trading are
regulated under the Commodity Exchange Act by the Commodity Futures Trading
Commission ("CFTC") and National Futures Association ("NFA").
Interest Rate Futures Contracts. The sale of an interest rate futures
contract creates an obligation by a Fund, as seller, to deliver the type of
financial instrument specified in the contract at a specified future time for a
specified price. The purchase of an interest rate futures contract creates an
obligation by a Fund, as purchaser, to accept delivery of the type of financial
instrument specified at a specified future time for a specified price. The
specific securities delivered or accepted, respectively, at settlement date, are
not determined until at or near that date. The determination is in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Currently, interest rate futures contracts can be purchased or sold on
90-day U.S. Treasury bills, U.S. Treasury bonds, U.S. Treasury notes with
maturities between 6 1/2 and 10 years, Government National Mortgage Association
(GNMA) certificates, 90-day domestic bank certificates of deposit, 90-day
commercial paper, and 90-day Eurodollar certificates of deposit. It is expected
that futures contracts trading in additional financial instruments will be
authorized. The standard contract size is $100,000 for futures contracts in U.S.
Treasury bonds, U.S. Treasury notes and GNMA certificates, and $1,000,000 for
the other designated contracts. While U.S. Treasury bonds, U.S. Treasury bills,
U.S. Treasury notes and GNMA certificates are backed by the full faith and
credit of the U.S. government, the futures contracts in U.S. government
securities are not obligations of the U.S. Treasury.
Index Based Futures Contracts, Other Than Stock Index Based. It is expected
that bond index and other financially based index futures contracts will be
developed in the future. It is anticipated that such index based futures
contracts will be structured in the same way as stock index futures contracts
but will be measured by changes in interest rates, related indexes or other
measures, such as the consumer price index. In the event that such futures
contracts are developed, the Funds will sell interest rate index and other index
based futures contracts to hedge against changes which are expected to affect
the Funds' portfolios.
The purchase or sale of a futures contract differs from the purchase or
sale of a security, in that no price or premium is paid or received. Instead, to
initiate trading an amount of cash, cash equivalents, money market instruments,
or U.S. Treasury bills equal to approximately 1 1/2% (up to 5%) of the contract
amount must be deposited by a Fund with the Broker. This amount is known as
initial margin. The nature of initial margin in futures transactions is
different from that of margin in security transactions. Futures contract margin
does not involve the borrowing of funds by the customer to finance the
transactions. Rather, the initial margin is in the nature of a performance bond
or good faith deposit on the contract which is returned to a Fund upon
termination of the futures contract assuming all contractual obligations have
been satisfied. The margin required for a particular futures contract is set by
the exchange on which the contract is traded and may be significantly modified
from time to time by the exchange during the term of the contract.
24688
9
<PAGE>
Subsequent payments, called variation margin, to the Broker and from the
Broker, are made on a daily basis as the value of the underlying instrument or
index fluctuates making the long and short positions in the futures contract
more or less valuable, a process known as mark-to-market. For example, when a
Fund has purchased a futures contract and the price of the underlying financial
instrument or index has risen, that position will have increased in value, and
the Fund will receive from the Broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the underlying financial instrument or index has declined, the
position would be less valuable and the Fund would be required to make a
variation margin payment to the Broker. At any time prior to expiration of the
futures contract, a Fund may elect to close the position. A final determination
of variation margin is then made, additional cash is required to be paid to or
released by the Broker, and the Fund realizes a loss or gain.
The Trust intends to enter into arrangements with its custodian and with
Brokers to enable the initial margin of a Fund and any variation margin to be
held in a segregated account by its custodian on behalf of the Broker.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of financial instruments, and index based futures
contracts call for the delivery of cash equal to the difference between the
closing value of the index on the expiration date of the contract and the price
at which the futures contract is originally made, in most cases such futures
contracts are closed out before the settlement date without the making or taking
of delivery. Closing out a futures contract sale is effected by an offsetting
transaction in which a Fund enters into a futures contract purchase for the same
aggregate amount of the specific type of financial instrument or index and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Fund is paid the difference and thus realizes a gain. If the
offsetting purchase price exceeds the sale price, the Fund pays the difference
and realizes a loss. Similarly, the closing out of a futures contract purchase
is effected by an offsetting transaction in which a Fund enters into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the Fund
realizes a gain. If the purchase price exceeds the offsetting sale price the
Fund realizes a loss. The amount of the Fund's gain or loss on any transaction
is reduced or increased, respectively, by the amount of any transaction costs
incurred by the Fund.
As an example of an offsetting transaction, the contractual obligations
arising from the sale of one contract of September U.S. Treasury bills on an
exchange may be fulfilled at any time before delivery of the contract is
required (i.e. on a specified date in September, the "delivery month") by the
purchase of one contract of September U.S. Treasury bills on the same exchange.
In such instance the difference between the price at which the futures contract
was sold and the price paid for the offsetting purchase, after allowance for
transaction costs, represents the profit or loss to a Fund.
There can be no assurance, however, that a Fund will be able to enter into
an offsetting transaction with respect to a particular contract at a particular
time. If a 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.
Options on Financial Futures. The Funds intend to purchase call and put
options on financial futures contracts and sell such options to terminate an
existing position. Options on futures are similar to options on stocks except
that an option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put)
rather than to purchase or sell stock at a specified exercise price at any time
during the period of the option. Upon exercise of the
24688
10
<PAGE>
option, the delivery of the futures position by the writer of the option to the
holder of the option will be accompanied by delivery of the accumulated balance
in the writer's futures margin account. This amount represents the amount by
which the market price of the futures contract at exercise exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. If an option is exercised the last trading day
prior to the expiration date of the option, the settlement will be made entirely
in cash equal to the difference between the exercise price of the option and
value of the futures contract.
The Funds intend to use options on financial futures contracts in
connection with hedging strategies. In the future the Funds may use such options
for other purposes.
Purchase of Put Options on Futures Contracts. The purchase of protective
put options on financial futures contracts is analogous to the purchase of
protective puts on individual stocks, where an absolute level of protection is
sought below which no additional economic loss would be incurred by a Fund. Put
options may be purchased to hedge a portfolio of stocks or debt instruments or a
position in the futures contract upon which the put option is based.
Purchase of Call Options on Futures Contracts. The purchase of call options
on financial futures contracts represents a means of obtaining temporary
exposure to market appreciation at limited risk. It is analogous to the purchase
of a call option on an individual stock, which can be used as a substitute for a
position in the stock itself. Depending on the pricing of the option compared to
either the futures contract upon which it is based, or upon the price of the
underlying financial instrument or index itself, purchase of a call option may
be less risky than the ownership of the interest rate or index based futures
contract or the underlying securities. Call options on commodity futures
contracts may be purchased to hedge against an interest rate increase or a
market advance when a Fund is not fully invested.
Use of New Investment Techniques Involving Financial Futures Contracts or
Related Options. The Funds may employ new investment techniques involving
financial futures contracts and related options. The Funds intend to take
advantage of new techniques in these areas which may be developed from time to
time and which are consistent with the Fund's investment objective. The Trust
believes that no additional techniques have been identified for employment by
the Funds in the foreseeable future other than those described above.
The Funds intend that its futures contracts and related options
transactions will be entered into for traditional hedging purposes. That is,
futures contracts will be sold to protect against a decline in the price of
securities that a Fund owns, or futures contracts will be purchased to protect a
Fund against an increase in the price of securities it intends to purchase. The
Funds do not intend to enter into futures contracts for speculation.
In instances involving the purchase of futures contracts by a Fund, an
amount of cash and cash equivalents, equal to the market value of the futures
contracts will be deposited in a segregated account and/or in a margin account
with a Broker to collateralize the position and thereby insure that the use of
such futures is unleveraged.
Risks of Futures Contracts. Financial futures contracts prices are volatile
and are influenced, among other things, by changes in stock prices, market
conditions, prevailing interest rates and anticipation of future stock prices,
market movements or interest rate changes, all of which in turn are affected by
economic conditions, such as government fiscal and monetary policies and
actions, and national and international political and economic events.
24688
11
<PAGE>
At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances, such as variations in
speculative market demand for futures contracts and for securities, including
technical influences in futures contracts trading; differences between the
securities being hedged and the financial instruments and indexes underlying the
standard futures contracts available for trading, in such respects as interest
rate levels, maturities and creditworthiness of issuers, or identities of
securities comprising the index and those in a Fund's portfolio. In addition,
futures contract transactions involve the remote risk that a party be unable to
fulfill its obligations and that the amount of the obligation will be beyond the
ability of the clearing broker to satisfy. A decision of whether, when and how
to hedge involves the exercise of skill and judgment, and even a well conceived
hedge may be unsuccessful to some degree because of market behavior or
unexpected interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. For example, if at the time of purchase, 10% of
the value of the futures contract is deposited as margin, a 10% decrease in the
value of the futures contract would result in a total loss of the margin
deposit, before any deduction for the transaction costs, if the account were
then closed out, and a 15% decrease would result in a loss equal to 150% of the
original margin deposit. Thus, a purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract.
However, a Fund would presumably have sustained comparable losses if, instead of
entering into the futures contract, it had invested in the underlying financial
instrument. Furthermore, in order to be certain that a Fund has sufficient
assets to satisfy its obligations under a futures contract, the Fund will
establish a segregated account in connection with its futures contracts which
will hold cash or cash equivalents equal in value to the current value of the
underlying instruments or indices less the margins on deposit.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
Risks of Options on Futures Contracts. In addition to the risks described
above for financial futures contracts, there are several special risks relating
to options on futures contracts. The ability to establish and close out
positions on such options will be subject to 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. A Fund will
not purchase options on any futures contract unless and until it believes that
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
the futures contracts. Compared to the use of futures contracts, the purchase of
options on such futures involves less potential risk to a Fund because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). However, there may be circumstances when the use of an option on a
futures contract would result in a loss to a Fund, even though the use of a
futures contract would not, such as when there is no movement in the level of
the futures contract.
24688
12
<PAGE>
Corporate Bond Ratings (Evergreen Select Balanced Fund)
Higher yields are usually available on securities that are lower rated or
that are unrated. Bonds rated Baa by Moody's Investors Service, Inc. ("Moody's")
are considered as medium grade obligations, which are neither highly protected
nor poorly secured. Debt rated BBB by Standard & Poor's Rating Services ("S&P")
is regarded as having an adequate capacity to pay interest and repay principal,
although adverse economic conditions are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories. Lower rated securities, commonly known as "junk bonds,"
are usually defined as Ba or lower by Moody's or BB or lower by S&P. The Fund
may purchase unrated securities, which are not necessarily of lower quality than
rated securities but may not be attractive to as many buyers. Debt rated BB, B,
CCC, CC and C by S&P is regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligation. BB indicates the lowest degree of speculation and C the
highest degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions. Debt rated CI by S&P is debt (income
bonds) on which no interest is being paid. Debt rated D by S&P is in default and
payment of interest and/or repayment of principal is in arrears. The Fund
intends to invest in D-rated debt only in cases where, in the judgment of the
Fund's Advisor, there is a distinct prospect of improvement in the issuer's
financial position as a result of the completion of reorganization or otherwise.
Bonds that are rated Ca by Moody's are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds that are rated Ca by Moody's represent obligations which are
speculative in a high degree. Such issues are often in default or have other
market shortcomings. Bonds that are rated C by Moody's 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.
Convertible Securities
Convertible securities include bonds, debentures, corporate notes,
preferred stocks and other securities. Convertible securities are securities
that the holder can convert into common stock. Convertible securities rank
senior to common stock in a corporation's capital structure and, therefore,
entail less risk than a corporation's common stock. The value of a convertible
security is a function of its investment value (Its market worth without a
conversion privilege) and its conversion value (its market worth if exchanged).
If a convertible security's investment value is greater than its conversion
value, its price primarily will reflect its investment value and will tend to
vary inversely with interest rates (the issuer's creditworthiness and other
factors may also affect its value). If a convertible security's conversion value
is greater than its investment value, its price will tend to be higher than its
conversion value and it will tend to fluctuate directly with the price of the
underlying equity security.
Investment Company Securities
Securities of other investment companies may be acquired by each of the
Funds to the extent permitted under the 1940 Act. These limits require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund. As a shareholder of another investment
company, a Fund would bear, along with other shareholders, its pro rata portion
of the other investment company's expenses, including advisory
24688
13
<PAGE>
fees. These expenses would be in addition to the advisory and other expenses
that the Fund bears directly in connection with its own operations. However, a
Fund may invest all of its investable assets in securities of a single open-end
management company with substantially the same fundamental investment
objectives, policies and limitations as a Fund.
Master Demand Notes
Master demand notes are unsecured obligations that permit the investment of
fluctuating amounts by the Funds at varying rates of interest pursuant to direct
arrangements between a Fund, as lender, and the issuer, as borrower. Master
demand notes may permit daily fluctuations in the interest rate and daily
changes in the amounts borrowed. A Fund has the right to increase the amount
under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may repay up to the full amount of the
note without penalty. Notes purchased by a Fund permit the Fund to demand
payment of principal and accrued interest at any time (on not more than seven
days' notice). Notes acquired by a Fund may have maturities of more than one
year, provided that (1) the Fund is entitled to payment of principal and accrued
interest upon not more than seven days' notice, and (2) the rate of interest on
such notes is adjusted automatically at periodic intervals, which normally will
not exceed 31 days, but may extend up to one year. The notes are deemed to have
a maturity equal to the longer of the period remaining to the next interest rate
adjustment or the demand notice period. Because these types of notes are direct
lending arrangements between the lender and borrower, such instruments are not
normally traded and there is no secondary market for these notes, although they
are redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, a Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand. In connection
with master demand note arrangements, a Fund's Advisor considers, under
standards established by the Board of Trustees, earning power, cash flow and
other liquidity ratios of the borrower and will monitor the ability of the
borrower to pay principal and interest on demand. These notes are not typically
rated by credit rating agencies. Unless rated, a Fund may invest in them only if
at the time of an investment the issuer meets the criteria established for
commercial paper, which limits such investments to commercial paper rated A-1 by
S&P, Prime-1 by Moody's or F-1 by Fitch IBCA, Inc.
Obligations of Foreign Branches of United States Banks
The obligations of foreign branches of U.S. banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by government regulation.
Payment of interest and principal upon these obligations may also be affected by
governmental action in the country of domicile of the branch (generally referred
to as sovereign risk). In addition, evidences of ownership of such securities
may be held outside the U.S. and a Fund may be subject to the risks associated
with the holding of such property overseas. Examples of governmental actions
would be the imposition of currency controls, interest limitations, withholding
taxes, seizure of assets or the declaration of a moratorium. Various provisions
of federal law governing domestic branches do not apply to foreign branches of
domestic banks.
Obligations of United States Branches of Foreign Banks
Obligations of U.S. branches of foreign banks may be general obligations of
the parent bank in addition to the issuing branch, or may be limited by the
terms of a specific obligation and by federal and state regulation as well as by
governmental action in the country in which the foreign bank has its head
office. In addition, there may be less publicly available information about a
U.S. branch of a foreign bank than about a domestic bank.
24688
14
<PAGE>
Repurchase Agreements
The Funds may enter into repurchase agreements with entities that are
registered 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 a Fund's
advisor to be creditworthy. A repurchase agreement is an agreement by which a
person (e.g., a Fund) obtains a security and simultaneously commits to return
the security to the seller (a member bank of the Federal Reserve System or
recognized securities dealer) at an agreed upon price (including principal and
interest) on an agreed upon date within a number of days (usually not more than
seven) from the date of purchase. 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.
A 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 a 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 a Fund might
be delayed pending court action. The Funds believe that under the regular
procedures normally in effect for custody of a 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 advisor
to be creditworthy pursuant to guidelines established by the Trustees.
Reverse Repurchase Agreements
The Funds may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities that
are illiquid. A security is illiquid when a Fund cannot dispose of it in the
ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
24688
15
<PAGE>
Each Fund may invest in "restricted" securities, i.e., securities subject to
restrictions on resale under federal securities laws. Rule 144A under the
Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determine
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.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis. These
transactions involve the purchase of debt obligations with delivery and payment
normally take place within a month or more after the date of commitment to
purchase. The Funds will only make commitments to purchase obligations on a
when-issued basis with the intention of actually acquiring the securities, but
may sell them before the settlement date. The when-issued securities are subject
to market fluctuation, and no interest accrues on the security to the purchaser
during this period. The payment obligation and the interest rate that will be
received on the securities are each fixed at the time the purchaser enters into
the commitment.
Segregated accounts will be established, and the Funds will maintain liquid
assets in an amount at least equal in value to a Fund's commitments to purchase
when-issued securities. If the value of these assets declines, a Fund will place
additional liquid assets in the account on a daily basis so that the value of
the assets in the account is equal to the amount of such commitments.
Purchasing obligations on a when-issued basis is a form of leveraging and
can involve a risk that the yields available in the market when the delivery
takes place may actually be higher than those obtained in the transaction
itself. In that case there could be an unrealized loss at the time of delivery.
A Fund uses when-issued, delayed-delivery and forward commitment
transactions to secure what it considers to be an advantageous price and yield
at the time of purchase. When a Fund engages in when- issued, delayed-delivery
and forward commitment transactions, it relies on the buyer or seller, as the
case may be, to consummate the sale. If the buyer or seller fails to complete
the sale, then the Fund may miss the opportunity to obtain the security at a
favorable price or yield.
Typically, no income accrues on securities a Fund has committed to purchase
prior to the time delivery of the securities is made, although the Fund may earn
income on securities it has in a segregated account. When purchasing a security
on a when-issued, delayed delivery, or forward commitment basis, the Fund
assumes the rights and risks of ownership of the security, including the risk of
price and yield fluctuations, and takes such fluctuations into account when
determining its net asset value ("NAV"). Because the Fund is not required to pay
for the security until the delivery date, these risks are in addition to the
risks associated with the Fund's other investments.
Foreign Currency Transactions (Evergreen Select Special Equity 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
24688
16
<PAGE>
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 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.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts, 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen Fund complex.
<TABLE>
<CAPTION>
Position with
<S> <C> <C>
Name Trust Principal Occupations for Last Five Years
- -------------------------- ------------------ --------------------------------------------------------------------------
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and President of
(DOB: 2/2/28) Centrum Equities and Centrum Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; former Director,
(DOB: 10/23/34) Executive Vice President and Treasurer, State Street Research &
Management Company (investment advice); Director, The Andover
Companies (Insurance); and Trustee, Arthritis Foundation of New England.
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee, Cam
(DOB: 10/12/38) bridge College; Chairman Emeritus and Director, American Institute of
Food and Wine; Chairman and President, Oldways Preservation and Exchange
Trust (education); former Chairman of the Board, Director, and Executive
Vice President, The London Harness Company; former Managing Partner,
Roscommon Capital Corp.; former Chief Executive Officer, Gifford Gifts of
Fine Foods; and former Chairman, Gifford, Drescher & Associates
(environmental consulting).
James S. Howell Chairman of Former Chairman of the Distribution Foundation for the Carolinas; and
(DOB: 8/13/24) the Board of former Vice President of Lance Inc. (food manufacturing).
Trustees
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson Products
(DOB: 2/14/39) 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.
24688
17
<PAGE>
Position with
Name Trust Principal Occupations for Last Five Years
- -------------------------- ------------------ --------------------------------------------------------------------------
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc. (steel producer).
(DOB: 7/14/39)
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation; and
(DOB: 8/2/39) former Director of Carolina Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR International,
(DOB: 9/14/41) Inc. (executive recruitment); former Senior Vice President, Boyden
International Inc. (executive recruitment); and Director, Commerce
and Industry Association of New Jersey, 411 International, Inc., and
J&M Cumming Paper Co.
Russell A. Salton, III Trustee Medical Director, U.S. Health Care/Aetna Health Services; former
MD (DOB: 6/2/47) Managed Health Care Consultant; and former President, Primary Physician
Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance agency);
(DOB: 8/11/39) Executive Consultant, Drake Beam Morin, Inc. (executive outplacement);
Director of Connecticut Natural Gas Corporation, Hartford Hospital, Old
State House Association Middlesex Mutual Assurance Company, and Enhance
Financial Services, Inc.; Chairman, Board of Trustees, Hartford Graduate
Center; Trustee, Greater Hartford YMCA; former Director, Vice Chairman
and Chief Investment Officer, The Travelers Corporation; former Trustee,
Kingswood-Oxford School; and former Managing Director and Consultant,
Russell Miller, Inc.
William J. Tomko* President and Senior Vice President and Operations Executive, BISYS Fund Services.
(DOB: 8/30/58) Treasurer
Nimish S. Bhatt* Vice President Vice President, Tax, BISYS Fund Services; former Assistant Vice
(DOB: 6/6/63) and Assistant President, Evergreen Asset Management Corp./First Union National
Treasurer Bank; former Senior Tax Consulting/Acting Manager, Investment Companies
Group, Price Waterhouse LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Michael H. Koonce Secretary Senior Vice President and Assistant General Counsel, First Union
(DOB: 4/20/60) Corporation; former Senior Vice President and General Counsel,
Colonial Management Associates, Inc.
</TABLE>
*Address: BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219-8001
24688
18
<PAGE>
Listed below is the Trustee compensation for the fiscal year ended June 30,
1998.
COMPENSATION TABLE
Total Compensation
Aggregate From Registrant And
Compensation Fund Complex Paid
Name Of Person From Registrant To Trustees
Laurence B. Ashkin $3,817 $71,399
Charles A. Austin $3,822 $57,800 (a)
K. Dun Gifford $3,696 $54,450
James S. Howell $4,846 $102,749 (b)
Leroy Keith Jr. $3,700 $55,950
Gerald M. McDonnell $3,821 $84,950*
Thomas L. McVerry $4,351 $90,700*
William Walt Pettit $3,155 $77,625*
David M. Richardson $3,629 $55,925
Russell A. Salton, III $3,845 $86,050*
Michael S. Scofield $3,876 $87,750
Richard J. Shima $3,699 $68,500
(a) $5,700 of this amount payable in later years as deferred compensation.
(b) $74,044 of this amount payable in later years as deferred compensation.
* Entire amount payable in later years as deferred compensation.
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding 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 a class of a
Fund's outstanding shares as of October 1, 1998.
Evergreen Select Strategic Value Fund
Institutional Class
First Union National Bank/EB/INT/Cash Account 71.77%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT/Reinvest Account 26.85%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
24688
19
<PAGE>
Evergreen Select Strategic Value Fund
Institutional Service Class
Fiduciary Trust Company International 20.11%
FBO Corrine C Zimmerman
Attn: Securities Department, 97th Fl.
2 World Trade Center
New York, NY 10048-0772
Jefnat & Company/Oramella Tomassich Trust 14.85%
301 41st Street
Miami Beach, FL 33140
Percy Chubb III 11.69%
431 Claremont Road
Bernardsville, NJ 07924
Fiduciary Trust Company International 11.19%
FBO L Caldecot Chubb
Attn: Securities Department, 97th Fl.
2 World Trade Center
New York, NY 10048-0772
Tellson & Company/c/o Peapack-Gladstone Bank 8.11%
P.O. Box 178
Gladstone, NJ 07934
Wilmington Trust Co. of PA 6.83%
FBO Frank E English/C/O Mutual Funds
1100 N. Market Street
Wilmington, DE 19890-2262
FUBS & CO. FEBO Brenda M Atria 7.89%
201 S. College St.
Charolotte, NC 28288-1167
Evergreen Select Diversified Value Fund
Institutional Class
None
Evergreen Select Diversified Value Fund
Institutional Service Class
Bankers Trust Co. 84.63%
FBO Triangle Industries/Masters Trust
100 Plaza One M/S 3048
Jersey City, NJ 07311-3999
UMBSC & Co./FBO 34-0949-90-8 11.43%
Midwest Renal Associates Inc.
UMB Bank N A/Box 419260
Kansas City, MO 64141-6260
24688
20
<PAGE>
Evergreen Select Large Cap Blend Fund
Institutional Class
First Union National Bank/EB/INT/Reinvest Account 50.63%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Patterson & Co./PNB Personal Trust Actng. 11.51%
P.O. Box 7829
Philadelphia, PA 19101-7829
First Union National Bank/EB/INT/Cash Account 37.87%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Large Cap Blend Fund
Charitable Class
First Union National Bank/EB/INT/Cash Account 97.64%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Large Cap Blend Fund
Institutional Service Class
Thomas F. Hackett/c/o Warren S. Beebe Jr., CPA 48.89%
P.O. Box 849
Oakhurst, NJ 07755-0849
Fubs & Co./First Union Brokerage 22.92%
Sipes Orchard Home
201 S College Street, 5th Floor
Charlotte, NC 28288-1167
First Union Brokerage Services 24.51%
Essex County Comm American Legion
29 Newell Drive
Bloomfield, NJ 07003
Evergreen Select Common Stock Fund
Institutional Class
First Union National Bank/EB/INT/Cash Account 99.15%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Common Stock Fund
Institutional Service Class
None
24688
21
<PAGE>
Evergreen Select Strategic Growth Fund
Institutional Class
First Union National Bank/EB/INT/Cash Account 51.94%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Patterson & Co. 8.03%
PNB Personal Trust Actng.
P.O. Box 7829
Philadelphia, PA 19101-7829
First Union National Bank/EB/INT/Reinvest Account 36.63%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Strategic Growth Fund
Institutional Service Class
Patterson & Co. 6.88%
PNB Personal Trust Actng.
P.O. Box 7829
Philadelphia, PA 19101-7829
Evergreen Select Equity Income Fund
Institutional Class
First Union National Bank/EB/INT/Cash Account 99.90%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Equity Income Fund
Institutional Service Class
Merrill Lynch Pierce Fenner & Smith Inc. 30.38%
FBO Hope W Babcock
9601 S Meridian Blvd. 3rd Fl.
Englewood, CO 80112-5905
First Union Brokerage Services 13.16%
John T Morris and Joy Robinson Morris JTWROS
524 Faculty Street
Boone, NC 28607
Acadia Trust, N.A. Trustee/FBO Robert Jenks 9.82%
511 Congress St;; 9th Fl.
Portland, ME 04101
Centre State Co. 5.20%
C/O First National Bank & Tr Co. Of Newtown
40 South St. / P.O. Box 158
Newtown, PA 18940-0158
24688
22
<PAGE>
Eunice Anne Carlyle Jackson 5.10%
1 The Square/Sandford Credition Devon
Ex17 4LW
England, UK
Helen M Nesbit Trustee/U/A dated 1/2/74 8.83%
Helen Nesbit Trust
2235 Walton Way
August, GA 30904
Evergreen Select Small Company Value Fund
Institutional Class
First Union National Bank/EB/INT/Reinvest Account 79.57%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT/Cash Account 18.62%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Small Company Value Fund
Institutional Service Class
None
Evergreen Select Social Principles Fund
Institutional Class
First Union National Bank/EB/INT/Reinvest Account 70.58%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT/Cash Account 29.42%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl.
Charlotte, NC 28202-1911
Evergreen Select Social Principles Fund
Institutional Service Class
First Union Brokerage Services/Susan L Dowtin 37.26%
708 Sunset Drive
Greensboro, NC 27408
First Union Brokerage Services/John J Scinto Trust 31.51%
80 Grandview Avenue
Port Chester, NY 10573
Thomas F Hackett/c/o Warren S Beebe Jr, CPA 31.23%
P.O. Box 849
Oakhurst, NJ 07755-0849
24688
23
<PAGE>
Evergreen Select Social Principles Fund
Charitable Class
First Union National Bank/EB/INT/Cash Account 97.66%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Balanced Fund
Institutional Class
First Union National Bank/EB/INT/Reinvest Account 55.35%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT/Cash Account 44.65%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Balanced Fund
Institutional Service Class
None
Evergreen Select Equity Index Fund
Institutional Class
Patterson & Co./PNB Personal Trust Actng. 42.73%
P.O. Box 7829
Philadelphia, PA 19101-7829
Patterson & Co./PNB Personal Trust Actng. 19.85%
P.O. Box 7829
Philadelphia, PA 19101-7829
First Union National Bank/EB/INT/Reinvest Account 22.65%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Equity Index Fund
Institutional Service Class
None
Evergreen Select Special Equity Fund
Institutional Class
Patterson & Co./PNB Personal Trust Actng. 54.29%
P.O. Box 7829
Philadelphia, PA 19101-7829
Patterson & Co./PNB Personal Trust Actng. 25.76%
P.O. Box 7829
Philadelphia, PA 19101-7829
24688
24
<PAGE>
First Union National Bank/EB/INT/Reinvest Account 13.29%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG 1151
Charlotte, NC 28202-1911
Evergreen Select Special Equity Fund
Institutional Service Class
None
Evergreen Select Small Cap Growth Fund
Institutional Class
Worcester County Retirement System 18.62%
Attn: Michael J. Donoghue
Chairman & Treasurer
2 Main St. Rm. 3 Courthouse
Worcester, MA 01608--1116
First Union National Bank/Cash Account 5.64%
Attn: Trust Operations Fund Group
401 S. Tryon St.; 3rd Fl.
Charlotte, NC 28202-1911
First Union National Bank/RE-Invest Account 71.53
ATTN: Trust Operations Fund Group
401 South Tryon Street, 3rd Fl.
Charlotte, NC 28202-1911
Evergreen Select Small Cap Growth Fund
Institutional Service Class
None
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
Each Fund's investment advisor (the "Advisor") is a subsidiary of First
Union Corporation ("First Union"), a bank holding company headquartered at 301
South College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
First Union National Bank ("FUNB") is the Advisor to each Fund other than
Evergreen Select Small Company Value Fund, Evergreen Select Special Equity Fund
and Evergreen Select Small Cap Growth Fund. FUNB is located at 201 South College
Street, Charlotte North Carolina 28288-0630.
Evergreen Asset Management Corp. ("Evergreen Asset") is the Advisor to
Evergreen Select Small Company Value Fund. Evergreen Asset is located at 2500
Westchester Avenue, Purchase, New York 10577. Lieber & Company, another First
Union subsidiary, is the Fund's sub-advisor. Lieber & Company is reimbursed by
Evergreen Asset for the direct and indirect costs of providing subadvisory
services to the Fund.
24688
25
<PAGE>
Meridian Investment Company ("Meridian") is the Advisor to Evergreen Select
Special Equity Fund. Meridian is located at 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355.
Evergreen Investment Management Company ("EIMC"), formerly known as
Keystone Investment Management Company, is the Advisor to Evergreen Select Small
Cap Growth Fund. EIMC is located at 200 Berkeley Street, Boston, Massachusetts
02116-5034
Pursuant to each advisory agreement (the "Advisory Agreement" or,
collectively, the "Advisory Agreements") between the Trust and each Advisor, and
subject to the supervision of the Trust's Board of Trustees, each Advisor
furnishes to each Fund investment advisory, management and administrative
services, office facilities, and equipment in connection with its services for
managing the investment and reinvestment of each Fund's assets. Each Advisor
pays for all of the expenses incurred in connection with the provision of its
services.
The Funds pay for all charges and expenses, other than those specifically
referred to as being borne by the 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
Trustees who are not interested persons of a Fund, as defined in the 1940 Act
("Independent Trustees"); (5) brokerage commissions, brokers' fees and expenses;
(6) issue and transfer taxes; (7) costs and expenses under the distribution
plan; (8) taxes and trust fees payable to governmental agencies; (9) the cost of
share certificates; (10) fees and expenses of the registration and qualification
of Funds' shares with the Securities and Exchange Commission ("SEC") or under
state or other securities laws; (11) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and certain proxy materials to
shareholders; (12) expenses of shareholders' and Trustees' meetings; (13)
charges and expenses of legal counsel for the Funds and for the Independent
Trustees of the Trust; (14) charges and expenses of filing annual and other
reports with the SEC and other authorities; and (15) all extraordinary Fund
charges and expenses.
The Funds have agreed to pay the Advisor a fee for its services, expressed
as a percentage of average net assets, as set forth below. In addition, each
Advisor, other than Evergreen Select Small Cap Growth Fund has voluntarily
agreed to reduce its advisory fee, resulting in the net advisory fees that are
also indicated in the table below.
Annual Annual
Fund Advisory Fee Net Advisory Fee
Evergreen Select Strategic Value Fund 0.70% 0.60%
Evergreen Select Diversified Value Fund 0.60% 0.50%
Evergreen Select Large Cap Blend Fund 0.70% 0.60%
Evergreen Select Common Stock Fund 0.70% 0.53%
Evergreen Select Strategic Growth Fund 0.70% 0.58%
Evergreen Select Equity Income Fund 0.70% 0.60%
Evergreen Select Social Principles Fund 0.80% 0.67%
Evergreen Select Small Company Value Fund 0.90% 0.65%
Evergreen Select Balanced Fund 0.60% 0.50%
Evergreen Select Equity Index Fund 0.40% 0.12%
Evergreen Select Special Equity Fund 1.50% 0.74%
Evergreen Select Small Cap Growth Fund 0.80% 0.80%
Under the Advisory Agreement, any liability of the Advisor in connection
with rendering services thereunder is limited to situations involving its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties.
24688
26
<PAGE>
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of a
Fund's outstanding shares (as defined in the 1940 Act). 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. Each 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. Each Advisory
Agreement will terminate automatically upon its "assignment" as that term is
defined in the 1940 Act.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. The Distributor's address
is, 125 W. 55th Street, New York, N.Y. 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Under the Rule 12b-1 Distribution Plans that have been adopted by each Fund
with respect to its Institutional Service Shares and the Class A and Class B
shares of Evergreen Select Equity Index Fund (each a "Plan" and collectively,
the "Plans"), the Treasurer of the Trust reports the amounts expended under the
Plans for a Fund and the purposes for which such expenditures were made to the
Trustees of the Trust for their review on a quarterly basis. Each Plan provides
that the selection and nomination of the Independent Trustees are committed to
the discretion of such Independent Trustees then in office. Also, the Plans
permit each Fund to deduct up to 0.25% of the Institutional Service class'
average net assets to pay for shareholder services.
Distribution fees are accrued daily and paid at least monthly on the Class
A and Class B shares of Evergreen Select Equity Index Fund and are charged as
class expenses, as accrued. The distribution fees attributable to the Class B
shares are designed to permit an investor to purchase such shares through
broker-dealers without the assessment of a front-end sales charge, while at the
same time permitting the Distributor to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and function of the
combined contingent deferred sales charge ("CDSC") and distribution services fee
on the Class B shares are the same as those of the front-end sales charge and
distribution fee with respect to the Class A shares in that in each case the
sales charge and/or distribution fee provide for the financing of the
distribution of the Fund's shares.
EIMC may from time to time from its own funds or such other resources as
may be permitted by rules of the SEC make payments for distribution services of
the Class A and Class B shares of Evergreen Select Equity Index Fund to the
Distributor; the latter may in turn pay part or all of such compensation to
brokers or other persons for their distribution assistance.
The Plans permit the payment of fees to brokers and others for distribution
and shareholder related administrative services and to broker-dealers,
depository institutions, financial intermediaries and administrators for
administrative services as to Class A and Class B shares of Evergreen Select
Equity Index Fund. The Plans are designed to (i) stimulate brokers to provide
distribution and administrative support services to the Fund and holders of
Class A and Class B shares, and (ii) stimulate administrators to render
administrative support services to the Fund and holders of Class A and Class B
shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited
24688
27
<PAGE>
to, providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A and Class B shares; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as Evergreen
Select Equity Index Fund reasonably requests for its Class A and Class B shares.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by a
Fund to the Distributor with respect to that class or classes, and (ii) a Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such class or classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of a Fund's
outstanding voting securities, voting separately by class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular class of shares of a Fund may bear pursuant to a Plan or Distribution
Agreement without the approval of a majority of the holders of the outstanding
voting shares of the class affected. Any Plan or Distribution Agreement may be
terminated (i) by a Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of a Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by the
Distributor. To terminate any Distribution Agreement, any party must give the
other parties 60 days' written notice; to terminate a Plan only, a Fund need
give no notice to the Distributor. Any Distribution Agreement will terminate
automatically in the event of its assignment.
For a summary of distribution fees paid by the Funds see "Financial
Information" below.
The National Association of Securities Dealers, Inc. ("NASD") limits the
amount that a mutual fund may pay annually in distribution costs for sale of its
shares and shareholder service fees. The NASD limits annual expenditures to
1.00% of the aggregate average daily NAV of its shares, of which 0.75% may be
used to pay such distribution costs and 0.25% may be used to pay shareholder
service fees. The NASD also limits the aggregate amount that a Fund may pay for
such distribution costs to 6.25% of gross share sales since the inception of the
distribution plan, plus interest at the prime rate plus 1.00% on such amounts
remaining unpaid from time to time.
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to each
Fund, 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 based on the aggregate average daily net assets of the Funds at
a rate based on the total assets of all mutual funds administered by EIS that
are advised by First Union subsidiaries. EIS' fee is calculated in accordance
with the following schedule:
24688
28
<PAGE>
Aggregate Net Total assets of
Administrator Fee First Union subsidiaries
- ----------------- ------------------------
0.050% of the first $7 billion, plus
0.035% of the next $3 billion, plus
0.030% of the next $5 billion, plus
0.020% of the next $10 billion, plus
0.015% of the next $5 billion, plus
0.010% of amounts over $30 billion.
Transfer Agent
Evergreen Service Company (the "Service Company"), a subsidiary of First
Union, is the Funds' transfer agent. The transfer agent issues and redeems
shares, pays dividends and performs other duties in connection with the
maintenance of shareholder accounts. The transfer agent's address is 200
Berkeley Street, Boston, Massachusetts 02116.
Independent Auditors
KPMG Peat Marwick LLP audits each Fund's financial statements. The
auditor's address is 99 High Street, Boston, Massachusetts 02110.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank keeps
custody of each Fund's securities and cash and performs other related duties.
The custodian's address is P.O. Box 9021, Boston, Massachusetts 02205-9827.
BROKERAGE
SELECTION OF BROKERS
When buying and selling portfolio securities, each Advisor seeks brokers
who can provide the most benefit to the Fund or Funds for which a trade is being
made. When selecting a broker, an 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.
Under each Advisory Agreement, each 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 reasonably in relation to the
brokerage and research services provided. Research services provided by a broker
to
24688
29
<PAGE>
an Advisor do not replace, but supplement, the services an Advisor is required
to deliver to a Fund under the Advisory Agreement. It is impracticable for an
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, an Advisor may also consider
the amount of Fund shares a broker has sold, subject to the other requirements
described above.
Lieber & Company, an affiliate of Evergreen Asset and a member of the New
York and American Stock Exchanges, will to the extent practicable effect
substantially all of the portfolio transactions for Evergreen Select Small
Company Value Fund.
BROKERAGE COMMISSIONS
Generally, each Fund expects to purchase and sell its equity portfolio
securities through brokerage transactions for which commissions are payable.
Purchases from underwriters will include the underwriting commission or
concession.
The Funds expect to buy and sell their fixed-income securities through
principal transactions, that is, directly from the issuer or from an underwriter
or market maker for the securities. Generally, the Funds will not pay brokerage
commissions for such purchases. Usually, when a Fund buys a security from an
underwriter, the purchase price will include an underwriting commission or
concession.
Prices of both equity and fixed-income securities purchased from dealers
serving as market makers will reflect the dealer's markup or markdown.
GENERAL BROKERAGE POLICIES
Generally, the Funds expect to purchase and sell their securities through
brokerage transactions for which commissions are payable. Where transactions are
made in the over-the-counter market, the Funds will deal with primary market
makers unless more favorable prices are otherwise obtainable.
The Advisor makes investment decisions for the Funds independently from
those of its other clients. It may frequently develop, however, that the Advisor
will make the same investment decision for more than one client. Simultaneous
transactions are inevitable when the same security is suitable for the
investment objective of more than one account. When two or more of its clients
are engaged in the purchase or sale of the same security, the Advisor will
allocate the transactions according to a formula that is equitable to each of
its clients. Although, in some cases, this system could have a detrimental
effect on the price or volume of the Funds' securities, the Funds believe that
in other cases their ability to participate in volume transactions will produce
better executions. In order to take advantage of the availability of lower
purchase prices, the Funds may occasionally participate in group bidding for the
direct purchase from an issuer of certain securities.
The Board of Trustees periodically reviews the Funds' brokerage policy.
Because of the possibility of further regulatory developments affecting the
securities exchanges and brokerage practices generally, the Board of Trustees
may change, modify or eliminate any of the foregoing practices.
24688
30
<PAGE>
TRUST ORGANIZATION
FORM OF ORGANIZATION
The Trust was formed as a Delaware business trust under an Agreement and
Declaration of Trust dated September 18, 1997 (the "Declaration of Trust"). A
copy of the Declaration of Trust is on file at the SEC as an exhibit to the
Trust's Registration Statement, of which this SAI is a part. This summary is
qualified in its entirety by reference to the 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 a
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
NAV applicable to such share. Shares generally vote together as one class on all
matters. Classes of shares of a 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 shares of that class. Shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of the Trustees 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.
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.
PURCHASE, REDEMPTION AND
PRICING OF FUND SHARES
HOW THE FUND OFFERS ITS SHARES TO THE PUBLIC
(Evergreen Select Equity Index Fund - Class A and Class B Shares)
You may buy the Class A and Class B shares of the Evergreen Select Equity
Index Fund through the Distributor, broker-dealers that have entered into
special agreements with the Distributor or certain other financial institutions.
24688
31
<PAGE>
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay a
maximum sales charge equal to 4.75% of the offering price. (The prospectus
contains a complete table of applicable sales charges and a discussion of sales
charge reductions or waivers that may apply to purchases. See also the section
in this SAI entitled "Financial Information" for an example of the method of
computing the offering price of Class A shares.) If you purchase Class A shares
in the amount of $1 million or more, without an initial sales charge, the Fund
will charge a CDSC of 1.00% if you redeem during the month of your purchase and
the 12-month period following the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class B Shares
The Fund offers Class B shares at NAV without an initial sales charge. With
certain exceptions, however, the Fund will charge a CDSC on shares you redeem
within 72 months after the month of your purchase, in accordance with the
following schedule:
Redemption Timing CDSC Rate
Month of purchase and the first 12-month
period following the month of purchase 5.00%
Second 12-month period following the month of purchase 4.00%
Third 12-month period following the month of purchase 3.00%
Fourth 12-month period following the month of purchase 3.00%
Fifth 12-month period following the month of purchase 2.00%
Sixth 12-month period following the month of purchase 1.00%
Thereafter 0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. (Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to the Service Company.)
CONTINGENT DEFERRED SALES CHARGE
(Evergreen Select Equity Index Fund - Class A and Class B Shares)
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Plans and Agreements," above). If
imposed, the Fund deducts the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the NAV of the
shares at the time of redemption or (2) the shareholder's original net cost for
such shares. Upon request for redemption, to keep the CDSC a shareholder must
pay as low as possible, the Fund will first seek to redeem shares not subject to
the CDSC and/or shares held the longest, in that order. The CDSC on any
redemption is, to the extent permitted by the NASD, paid to the Distributor or
its predecessor.
24688
32
<PAGE>
SALES CHARGE WAIVERS OR REDUCTIONS
(Evergreen Select Equity Index Fund - Class A and Class B Shares)
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in the Evergreen funds and take advantage
of lower sales charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Your account, and therefore your rights of accumulation, can be linked
t immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retired plans involving
employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Fund may sell its shares at NAV without an initial sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization having
100 or more eligible employees (a "Qualifying Plan") or a TSA
plan sponsored by a public educational entity having 5,000 or
more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust departments
and registered investment advisors;
4. investment advisors, consultants or financial planners who place
trades for their own accounts or the accounts of their clients
and who charge such clients a management, consulting, advisory or
other fee;
24688
33
<PAGE>
5. clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to a
master account of such investment advisors or financial planners
on the books of the broker-dealer through whom shares are
purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these
plans, which place trades through an omnibus account maintained
with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor, has entered into an
agreement to sell shares of the Funds, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and the
immediate families of such persons; or
9. a bank or trust company in a single account in the name of such
bank or trust company as trustee if the initial investment in or
any Evergreen fund made pursuant to this waiver is at least
$500,000 and any commission paid at the time of such purchase is
not more than 1% of the amount invested.
With respect to items 8 and 9 above, the Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchase is for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Fund will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSC
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend
income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of 1974
("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder who is a
least 59 1/2 years old;
6. shares in an account that the Fund has closed because the account
has an aggregate NAV of less than $1,000;
7. an automatic withdrawal under a Systematic Withdrawal Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant; 9. a financial hardship withdrawal made by a retirement
plan participant; and 10. a withdrawal consisting of returns of excess
contributions or excess deferral amounts made to a retirement plan.
EXCHANGES
Investors may exchange Class A and B shares of Evergreen Select Equity
Index Fund for shares of the same class of any other Evergreen fund. Investors
may exchange all other classes of shares of of the Funds for shares of the same
class of any other Evergreen "Select" fund. Exchanges are discussed in further
detail under "Exchanges" in each Fund's prospectus. Before you make an exchange,
you should read the prospectus of the fund into which you wish to exchange. The
24688
34
<PAGE>
Trust reserves the right to discontinue, alter or limit the exchange privilege
at any time.
HOW AND WHEN THE FUNDS CALCULATE THEIR NET ASSET VALUE PER SHARE
Each Fund computes its NAV once daily on Monday through Friday, as
described in the prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
A Fund calculates its NAV per share by adding up its investments and
other assets, subtracting its liabilities and then dividing the result by the
number of shares outstanding.
HOW THE FUNDS VALUE THE SECURITIES THEY OWN
Current values for a Fund's portfolio securities are determined in the
following manner:
(1) securities that are traded on a national 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 NMS prior to the time
of the valuation, provided that a sale has occurred;
(2) securities traded in the over-the-counter market, other than on
NMS, are valued at the mean of the bid and asked prices at the time of
valuation;
(3) short-term investments maturing in more than 60 days for which
market quotations are readily available, are valued at such quotations;
(4) short-term investments maturing in 60 days or less (including all
master demand notes) are valued at amortized cost (original purchase cost as
adjusted for amortization of premium or accretion of discount), which, when
combined with accrued interest, approximates market;
(5) short-term investments maturing in more than 60 days when purchased
that are held on the 60th day prior to maturity are valued at amortized cost
(market value on the 60th day adjusted for amortization of premium or accretion
of discount), which, when combined with accrued interest, approximates market;
and
(6) securities, including restricted securities, for which complete
quotations are not readily available; listed securities or those on NMS if, in
the Fund's opinion, the last sales price does not reflect a current market value
or if no sale occurred; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of Trustees.
SHAREHOLDER SERVICES
As described in the Funds' prospectuses, a shareholder may elect to
receive his or her dividends and capital gains distributions in cash instead of
shares. However, the Service Company will automatically convert a shareholder's
distribution option so that the shareholder reinvests all dividends and
distributions in additional shares when it learns that the postal or other
delivery service is unable to deliver checks or transaction confirmations to the
shareholder's address of record. A Fund will hold the returned distribution or
redemption proceeds in a non interest-bearing account in the shareholder's name
24688
35
<PAGE>
until the shareholder updates his or her address. Therefore, no interest will
accrue on amounts represented by uncashed distribution or redemption checks
PRINCIPAL UNDERWRITER
The Distributor, a subsidiary of The BISYS Group, Inc. is the principal
underwriter for each class of shares of each Fund. The Trust has entered into a
Principal Underwriting Agreement ("Underwriting Agreement") with the Distributor
with respect to each class of each Fund.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Declaration of Trust, By-Laws, current prospectuses and SAI.
All orders are subject to acceptance by the Trust and the Trust reserves the
right, in its sole discretion, to reject any order received. Under the
Underwriting Agreement, the Trust is not liable to anyone for failure to accept
any order.
The Distributor has agreed that it will, in all respects, duly comply
with all state and federal laws applicable to the sale of the Funds' shares. The
Distributor and the Funds have both agreed to indemnify and hold each other
harmless and each person who has been, is, or may be a Trustee or officer of the
Trust against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trustees, in each case, cast in person at a meeting called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
24688
36
<PAGE>
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGULATED INVESTMENT COMPANY
Each Fund has qualified and intends to continue to qualify for and
elect the tax treatment applicable to a regulated investment company (a "RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, a 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, a Fund is
not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on a Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. Each Fund
anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the NAV of a share of a Fund on the reinvestment
date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by a Fund from its investment
company taxable income (net taxable investment income plus net realized
short-term capital gains, if any). The Funds will include dividends it receives
from domestic corporations when a Fund calculates its gross investment income.
The Funds anticipate that all or a portion of ordinary dividends which they pay
will qualify for the 70% dividends-received deduction for corporations. A Fund
will inform shareholders of the amounts that so qualify.
From time to time, a Fund will distribute the excess of its net
long-term capital gains over its short-term capital losses to shareholders. For
federal tax purposes, shareholders must include such distributions when
calculating their long-term capital gains. Each Fund will inform its
shareholders of the portion, if any, of a long-term capital gain distribution
which is subject to tax at the maximum 28% rate and the portion, if any, of a
long term capital gain distribution which is subject to tax at the maximum 20%
rate. Distributions of long-term capital gains are taxable as such to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by a Fund reduce its NAV. A distribution that reduces a
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it
24688
37
<PAGE>
is a return of capital. In particular, if a shareholder buys Fund shares just
before the Fund makes a distribution, when the Fund makes the distribution the
shareholder will receive what is in effect a return of capital. Nevertheless,
the shareholder may incur taxes on the distribution. Therefore, shareholders
should carefully consider the tax consequences of buying Fund shares just before
a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will treat a shareholder's loss on shares held for six
months or less as a long-term capital loss to the extent the shareholder
received capital gain dividends on such shares.
Shareholders who fail to furnish their taxpayer identification numbers to a
Fund and to certify as to its correctness and certain other shareholders may be
subject to a 31% federal income tax backup withholding requirement on dividends,
distributions of capital gains and redemption proceeds paid to them by a Fund.
If the withholding provisions are applicable, any such dividends or capital gain
distributions to these shareholders, whether taken in cash or reinvested in
additional shares, and any redemption proceeds will be reduced by the amounts
required to be withheld. Investors may wish to consult their own tax advisors
about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisors regarding specific questions relating to federal,
state and local tax
24688
38
<PAGE>
consequences of investing in shares of a Fund. Each shareholder who is not a
U.S. person should consult his or her tax advisor regarding the U.S. and foreign
tax consequences of ownership of shares of a Fund, including the possibility
that such a shareholder may be subject to a U.S. withholding tax at a rate of
30% (or at a lower rate under a tax treaty) on amounts treated as income from
U.S. sources under the Code.
FINANCIAL INFORMATION
EXPENSES
The expense information below pertaining to Evergreen Select Equity Index
Fund and Evergreen Select Special Equity Fund reflects operations under previous
investment advisor and service providers. These two Funds were formerly Equity
Index Fund and Special Equity Fund, respectively, portfolios of CoreFunds, Inc.
(the "Predecessor Funds"). They were reorganized into Evergreen funds in July
1998. Class Y Shares of the Predecessor Funds were reorganized into
Institutional Shares of their respective Evergreen funds. Class A and Class B
Shares of the Predecessor Funds were reorganized into Institutional Service
Shares of their respective Evergreen funds.
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements," "Principal Underwriter" and "Purchase, Redemption and
Pricing of Shares."
<TABLE>
<CAPTION>
Institutional Institutional Service Charitable
Advisory Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees
1998 Fund Expenses
<S> <C> <C> <C> <C>
Strategic Value $930,128 N/A $334 N/A
Diversified Value $2,181,562 N/A $435 N/A
Large Cap Blend $2,031,616 N/A $186 N/A
Common Stock $8,171,550 N/A $8,623 N/A
Strategic Growth $1,235,649 N/A $4,792 N/A
Equity Income $862,925 N/A $815 N/A
Small Company Value $208,402 N/A $0 N/A
Social Principles $782,703 N/A $102 N/A
Balanced $1,954,563 N/A $114 N/A
Equity Index $1,139,118 N/A $2,000 N/A
Special Equity $1,208,084 N/A * N/A
Small Cap Growth $166,954 N/A $0 N/A
</TABLE>
* See "Distribution Fees" below.
For the period ended June 30, 1998 there were no outstanding Class A or Class B
shares of Evergreen Select Equity Index Fund.
24723
39
<PAGE>
Advisory Fee Waivers
In accordance with voluntary expense limitations in effect during the
fiscal period ended June 30, 1998, the Advisor to each of the following Funds
voluntarily reimbursed or waived advisory fees, as follows:
Strategic Value $132,876
Diversified Value $363,594
Large Cap Blend $346,847
Common Stock $1,350,561
Strategic Growth $210,851
Equity Income $124,620
Small Company Value $58,160
Social Principles $129,970
Balanced $325,761
Equity Index $686,140
Special Equity $518,453
Distribution Fees
The table below shows the aggregate sales charges payable for the fiscal
years ended June 30, 1996, 1997 and 1998 to SEI Investments Distribution Co.
("SEI"), the Predecessor Funds' distributor, with respect to the Predecessor
Funds, Class A and Class B shares. The table also shows amounts retained by SEI.
<TABLE>
<CAPTION>
Predecessor Fund Aggregate Sales Charge Payable to SEI Amount Retained by SEI
1996 1997 1998 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Special Equity Fund $1,933 $39,047 $28,000 $286 $1,529 $28,000
Equity Index Fund 0 $188,470 $320,000 0 $6,846 $320,000
</TABLE>
BROKERAGE COMMISSIONS PAID
The table below shows for each Fund, other than Evergreen Select Special
Equity Fund and Evergreen Select Equity Index Fund, the total amounts paid in
brokerage commissions during the fiscal period specified.
Total Brokerage
Commission
=============================================== =====================
Fiscal Period Ended June 30, 1998
Strategic Value $145,302
Diversified Value $1,011,341
24723
40
<PAGE>
Total Brokerage
Commission
=============================================== =====================
Large Cap Blend $415,687
Common Stock $1,063,426
Strategic Growth $464,814
Equity Income $269,886
Small Company Value $123,196
Social Principles $88,390
Balanced $281,280
Small Cap Growth $61,462
Percent of
Percent of Total Transactions
Commission Commission Pad Effected
Paid to Lieber to Lieber by Lieber
Fiscal Period Ended June 30, 1998
Small Company Value $96,640 78.44% 74.68%
The table below shows the brokerage commissions paid by the Predecessor
Funds of Evergreen Select Special Equity Fund and Evergreen Select Equity Index
Fund for the fiscal years ended June 30, 1996, 1997 and 1998.
Total Brokerage
Commission
Fiscal Period Ended June 30, 1996
Special Equity Fund $218,638
Equity Index Fund $91,443
Fiscal Period Ended June 30, 1997
Special Equity Fund $138,761
Equity Index Fund $89,787
Fiscal Period Ended June 30, 1998
Special Equity Fund $116,052
Equity Index Fund $102,434
PERFORMANCE DATA
Total Return
Total return quotations for a class of shares of a 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 outstanding, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount
24723
41
<PAGE>
invested in the class to the ending redeemable value. All dividends and
distributions are added to the initial investment 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 average annual total returns for each class of shares of the Funds,
other than Class A and Class B shares of Evergreen Select Equity Index Fund,
(including applicable sales charges) as of June 30, 1998 are as follows:
Fund/Class Since Inception Inception Date
============================ =============== ==============
Strategic Value
Institutional Shares 11.95% 11/24/97
Institutional Service Shares 1.68% 3/11/98
Diversified Value
Institutional Shares 10.76% 1/22/98
Institutional Service Shares (2.19)% 3/31/98
Large Cap Blend
Institutional Shares 14.31% 12/19/97
Institutional Service Shares 2.17% 3/12/98
Charitable Shares 13.18% 11/24/97
Common Stock
Institutional Shares 12.23% 11/24/97
Institutional Service Shares 6.29% 2/4/98
Strategic Growth 18.53% 11/24/97
Institutional Shares
Institutional Service Shares 6.29% 2/27/98
Equity Income
Institutional Shares 3.70% 11/24/97
Institutional Service Shares (1.16)% 3/11/98
Small Company Value
Institutional Shares 1.28% 12/23/97
Institutional Service Shares N/A 12/23/97
Social Principles
Institutional Shares 6.41% 11/24/97
Institutional Service Shares 1.32% 3/12/98
Charitable Shares 6.38% 11/24/97
Balanced
Institutional Shares 7.76% 1/22/98
Institutional Service Shares 1.23% 4/9/98
Small Cap Growth
Institutional Shares 13.76% 12/28/95
Institutional Service Shares N/A N/A
24723
42
<PAGE>
Ten Years or Inception
Fund/Class One Year Five Years Since Inception Date
============================ ======== ========== =============== =======
Equity Index
Institutional Shares 29.17% 22.46% 17.46% 2/14/85
Institutional Service Shares 29.17% N/A 34.23% 10/9/96
Special Equity
Institutional Shares 14.23% N/A 24.84% 2/21/95
Institutional Service Shares 13.78% N/A 16.40% 3/15/94
Current Yield
From time to time, a Fund may quote its yield in advertisements or in
reports or other communications to shareholders. Yield quotations are expressed
in annualized terms and may be quoted on a compounded basis. Yields are computed
by dividing a Fund's interest income (as defined in the SEC yield formula) for a
given 30-day or one month period, net of expenses, by the average number of
shares entitled to receive distributions during the period, dividing this figure
by the Fund's net asset value per share at the end of the period and annualizing
the result (assuming compounding of income) in order to arrive at an annual
percentage rate. The formula for calculating yield is as follows:
YIELD = 2[(a-b/cd + 1)6-1]
Wherea = 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
Income is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds. Gains and losses
generally are excluded from the calculation. Income calculated for purposes of
determining a Fund's yield differs from income as determined for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yields quoted for
a Fund may differ from the rates of distributions the Fund paid over the same
period, or the net investment income reported in the Fund's financial
statements.
Yield information is useful in reviewing a Fund's performance, but because
yields fluctuate, such information cannot necessarily be used to compare an
investment in the Fund's shares with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed or guaranteed fixed yield
for a stated period of time. Shareholders should remember that yield is a
function of the kind and quality of the instruments in a Fund's investment
portfolios, portfolio maturity, operating expenses and market conditions.
It should be recognized that in periods of declining interest rates the
yields will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yields will tend to be somewhat lower.
Also, when interest rates are falling, the inflow of net new money to a Fund
from the continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the Fund's investments, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite can be expected to occur.
24723
43
<PAGE>
The yield for the 30-day period ended June 30, 1998 for each class of
shares offered by the Funds, other that Class A and Class B shares of Evergreen
Select Equity Index Fund, are set forth in the table below:
30-Day Yield
Institutional Institutional
Fund Shares Service Shares Charitable Shares
Strategic Value 1.40% 1.18% N/A
Diversified Value 0.94% 0.77% N/A
Large Cap Blend 0.70% 0.46% 0.70%
Common Stock 0.93% 0.70% N/A
Strategic Growth 0.14% (0.10%) N/A
Equity Income 2.70% 2.45% N/A
Small Company Value 0.10% N/A N/A
Social Principles 0.14% (0.10%) 0.14%
Balanced 3.22% 2.97% N/A
Small Cap Growth (0.93%) N/A N/A
Special Equity 0% 0% N/A
Equity Index 1.05% 0.99% N/A
Any given yield or total return quotation should not be considered
representative of a Fund's yield or total return for any future period.
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
General
From time to time, a Fund may quote its performance in advertising and
other types of literature as compared to the performance of the Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average,
Russell 2000 Index, or any other commonly quoted index of common stock prices.
The Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average and the Russell 2000 Index are unmanaged indices of selected common
stock prices. A Fund's performance may also be compared to those of other mutual
funds having similar objectives. This comparative performance would be expressed
as a ranking prepared by Lipper Analytical Services, Inc. or similar independent
services monitoring mutual fund performance. A Fund's performance will be
calculated by assuming, to the extent applicable, reinvestment of all capital
gains distributions and income dividends paid. Any such comparisons may be
useful to investors who wish to compare a Fund's past performance with that of
its competitors. Of course, past performance cannot be a guarantee of future
results.
24723
44
<PAGE>
Financial Statements
The audited financial statements and the reports thereon for each of the
Funds, other than Evergreen Select Equity Index Fund and Evergreen Select
Special Equity Fund, are hereby incorporated by reference to the Funds' Annual
Report. The financial statements for Evergreen Select Equity Index Fund have
been audited by Ernst & Young LLP, independent auditors, for the periods from
inception through June 30, 1998. The financial statements for Evergreen Select
Special Equity Fund have been audited by Ernst & Young LLP for the periods from
November 1, 1995 through June 30, 1998 and by the Fund's prior auditor for the
periods ended October 31, 1994 through October 31, 1995. A report of Ernst &
Young LLP on the financial statements it has audited appears in the Funds'
Annual Report which is incorporated by reference. A copy of the Funds' Annual
Reports may be obtained without charge from the Service Company by calling
toll-free 1-800-343-2898 or by writing to the Service Company at P.O. Box 2121,
Boston, Massachusetts 02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses or required by law, the
Trust reserves the right to change the terms of the offer stated in its
prospectuses for each Fund 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 a Fund's prospectus, SAI or in
supplemental sales literature issued by the Trust or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
Each Fund's prospectus and this SAI omit certain information contained in
its registration statement, which may be obtained for a fee from the SEC in
Washington, D.C.
24723
45
<PAGE>
<PAGE>
[PICTURE APPEARS HERE] JUNE 30, 1998
EVERGREEN SELECT
EQUITY FUNDS
------------
ANNUAL REPORT
[LOGO OF APPEARS EVERGREEN FUNDS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
LETTER TO SHAREHOLDERS................................................. 1
EVERGREEN SELECT BALANCED FUND
Fund at a Glance....................................................... 2
Portfolio Manager Commentary........................................... 3
EVERGREEN SELECT COMMON STOCK FUND
Fund at a Glance....................................................... 5
Portfolio Manager Commentary........................................... 6
EVERGREEN SELECT DIVERSIFIED VALUE FUND..
Fund at a Glance....................................................... 8
Portfolio Manager Commentary........................................... 9
EVERGREEN SELECT EQUITY INCOME FUND
Fund at a Glance....................................................... 11
Portfolio Manager Commentary........................................... 12
EVERGREEN SELECT LARGE CAP BLEND FUND
Fund at a Glance....................................................... 14
Portfolio Manager Commentary........................................... 15
EVERGREEN SELECT SMALL CAP GROWTH FUND
Fund at a Glance....................................................... 17
Portfolio Manager Commentary........................................... 18
EVERGREEN SELECT SMALL COMPANY VALUE FUND
Fund at a Glance....................................................... 22
Portfolio Manager Commentary........................................... 23
EVERGREEN SELECT SOCIAL PRINCIPLES FUND
Fund at a Glance....................................................... 27
Portfolio Manager Commentary........................................... 28
EVERGREEN SELECT STRATEGIC GROWTH FUND
Fund at a Glance....................................................... 30
Portfolio Manager Commentary........................................... 31
EVERGREEN SELECT STRATEGIC VALUE FUND
Fund at a Glance....................................................... 33
Portfolio Manager Commentary........................................... 34
FINANCIAL HIGHLIGHTS
Evergreen Select Balanced Fund......................................... 36
Evergreen Select Common Stock Fund..................................... 37
Evergreen Select Diversified Value Fund................................ 38
Evergreen Select Equity Income Fund.................................... 39
Evergreen Select Large Cap Blend Fund.................................. 40
Evergreen Select Small Cap Growth Fund................................. 41
Evergreen Select Small Company Value Fund.............................. 42
Evergreen Select Social Principles Fund................................ 43
Evergreen Select Strategic Growth Fund................................. 44
Evergreen Select Strategic Value Fund.................................. 45
SCHEDULES OF INVESTMENTS
Evergreen Select Balanced Fund......................................... 46
Evergreen Select Common Stock Fund..................................... 48
Evergreen Select Diversified Value Fund................................ 50
Evergreen Select Equity Income Fund.................................... 52
Evergreen Select Large Cap Blend Fund.................................. 54
Evergreen Select Small Cap Growth Fund................................. 56
Evergreen Select Small Company Value Fund.............................. 58
Evergreen Select Social Principles Fund................................ 60
Evergreen Select Strategic Growth Fund................................. 62
Evergreen Select Strategic Value Fund.................................. 64
STATEMENTS OF ASSETS AND LIABILITIES................................... 66
STATEMENTS OF OPERATIONS............................................... 68
STATEMENTS OF CHANGES IN NET ASSETS.................................... 71
COMBINED NOTES TO FINANCIAL STATEMENTS................................. 74
INDEPENDENT AUDITORS' REPORT........................................... 84
ADDITIONAL INFORMATION (UNAUDITED)..................................... 85
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $52 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
--------------------------------------------------------------
MUTUAL FUNDS: ARE NOT FDIC INSURED MAY LOSE VALUE . ARE NOT BANK GUARANTEED
--------------------------------------------------------------
Evergreen Distributor, Inc.
<PAGE>
Letter to Shareholders
----------------------
August 1998
Dear Shareholders:
The fiscal year that ended on June 30, 1998, was an excellent period for U.S.
stock investing, particularly for those portfolios that focused on the largest
of the large-cap stocks.
[PHOTO OF WILLIAM M. ENNIS]
A healthy, but not overheated, domestic economy, declining rates and virtually
invisible inflation all combined to create a benign economic backdrop for equity
investors. Corporate earnings continued to increase, propelled by an optimistic
consumer and the continued trend for companies to help grow their earnings by
cutting costs and improving productivity.
[PHOTO OF DAVID C FRANCIS]
The principal dark cloud on the horizon resulted from the pressure created by
the deepening economic and currency crisis in Asia. The first effects in the
United States were, if anything, benign. The problems in Asia were perceived as
helping to slow the strong growth in the U.S. economy, while helping to control
inflation and keep interest rates low. The Asian influence, however, also has
contributed to a slowdown in the growth in U.S. manufacturing sectors.
Technology and capital goods companies dependent on sales to Asia have begun to
experience earnings disappointments.
Following the pattern of the past three years, the largest U.S. companies seemed
to be the most resilient to any uncertainty and doubts in the market. The S&P
500 Composite Index, for example, had a 30.15% return for the 12 months,
including a 17.71% return in the first six months of 1998. The largest 50
companies in the S&P 500 had even greater performance, outperforming the overall
index by almost 600 basis points in the past six months alone.
Meanwhile, the small-cap and mid-cap sectors lagged noticeably in performance,
even if many smaller companies offered more attractive earnings growth. The
small-cap Russell 2000 Index, for example, had a 12-month return of 16.51%, and
just a 4.93% return during the first six months of 1998.
One of the results of this trend, which has been compounding for three years,
has been historically high valuations in the large-cap area. Indeed, on June 30,
1998, S&P 500 stocks were trading at a price/earnings ratio of 26 times 1998
earnings, compared to the long-term historical average of about 15 times
earnings.
Given this recent outperformance, the relative valuations of the small- and
mid-cap sectors look increasingly compelling to many consultants, especially
considering the very impressive growth rates in many industries not overly
reliant on Asia. The other side of this argument, however, is that the small-
and mid-cap sectors historically also have suffered greater volatility in market
downturns. At this writing, market concerns about the effects of the Asian
crisis were increasing, with analysts taking particularly sharp looks at new
earnings announcements.
Within this environment, the 10 different portfolios of the Evergreen Select
Equity Funds have pursued their distinct strategies to take advantage of
different investment opportunities and to respond to different investor risk
control needs. In the following pages, we present specific reports for the 10
portfolios for the fiscal year ended on June 30. At Evergreen Funds, we provide
the Select Funds to give institutional investors the opportunity to choose among
a range of investment alternatives, each with its distinct objectives and risk
parameters.
Thank you for your continued investment in Evergreen Select Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
/s/ Davis C. Francis
David C. Francis, C.F.A.
Managing Director
Chief Investment Officer
First Capital Group
1
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
The Evergreen Select Balanced Fund uses a systematic and disciplined investment
approach which provides exposure to both the equity and fixed income markets.
The basis of this approach is founded in the belief that stocks offer the
greatest long-term growth opportunities while bonds provide income and less risk
to principal.
PROCESS
The Fund employs a blended approach to equity investing, utilizing companies
with both value and growth-oriented characteristics. Within the fixed income
component, portfolio performance is enhanced while seeking to control risk by
managing duration, sector allocation and security selection.
BENCHMARK
S & P 500 and the Lehman Brothers
Government/Corporate Bond Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
1 year 18.93% 18.88%
5 years 13.75% 13.73%
Since Inception 13.29% 13.26
Fiscal YTD income dividends per share $0.16 $0.08
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 LB Gov't/Corp Class I
3/1/91 $10,000 $10,000 $ 9,675
6/31/91 9,977 10,151 10,070
6/30/92 11,315 11,589 11,500
6/30/93 12,857 13,113 12,981
6/30/94 13,038 12,921 13,228
6/30/95 16,438 14,570 15,303
6/30/96 20,711 15,249 17,525
6/30/97 27,898 16,430 20,787
6/30/98 36,312 18,274 24,722
Comparison of change in value of a $10,000 investment in Evergreen Select
Balanced Fund, Class I, the S & P 500 Index, and the Lehman Brothers Government
/ Corporate Bond Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor fund, Evergreen Balanced Fund
Class Y, for periods before the Fund's registration statement became effective
on November 21, 1997. The inception date of the predecessor fund was April 1,
1991. Performance for the predecessor fund has been adjusted to include the
effect of estimated expenses based upon the Select Balanced Fund expense ratios
as stated in the Fund's current prospectus. Performance information for Class IS
also includes performance of the Fund's Class I for the period from November 24,
1997 to April 9, 1998 (commencement of Class IS operations), adjusted for
differences between class expenses. Returns of Class I and IS since their
respective commencement of class operations were 7.76% and 1.23%, respectively.
Index returns do not reflect expenses, which have been deducted from the Fund's
return.
2
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- -------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
[PHOTO OF DEAN HAWES] [PHOTO OF ROLLIN C. WILLIAMS]
PERFORMANCE AND PORTFOLIO COMPOSITION
For the fiscal year ended June 30, 1998, the Evergreen Select Balanced Fund
Class I shares' 18.9% total return lagged the 30.2% return of the S&P 500 Index
but outperformed the 11.3% return of the Lehman Brothers Government/Corporate
Bond Index. The Fund's performance outpaced the 17.6% average return of the 373
Balanced funds tracked by Lipper Analytical Services, Inc., an independent
mutual fund performance monitoring company.
During the second half of the fiscal year, as valuation levels in the equity
market soared to all-time highs, the Fund's equity exposure was modestly reduced
while the fixed-income weighting was increased. As of June 30, the Fund was
comprised of 56.3% equities, 43.5% fixed income investments, with the remainder
in cash.
Portfolio Characteristics
Total Net Assets $724,065,088
Number of Issues 91
P/E Ratio 28.4x
Beta 1.01
EQUITY EXPOSURE
As the period progressed and expectations for slower economic growth surfaced,
we modified our strategy to focus on industry-dominant companies able to
generate visible and predictable earnings growth. As the economy and consumer
spending slow, we believe these companies will be best equipped to withstand a
temporary weakening in demand and have the resources to maintain market share as
well as earnings stability. The portfolio's top three equity holdings as of June
30, Microsoft, General Electric and Johnson & Johnson, are representative of our
"bigger is better" strategy.
From a sector standpoint, technology and healthcare remain our current focus.
The secular trend underlying technology stocks bodes well for future growth as
companies continue to rely on computers and software to increase efficiency and
cut costs. For the final three months of the fiscal period, the three best
performing stocks were all technology issues; Cisco Systems, Sanmina Corp. and
Microsoft posted price-only returns of 32%, 21% and 18%, respectively.
The outlook for the healthcare sector also remains favorable as a result of
positive demographic trends, good cost controls and the FDA's increased
efficiency in the new drug approval process. At 10.1%, this sector is buoyed by
companies such as Bristol-Myers, HEALTHSOUTH and Pfizer, Inc.
3
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
Top 5 Industries - Equity
(as a percentage of net assets)
Healthcare Products & Services 10.1%
Banks 6.7%
Information Services & Technology 5.8%
Finance & Insurance 4.1%
Consumer Products & Services 4.0%
Top 10 Equity Holdings
(as a percentage of net assets)
Microsof Corp. 2.3%
General Electric Co. 1.6%
Johnson & Johnson 1.6%
HBO & Co. 1.6%
Cisco Systems, Inc. 1.5%
Procter & Gamble Co. 1.5%
Allstate Corp. 1.5%
Tyco International Ltd. 1.5%
Bristol-Myers Squibb Co. 1.5%
Coca Cola Co. 1.5%
FIXED INCOME ALLOCATION
During the final three months of the fiscal year, the Fund's fixed-income
weighting increased to nearly 44%. Our fixed-income exposure has helped
performance due to a duration stance that remained longer than our benchmark for
most of the period, a strategy which was successful as interest rates declined.
As of June 30, 1998, the Fund's duration was 5.8 years versus 5.4 years for the
Lehman Brothers Government/Corporate Bond Index. In keeping with our philosophy
of being a low turnover fund, trades were undertaken primarily in Treasuries
during the period to either shift duration or finely tune the duration process.
Top 5 Industries - Bond
(as a percentage of net assets)
Treasury Notes & Bonds 31.2%
Finance & Insurance 3.8%
Banks 1.7%
U.S. Government Agency Obligations 1.2%
Industrial Specialty Products & Services 1.1%
Top 5 Bond Holdings
(as a percentage of net assets)
U.S. Treasury Notes 15.6%
U.S. Treasury Bonds 15.6%
GNMA 1.2%
NationsBank Corp. 1.1%
Loews Corp. 1.1%
MARKET OUTLOOK
Although long-term market fundamentals remain favorable and support lower
interest rates, many troubled foreign economies are showing signs of worsening
and could negatively impact U.S. financial markets. As a positive side effect,
however, softer foreign economies and declining import prices would likely
reward investors with low inflation and stable interest rates.
Despite any short-term volatility, our long-term outlook remains very favorable
as an increasingly competitive global economy and low worldwide inflation bode
well for both the U.S. equity and fixed income markets. Within our fixed-income
weighting, we expect to maintain a duration longer than that of our benchmark in
the coming months to capitalize on steady-to-declining interest rates. From an
equity perspective, we will continue to emphasize sectors currently enjoying
positive trends as well as companies that demonstrate the ability to meet and
exceed earnings expectations.
4
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN
Select Common Stock Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of June 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Common Stock Fund utilizes a diversified style of equity
management which capitalizes on opportunities in both value- and growth-oriented
stocks. In serving the investment needs of individual investors, the Fund
remains sensitive to tax Implications.
PROCESS
The Fund uses a bottom-up stock selection process, focusing on security
fundamentals rather than broad economic forecasts. The Fund is managed using a
team approach; investment managers locate attractive holdings using a unique
blend of quantitative and traditional fundamental analysis skills.
BENCHMARK
S & P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
1 year 24.37% 24.16%
5 years 18.98% 18.71%
10 years 15.28% 15.00%
Since Inception 16.16% 15.87%
Fiscal YTD income dividends per share $0.51 $0.31
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class I
6/30/88 $10,000 $10,000
6/30/89 12,055 11,267
6/30/90 14,042 13,404
6/30/91 15,081 13,998
6/30/92 17,104 15,609
6/30/93 19,435 17,376
6/30/94 19,708 16,610
6/30/95 24,846 20,336
6/30/96 31,306 25,466
6/30/97 42,169 33,318
6/30/98 54,888 41,437
Comparison of change in value of a $10,000 investment in Evergreen Select Common
Stock Fund, Class I, and the S&P 500 Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was December 31, 1981.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. Performance information for Class IS also includes
performance of the Fund's Class I for the period from November 24, 1997 to
February 4, 1998 (commencement of Class IS operations), adjusted for differences
between class expenses. Returns of Class I and IS since their respective
commencement of class operations were 12.23% and 9.27%, respectively. The common
trust fund was not registered under the Investment Company Act of 1940 (the
"1940 Act") or subject to certain investment restrictions that are imposed by
the 1940 Act. If the common trust fund had been registered under the 1940 Act,
its performance may have been adversely affected. Index returns do not reflect
expenses, which have been deducted from the Fund's return.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Common Stock Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
The Fund is managed by Mark C. Sipe and Hanspeter Giger who have over 31 years
of combined investment experience. Their disciplined approach assures
consistency of results and superior service.
[PHOTO OF MARK C. SIPE] [PHOTO OF HANSPETER GIGER]
MARKET UPDATE AND FUND PERFORMANCE
The stock market's resilience over the past 12 months has been matched only by
its steadfast narrowness. Replaying, yet again, the record of the prior three
years, a select number of very large capitalization stocks accounted for most of
the market's first half advance: the ten largest stocks in the S&P 500 rose
31.7%, while the equally weighted average of all 500 stocks rose just 8.6%;
amazingly, nearly a third actually declined.
Against this backdrop, the Evergreen Select Common Stock Fund Class I shares'
24.4% 12-month return, as of June 30, 1998, trailed the 30.2% return for the S&P
500 Index. The Fund outperformed the 15.2% average return, of all equity mutual
funds tracked by Lipper Analytical Services, Inc. a mutual fund performance
monitoring company.
Portfolio
Characteristics
-----------------
Total Net Assets $1,970,659,937
Number of Issues 118
P/E Ratio 26.7x
Beta 1.0
VICTIMS OF THE ASIAN CRISIS
The stock market's seemingly split personality disorder is clearly reflected in
disparate performance between various sectors of the market so far this year.
After leading the market in the first quarter, industrial cyclicals such as
paper, chemical and machinery stocks rolled over from a relapse of Asian fears.
Another major casualty of the Asian fallout, energy, appears to offer tremendous
long-term opportunity. Similar to the experience in other sectors, however,
those segments that appear to present the best fundamentals or opportunity for
improvement have tended to be laggards relative to the larger names. For
example, large cap stocks such as Texaco held up well versus smaller names such
as Diamond Offshore and R&B Falcon. Despite weak oil prices and negative
near-term sentiment, for the long haul we continue to find the best values in
some drillers such as the latter two stocks above, refiners such as Tosco, and
exploration and production companies such as Anadarko Petroleum. This is due to
a combination of valuation, restructuring opportunities, management strengths,
and/or industry positioning.
6
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Common Stock Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
TOP 5 INDUSTRIES
----------------
(as a percentage of net assets)
Information Services & Technology 12.2%
Healthcare Products & Services 11.1%
Banks 10.2%
Oil/Energy 8.5%
Food & Beverage Products 7.4%
AREAS OF STRENGTH
On the other hand, the better performing sectors, primarily those more closely
linked to the domestic consumer, surged ahead. The share prices of stocks
related to retailing, autos, and housing all echoed the enthusiasm in reaching a
30-year high in consumer confidence. In the Fund, names such as Black & Decker,
Dayton Hudson and Sears led the group's performance.
Another strong segment, but more tied to technology than to the consumer, was
telecommunications, where strong performances by LCI International, prior to its
takeover by Qwest Communications, and Century Telephone, contributed to the
overall Fund's returns. And all along, the health care and technology sectors or
more precisely the very large stocks in those sectors charged ahead; 25% or more
during the past twelve months alone.
TOP 10 HOLDINGS
---------------
(as a percentage of net assets)
General Electric Co. 2.3%
Ford Motor Co. 2.2%
CiscoSystems, Inc. 1.8%
International Business Machines Corp. 1.7%
Du Pont (E.I.) De Nemours & Co. 1.7%
Coca Cola Co. (The) 1.7%
GTE Corp. 1.6%
Smith Kline Beecham Plc, ADR 1.6%
Texaco, Inc. 1.6%
Chase Manhattan Corp. 1.6%
PERFORMANCE EVALUATION
It is this last distinction that is perhaps most important in dissecting the
performance of the Evergreen Select Common Stock Fund this year. While the
Fund's comparatively modest sector "bets" versus the S&P 500 netted out to have
a slight positive impact, it was participation in stocks beyond the very largest
within primarily the technology and healthcare sectors that accounted for much
of the Fund's underperformance relative to the S&P 500. Forays into smaller
stocks such as MedPartners, Varian Associates and Adaptec diminished the
positive contributions from participation in larger stocks such as Schering-
Plough, Abbott Labs, Dell Computer and Microsoft. While the current drag by some
of these smaller positions is disappointing, we believe many still represent
uncommon values relative to their strong fundamental outlooks and represent the
best potential for strong comparative returns in subsequent periods.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
The Evergreen Select Diversified Value fund is a core fund with an emphasis on
traditional value, utilizing fundamental analysis to determine if a stock is
selling at a reasonable valuation level. The Fund seeks to capture the best
opportunities in a value universe by emphasizing securities with perceived
intrinsic value above current market levels due to temporary or anticipated
problems.
PROCESS
Primarily, the Fund invests in undervalued companies using a "bottom-up"
approach that concentrates on analyzing security fundamentals rather than broad
economic forecasts. The Diversified Value team strives to produce a portfolio
that best controls risk and balances a risk/reward relationship.
BENCHMARK
S & P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
AVERAGE ANNUAL RETURNS
1 year 21.44% 21.66%
5 years 18.36% 18.64%
Since Inception 17.57% 17.86%
FISCAL YTD INCOME DIVIDENDS PER SHARE $0.14 $0.05
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class I
12/1/90 $10,000 $10,000
6/30/91 11,426 11,648
6/30/92 12,959 12,925
6/30/93 14,725 14,482
6/30/94 14,932 15,044
6/30/95 18,825 18,322
6/30/96 23,720 21,701
6/30/97 31,951 27,701
6/30/98 41,857 33,640
Comparison of change in value of a $10,000 investment in Evergreen Select
Diversified Value Fund, Class I, and the S&P 500 Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor fund, Evergreen Value Fund
Class Y, for periods before the Fund's registration statement became effective
on November 21, 1997. The inception date of the predecessor fund was January 3,
1991. Performance for the predecessor fund has been adjusted to include the
effect of estimated expenses based upon the Select Diversified Value Fund
expense ratios as stated in the Fund's current prospectus. Performance
information for Class IS also includes performance of the Fund's Class I for the
period from November 24, 1997 to March 31, 1998 (commencement of Class IS
operations), adjusted for differences between class expenses. Returns of Class I
and IS since their respective commencement of class operations were 10.72% and
(2.19%), respectively. Index returns do not reflect expenses, which have been
deducted from the Fund's return.
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
Jack Gray, Steve Hoeft, and Eric Teal, who have a combined 49 years of
investment experience, manage the Evergreen Select Diversified Value Fund. The
team employs rigorous fundamental analysis combined with a disciplined
quantitative approach to seek superior results and adherence to risk/reward
objectives.
[PHOTO OF JACK GRAY]
[PHOTO OF STEVE HOEFT]
[PHOTO OF ERIC TEAL]
PERFORMANCE
When combined with the performance results from the Evergreen Value Fund prior
to the conversion, the Evergreen Select Diversified Value Fund Class I shares
posted a 12-month return of 21.44%. The Fund has been broadly diversified and
historically approached the market in a conservative manner, traditionally
demonstrating less risk than the overall market.
PORTFOLIO
CHARACTERISTICS
---------------
Total Net Assets $797,562,096
Number of Issues 68
P/E Ratio 25.8x
Beta 0.97
SECTOR ACTIVITY AND SECURITY SELECTION
The Fund's performance was enhanced particularly by the communication service
company, Cisco Systems; the fire and safety goods producer, Tyco International;
and the drug-maker, Bristol-Myers, which returned 80%, 53%, and 48%,
respectively. Underperformance relative to the S&P 500 can be attributed to a
cautious approach to the market. Overweightings in more defensive industries and
industries impacted by global economic events negatively impacted the Fund. Our
relative positive exposure in electric and gas utilities allowed participation
in equities without the high degree of downside risk or volatility.
Portfolio exposure to tobacco manufacturers negatively impacted performance as
the industry prepares for a sweeping national settlement. The Fund was also
affected by the decline in crude oil prices and its impact on our oil drilling
companies. Overall, the flight to the largest-cap companies continued in the
first half of 1998 and diversified portfolios struggled to keep pace with market
averages.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
Top 5 Industries
-------------------------------
(as a percentage of net assets)
Healthcare Products & Services 14.4%
Banks 12.7%
Food & Beverage Products 10.1%
Communication Systems & Services 5.8%
Information Services & Technology 5.5%
PORTFOLIO ADJUSTMENTS
The Fund does not find market timing to be beneficial, but was recently
successful in selling several high profile stocks prior to their significant
declines in late June (Sunbeam and Cendant were down approximately 50% due to
'fictitious' revenues and accounting irregularities). Positions in several
stocks were also increased prior to their take-off in June, including Microsoft,
up approximately 40%. Significant additions include retailers: Federated
Department Stores and Dayton Hudson; grocer: Safeway; and telephone giant:
Worldcom.
Top 10 Holdings
-------------------------------
(as a percentage of net assets)
Chase Manhattan Corp. 3.6%
General Electric Co. 3.5%
Bristol-Myers Squibb Co. 3.4%
NationsBank Corp. 3.4%
Pfizer, Inc. 3.1%
Tyco International Ltd. 3.0%
News Corp. Ltd. 2.7%
Bestfoods 2.6%
Federated Department Stores, Inc. 2.5%
Cisco Systems, Inc. 2.4%
OUTLOOK
Looking ahead, we feel that the fund is well positioned with larger
capitalization and higher earnings' quality stocks, two themes we believe will
triumph in a late cycle bull market. The fund still maintains a cautious
approach to the market since a market correction or downturn is not unlikely.
Our goal is to not take significant market, industry, or style bets but to
emphasize our greatest strength stock-picking.
Our process controls for risk relative to the market, but efficiently captures
value investment opportunities. In summary, our strategy is more than
identifying stocks which we believe will appreciate; it is a rigorous process
that carefully balances each unit of return with each unit of risk.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Equity Income Fund utilizes both value-and-growth oriented
stocks in pursuit of its objective: high current income and long-term capital
appreciation. The Fund provides investors a degree of safety by emphasizing
companies with below average price-to-earnings ratios and higher dividend yields
relative to their industry groups.
PROCESS
The Fund uses a bottom-up stock selection process, focusing on security
fundamentals rather than broad economic forecasts. The portfolio construction
process consists of a unique blend of quantitative and traditional fundamental
analysis skills.
BENCHMARK
S & P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
AVERAGE ANNUAL RETURNS
1 year 14.45% 14.30%
5 years 14.80% 14.54%
10 years 13.64% 13.37%
Since Inception 14.69% 14.41%
FISCAL YTD INCOME DIVIDENDS PER SHARE $ 1.51 $ 0.74
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class I
6/30/88 $10,000 $10,000
6/30/89 12,055 12,076
6/30/90 14,042 13,870
6/30/91 15,081 15,018
6/30/92 17,104 16,558
6/30/93 19,435 18,019
6/30/94 19,708 17,904
6/30/95 24,846 21,101
6/30/96 31,306 25,178
6/30/97 42,169 31,384
6/30/98 54,888 35,992
Comparison of change in value of a $10,000 investment in Evergreen Select Equity
Income Fund, Class I, and the S&P 500 Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was December 31, 1978.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. Performance information for Class IS also includes
performance of the Fund's Class I for the period from November 24, 1997 to March
11, 1998 (commencement of Class IS operations), adjusted for differences between
class expenses. Returns of Class I and IS since their respective commencement of
class operations were 3.70% and (1.16%), respectively. The common trust fund was
not registered under the Investment Company Act of 1940 (the "1940 Act") or
subject to certain investment restrictions that are imposed by the 1940 Act. If
the common trust fund had been registered under the 1940 Act, its performance
may have been adversely affected. Index returns do not reflect expenses, which
have been deducted from the Fund's return.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT
Paul A. DiLella who has 16 years of investment experience manages the Evergreen
Select Equity Income Fund. In addition to managing Evergreen Select Equity
Income Fund, Mr. DiLella is also responsible for the co-management of the
Evergreen Utility Fund. He also has research responsibility for the electric
utility, natural gas distribution, and REIT areas.
[PHOTO OF PAUL A. DILELLA]
PERFORMANCE
For the fiscal year ending June 30, 1998, the Evergreen Select Equity Income
Fund Class I share's 14.5% total return trailed the 30.2% return for the S&P 500
Index. Underlying the Fund's fiscal year return were two dramatically different
performance periods. The portfolio's strong and almost magical 14.8% total
return during the first six months substantially outpaced the S&P 500 by 4.2%.
Conversely, during the final half of the fiscal year as investors shifted their
focus away from income-oriented companies toward more growth-oriented areas, the
Fund's performance relative to the index suffered.
Portfolio
Characteristics
---------------
Total Net Assets $205,745,201
Number of Issues 48
P/E Ratio 18.0x
Beta 0.63
UNDERLYING MARKET INFLUENCES
As our philosophy states, "the Fund provides investors a relative degree of
safety by emphasizing companies with below-average price-to-earnings ratios and
higher dividend yields relative to their industry groups." Unfortunately, this
strategy has been severely penalized in the equity market over the past six
months due to a market rotation toward growth-oriented sectors such as
technology.
As an "equity income" fund, the majority of the portfolio is invested in
traditional dividend-paying sectors with relatively low valuation levels. For
example, as of fiscal year end, over 40% of the portfolio was invested in the
energy and utility sectors. Although defensive sectors, including these two
areas performed very well during the first six months of the period, they
dramatically underperformed during the final six months. Investors' strong
appetite for growth-oriented stocks penalized the performance of utility
companies while plummeting oil prices had a negative impact on energy stocks.
Another factor which penalized Fund returns was our exposure to tobacco stocks.
Recent publicity surrounding the tobacco industry and the potentially negative
effects of upcoming tobacco legislation caused a sharp pullback among tobacco
stocks. Two of our current holdings, RJR Nabisco and Philip Morris, declined 23%
and 7%, respectively, during the 12 months.
Top 5 Industries - Equity
-------------------------------
(as a percentage of net assets)
Utilities -- Electric 21.5%
Oil/Energy 13.5%
Banks 10.6%
Food & Beverage Products 6.5%
Real Estate 6.2%
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
ACTIVITY WITHIN THE FUND
Offsetting some negative market factors were a few timely decisions which
enhanced the Fund's performance in the final months of the fiscal period. Our
decision to sell Keycorp, a Cleveland-based bank, proved timely as its share
price declined following its sale. WorldCom, a global provider of local, long
distance and internet services, was added to the portfolio and proceeded to
appreciate 12% following its purchase in early May.
We felt that the correction which took place in the energy sector was an
overreaction among investors, and viewed it as an opportunity to strengthen the
portfolio. Consequently, we added Ultramar Diamond Shamrock and Newpark
Resources, two energy-related companies which were purchased following a sharp
pullback in their share prices. Because their price decline was primarily a
result of plunging oil prices, not deteriorating fundamentals, we feel both
companies represent solid long-term investments.
Top 10 Equity Holdings
-------------------------------
(as a percentage of net assets)
Cinergy Corp. 3.8%
Houston Industries, Inc. 3.3%
Fleet Financial Group, Inc. 3.2%
GPU, Inc. 3.2%
Simon DeBartolo Group, Inc. 3.2%
General Electric Co. 3.1%
Ralston Purina Co. 3.1%
Ultramar Diamond Shamrock Corp. 3.1%
GTE Corp. 3.0%
BankBoston Corp. 3.0%
A CONSISTENT, STRONG CURRENT YIELD
The Fund's 2.70% 30-day SEC current yield, nearly twice the dividend yield of
the S&P 500 Index, underscores our income-oriented investment strategy. We think
the portfolio's current yield will provide investors a degree of stability
within this uncertain market environment afflicted with soaring valuation
levels.
OUTLOOK
Although we are disappointed with the Fund's recent fiscal-year performance, we
are confident that the adjustments made to the portfolio have positioned it well
for the final half of 1998. We recognize that the market's current preference
toward growth-style companies is a cyclical event and once this cycle has run
its course, the portfolio's emphasis on well-managed, attractively-valued,
above-average-yielding stocks will continue to reward our shareholders with
favorable long-term results.
As we have stated in previous commentaries, we feel the best way to protect our
shareholders' interests is to remain focused on the Fund's income-oriented
strategy. This strategy has served us well over time as evidenced by the Fund's
solid performance, relative to its peers, over 1-, 3-, 5-, and 10-year time
periods.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Large Cap Blend Fund invests in large and mid-sized U.S.
companies, blending those that display both value and growth-oriented
characteristics. This philosophy holds that value and growth stocks tend to be
countercyclical, outperforming the broad market at different times.
Diversification between the two approaches tends to provide less volatile
investment results over time.
PROCESS
Research and stock selection focus on companies of sound financial quality which
have strong management teams and maintain competitive leadership positions
within their respective industries. These companies are identified using a
fundamental, bottom-up stock selection process which is research-intensive.
BENCHMARK
S & P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class IS Class IC Class I
AVERAGE ANNUAL RETURNS
1 year 27.46% 27.26% 27.46%
3 years 27.17% 26.89% 27.17%
Since Inception 22.90% 22.62% 22.90%
FISCAL YTD INCOME DIVIDENDS PER SHARE $0.22 $0.09 $0.24
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class IC
Dec-93 $10,000 $10,000
6/30/94 9,661 9,355
6/30/95 12,180 12,297
6/30/96 15,347 14,732
6/30/97 20,672 19,841
6/30/98 26,907 25,289
Comparison of change in value of a $10,000 investment in Evergreen Select Large
Cap Fund, Class IC, and the S&P 500 Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I, IS and IC performance
information includes the performance of the Fund's predecessor common trust fund
for periods before the Fund's registration statement became effective on
November 21, 1997. The inception date of the predecessor common trust fund was
December 31, 1993. Performance for the common trust fund has been adjusted to
include the effect of estimated expenses based upon the mutual fund expense
ratios as stated in the Fund's current prospectus. Performance information for
Class I and IS also includes performance of the Fund's Class IC for the period
from November 24, 1997 to December 19, 1997 (commencement of Class I operations)
and March 12, 1998 (commencement of Class IS operations), respectively, adjusted
for differences between class expenses. Returns of Class I, IS and IC since
their respective commencement of class operations were 14.31%, 2.17% and 13.18%,
respectively. The common trust fund was not registered under the Investment
Company Act of 1940 (the "1940 Act") or subject to certain investment
restrictions that are imposed by the 1940 Act. If the common trust fund had been
registered under the 1940 Act, its performance may have been adversely affected.
Index returns do not reflect expenses, which have been deducted from the Fund's
return.
14
<PAGE>
- ------------------------------------------------------------------------------
E V E R G R E E N
Select Large Cap Blend Fund
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
The Evergreen Select Large Cap Blend Fund is managed by a team of 4 portfolio
managers with over 90 years of combined investment experience. The team-oriented
approach incorporates multiple perspectives to identify the most attractive
opportunities in the market and ensures adherence to the style-specific
objectives.
[PHOTO OF DARRYL BROWN] [PHOTO OF ERIC WLEGAND]
[PHOTO OF STEVE HOEFT] [PHOTO OF DEAN HAWES]
PERFORMANCE
For the fiscal year ended June 30, 1998, the Evergreen Select Large Cap Blend
Fund Class I shares' 27.5% total return trailed the 30.2% return for the S&P 500
Index. According to data from Lipper Analytical Services, Inc., however, the
Fund did outperform the 15.2% average return of all equity mutual funds during
the twelve-month period ended June 30, 1998.
PORTFOLIO
CHARACTERISTICS
----------------
Total Net Assets $69,283,488
Number of Issues 71
P/E Ratios 27.6x
Beta 1.19
STRATEGIC SECTOR WEIGHTINGS
At 17.3%, Healthcare Products & Services represents the portfolio's largest
sector and is buoyed by names such as Bristol-Myers, HEALTHSOUTH Corp. and
Pfizer. The outlook for this area remains extremely favorable as a result of
positive demographic trends, good cost controls and the FDA's increased
efficiency in the new drug approval process.
The portfolio's solid weighting in technology stocks reflects our favorable
outlook for this sector as well. The secular trend underlying technology stocks
bodes well for future growth as companies continue to rely on computers and
software to increase efficiency and cut costs. For the final three months of the
fiscal period, the three best performing stocks were all technology issues as
Cisco Systems, Sanmina Corp. and Microsoft posted price-only returns of 32%,
21% and 18%, respectively.
15
<PAGE>
- ------------------------------------------------------------------------------
E V E R G R E E N
Select Large Cap Blend Fund
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
Conversely, our decision to maintain an underweighted position in the energy
sector helped performance as this area languished due to plummeting oil prices.
Consistent with this strategy, CMS Energy was eliminated as a portfolio holding.
Consumer cyclicals represent the most significant underweight -- 9.3% versus
15.3% for the benchmark -- due to increasing competition, stretched valuations
and a slowdown in global demand facing this sector.
TOP 5 INDUSTRIES
----------------
(as a percentage of net assets)
Healthcare Products & Services 17.3%
Banks 11.7%
Information Services & Technology 9.4%
Finance & Insurance 7.7%
Consumer Products & Services 6.6%
INVESTMENT STRATEGY
In the earlier part of the fiscal year, we were concerned by the potential
negative impact from the Asian financial crisis and soaring valuations in the
equity market. In response, we shifted the Fund toward a lower valuation
structure by reducing typically larger companies with high price-to-earnings
ratios, specifically, companies which have experienced significant run-ups in
price such as Colgate. As the period progressed and expectations for slower
economic growth surfaced, we modified our strategy to focus on industry-dominant
companies able to generate visible and predictable earnings growth. As the
economy and consumer spending slow, we feel these companies will be best
equipped to withstand a temporary weakening in demand and have the resources to
maintain market share and earnings stability through pricing flexibility. The
portfolio's top three holdings as of June 30 -- General Electric, Microsoft and
Bristol Myers -- are representative of our "bigger is better" strategy.
TOP 10 HOLDINGS
---------------
(as a percentage of net assets)
General Electric Co. 3.1%
Microsoft Corp. 2.9%
Bristol-Myers Squibb Co. 2.8%
Tyco International Ltd. 2.8%
Coca Cola Co. 2.7%
BankBoston Corp. 2.7%
HEALTHSOUTH Corp. 2.7%
Travelers Group, Inc. 2.7%
Cisco Systems, Inc. 2.7%
Procter & Gamble Co. 2.6%
OUTLOOK
Although long-term market fundamentals remain favorable, there are several
factors, such as soaring valuations and deteriorating foreign economies, which
could hurt the market in the short term. We feel that investors have
underestimated the negative impact facing corporate earnings from the weakening
Asian economy and, as a result, we will maintain an emphasis on domestically
oriented companies which have less exposure to troubled foreign markets.
From a sector standpoint, we anticipate strong weightings in technology,
healthcare and banks as a result of extremely positive trends within each area.
Individual stock selection will continue to emphasize well-managed, dominant
companies with reasonable valuation levels which demonstrate the ability to
meet, and exceed, earnings expectations.
16
<PAGE>
- ------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- ------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
The Fund seeks to provide shareholders with long-term growth of capital by
investing in small company stocks. We believe that the risk associated with
smaller company stocks can be managed effectively by diversification and careful
attention to valuation.
PROCESS
The Fund manager uses a fundamental, bottom-up stock selection procss which is
research-intensive. The Fund generally invests in stocks of companies which have
market capitalization of $1 billion or less and above-average long-term growth
rates. Our research process identifies buying opportunities in high-quality
small companies which are growth-oriented, have a competitive advantage and
reasonable valuations.
BENCHMARK
RUSSELL 2000 GROWTH INDEX
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
CLASS 1
Inception Date 12/31/95
AVERAGE ANNUAL RETURNS
1 year 12.11%
Since Inception 13.76%
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Class IC
Dec-93 $10,000 $10,000
6/30/94 9,661 9,355
6/30/95 12,180 12,297
6/30/96 15,347 14,732
6/30/97 20,672 19,841
6/30/98 26,907 25,289
Comparison of change in value of a $10,000 investment in Evergreen Select Small
Cap Growth Fund, Class I, and the Russell 2000 Growth Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The Russell 2000 Growth Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities nor any management fees.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT
The Evergreen Select Small Cap Growth Fund is managed by Thomas L. Holman. Mr.
Holman is a member of the Small Cap Growth Team at Keystone Investment
Management Co., where he manages the Fund and separately managed, small-cap
growth accounts. His research responsibilities are focused on telecommunication
service companies. Prior to joining Keystone in 1997, Mr. Holman was a portfolio
manager and securities analyst at Invista Capital Management. He developed
quantitative models and had co-management responsibility for several small- and
mid-cap portfolios. As an analyst, he was a generalist, covering a wide variety
of industries, including technology, telecommunications equipment, media
services, basic industry, consumer staples and retail. Mr. Holman received both
his B.S. and M.B.A degrees from Iowa State University.
[PHOTO OF THOMAS L. HOLMAN APPEARS HERE]
PERFORMANCE
The Evergreen Select Small Cap Growth Fund Class I shares produced a return of
12.11% for the 12-month period that ended on June 30, 1998. This return somewhat
lagged the return of the Fund's benchmark, the Russell 2000 Growth Index, which
had a return of 13.19%. Relative performance improved substantially during the
second half of the fiscal year, the Jan.1-June 30, 1998 period, when portfolio
management and process changes in the Small Cap Growth Team at Keystone were
fully in place. During this period, the Fund at a Glance as of June 30, 1998
Fund's total return was 6.49%, compared to 5.46% for the Russell 2000 Growth
Index.
PORTFOLIO
CHARACTERISTICS
---------------
Total Net Assets $69,283,488
Number of Issues 71
P/E Ratios 27.6x
Beta 1.19
ENVIRONMENT
For a period approaching two years, the gap between the relative values of large
capitalization and small capitalization stocks has been narrowing, and large cap
stocks have generated better returns. This is primarily because large cap
companies have offered the growth opportunities normally associated with small
caps, but with the advantages of more stability, more diversified products and
longer operating histories. Investors in large company stocks received strong,
above-historical-average growth, primarily because of productivity gains and the
growth of the world economy. We have reached the point, however, where we
believe the valuations between large cap and small cap stocks are at a historic
low seen only twice in the past 15 years. These valuation relationships indicate
that small cap stocks are the place in which to be invested, particularly in
light of the growth opportunities they have. In contrast, large company stocks
are likely to have a harder time achieving earnings growth through further
productivity gains, and they are more likely to be adversely affected by the
strength of the U.S. dollar, which hurts their ability to compete in
international markets.
18
<PAGE>
- ------------------------------------------------------------------------------
E V E R G R E E N
Select Small Cap Growth Fund
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
Small cap stocks did have a period, from the end of April through October 1997,
when they substantially outperformed the big caps. But the Asian financial and
currency crisis hit small cap stocks hard, especially those involved in the
technology hardware (-31.79%) and energy-related (-31.91%) industries. Those
sectors make up a significant part of the small stock indexes, 11.6% and 4.4%,
respectively. Even though small caps as a whole were weak, domestically oriented
services continued their strong performance through the first half of 1998:
commercial services (+10.49%), consumer services (+11.8%), retail (+17.34%), and
telecommunications services (+18.61%).
INVESTMENT STRATEGY
The Fund is managed with a very consistent strategy. The management team looks
for companies that have well-defined, defendable competitive advantages and
sustainable, above-average growth prospects. With these characteristics, the
companies have the ability to earn higher returns than their peers do, and
ultimately those high returns have the potential to be reflected in the
performance of the Fund.
Once we identify these companies, the key is to make sure the Fund is able to
acquire stock at reasonable valuations. The investment team spends a major
portion of its time in valuation analysis, making sure that we are not
overpaying for the opportunity to participate in the firm's growth. We are
trying to achieve growth at a reasonable price.
This discipline is maintained in making decisions to sell as well as to buy
stocks. The investment team regularly updates valuations and uses this valuation
analysis in deciding whether to maintain, reduce or even completely eliminate
the Fund's position in a company's stock.
TOP 5 INDUSTRIES
----------------
Information Services & Technology 14.1%
Telecommunication Services & Equipment 8.5%
Electrical Equipment & Services 7.9%
Consumer Products & Services 7.8%
Education 7.0%
SECTOR ALLOCATION ADJUSTMENTS
We have reduced investments in companies potentially affected by the problems in
Asia. This includes many areas in the technology hardware and energy-related
industries.
In addition to reducing the Fund's exposure to technology, we have repositioned
the technology investments to favor companies not heavily influenced by Asia.
Two new investments illustrate this emphasis: the first is Antec, a leading
cable equipment supplier to TCI, the cable company that AT&T intends to acquire.
Antec should be a direct beneficiary as more capital is spent in upgrading TCI's
cable operations. The second technology company is Forrester Research, an
Internet information consulting company that is a leader in the business of
providing information to companies planning to do business on the Internet.
We have been allocating an increasing part of the Fund's assets to domestically
oriented commercial services companies and consumer goods companies.
19
<PAGE>
- ------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
In commercial services, we have recently added two advertising companies: ADVO
is the number-one, full-service direct mailer, and Big Flower Holdings is the
largest U.S. producer of advertising circulars. Both companies dominate their
competitive groups, are competitively well positioned and are growing at good
paces.
On the consumer side, we have added three new investments.
The first is National R.V. Holdings, which makes the large recreational vehicles
(RVs) that have become extremely popular among baby boomers. This company has
introduced an RV with a slide-out room. This hydraulically moving room extends
out the side of the vehicle, adding a room and increasing the available living
space. The second company is Scotts, the well known fertilizer and grass seed
company. This company has been acquiring other parts of its industry, and
recently announced plans to buy the Ortho division of Monsanto Chemical. With
this and other acquisitions, Scotts is emerging as the dominant player in the
home lawn and garden products market, with strong profits and excellent growth
potential. The third consumer company is Steiner Leisure, which is the largest
operator of spas on cruise ships. This is an extremely profitable company in an
industry where there is no real competition. Also consumer-related is the Fund's
investment in these education companies: Bright Horizons, Career Education,
Strayer Education and Computer Learning Centers.
Computer Learning, an operator of schools offering associates' degree programs
in computer-related fields, provides a good example of our investment strategy.
The types of programs offered are in high demand throughout the nation, and the
company's business model has above-average profitability. Following our first
analysis of the company, we felt the stock was fairly priced, given its
prospects. Subsequently, the price of the stock sold off sharply due to a
controversy surrounding a complaint filed by a student in Illinois. We then
determined that the market had over-reacted to this controversy and that the
company and its business were fundamentally solid. We were able to buy the stock
"on the dip" in its price with a very favorable risk/reward ratio. As the market
began to realize the Illinois controversy was an isolated incident, the stock
rebounded and the investment has worked out very well.
The Fund also continues to have a major emphasis on international long distance.
This area offers significant investment opportunities as industrialized nations
throughout the world go through deregulation similar to that experienced in 1984
when AT&T was broken up. The difference is that with the deregulation that is
occurring around the world, both long-distance and local service is being opened
up to increased competition. In the past, telephone monopolies typically had
been state-owned and had very little incentive to invest in capital equipment to
improve service. Now, there are huge opportunities for the small, start-up
companies to deploy state-of-the-art networks and capture a significant share of
the market. The Fund has been looking for attractive service providers. Two
small cap companies in the Fund are involved in installing long-distance fiber
loops throughout Europe. They are Esprit, which is focusing principally on
Southern Europe, and Viatel, which is concentrating on Northern Europe.
20
<PAGE>
- ------------------------------------------------------------------------------
E V E R G R E E N
Select Small Cap Growth Fund
- ------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
TOP 10 EQUITY HOLDINGS
----------------------
General Cable Corp. 2.9%
Computer Learning Centers, Inc. 2.8%
Hearst-Argyle Television, Inc. 2.4%
Chattem, Inc. 2.3%
Market Facts, Inc. 2.3%
Equity Corp. International 2.2%
Helen of Troy Ltd. 2.1%
FileNet Corp. 2.1%
ADVO, Inc. 2.1%
OM Group, Inc. 2.0%
OUTLOOK
The outlook is bright for small cap stocks. We believe if the Asian financial
crisis had not occurred, the strong performance by small company stocks in April
through October of 1997 would have been sustained. We also believe that it will
become increasingly difficult for large cap companies to maintain the level of
growth they have enjoyed. As investors continue to seek out growth, they should
again be focusing on small- and mid-cap companies, which offer faster growth and
currently are trading at very attractive valuation levels.
We now are in the late stages of the current economic cycle. Usually, this means
an increase in inflationary pressures both in labor and commodity materials, and
inflationary pressures lead to higher interest rates. The Asian financial crisis
has had a deflationary effect, however, and companies continue to realize
sufficient gains in productivity to offset any increases in labor costs. This
combination of deflationary commodity prices and increased productivity has led
to a rather benign economic environment of slow-to-moderate growth with
flat-to-slightly-declining interest rates. With this favorable economic
backdrop, small cap companies offer strong growth potential and especially
attractive valuations. Ultimately, we believe these companies offer very
attractive return opportunities that have the potential to be reflected in their
stock performance.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
The Evergreen Select Small Company Value Fund seeks capital appreciation by
investing in little-known and relatively small companies. This requires a
significant commitment to independent research by Evergreen's team of 18
analysts, who have an average 16 years' professional experience. The management
team seeks to identify small companies that are favorably priced and have both
entrepreneurial managements and catalysts for growth. The investment discipline
pays special attention to valuations and diversification by industry and company
to reduce the volatility associated with small cap stocks.
PROCESS
The Fund's management team uses an intensive research process to assemble a
diversified stock portfolio of small companies that:
. Are potential merger and acquisition candidates;
. Have promising new products that can cause a dramatic change in earnings;
. Are "value-timing" candidates because, while their stock may be temporarily
out of favor, they offer the potential of good, long-term appreciation; and
. Can benefit from re-structuring programs of management.
BENCHMARK
Russell 2000 Value Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
The Fund's inception was December 22, 1997 and has no annual returns to report
yet. Fiscal YTD income dividends per share are $0.04.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date Russell 2000 Class I
Dec-97 $10,000 $10,000
Mar-98 9,819 9,979
Feb-98 10,413 10,498
Mar-98 10,835 10,879
Apr-98 10,889 11,006
May-98 10,503 10,337
Jun-98 10,444 10,128
Comparison of change in value of a $10,000 investment in Evergreen Select Small
Company Value Fund, Class I, and the Russell 2000 Value Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The Russell 2000 Index is an unmanaged
index and does not include transaction costs associated with buying and selling
securities, nor any management fees.
22
<PAGE>
EVERGREEN
SELECT SMALL COMPANY VALUE FUND
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
Nola Maddox Falcone heads the team that manages the Evergreen Select Small
Company Value Fund. The team also includes Stephen A. Lieber, Peter J. Kovalski
and Constance Unger (not pictured). Nola M. Falcone, CFA, is President and Co-
Chief Executive Officer of Lieber & Co. and Evergreen Asset Management Corp.
Stephen A. Lieber is Chairman and Co-Chief Executive Officer of Lieber & Co. and
Evergreen Asset Management Corp. Peter J. Kovalski, CFA, joined Lieber & Co. as
an analyst in 1992. Previously, he was an analyst with International Assets
Advisory Corp., Williams Securities Group, Inc., Ryan Beck & Co., and
Ayco/American Express. Constance Unger joined Lieber & Co. as an analyst in 1998
with a total of 11 years' experience in value investing. Previously, she served
at Segall Bryant & Hamill Investment Counselors, Society Asset Management and
Bankers Trust Co.
[PHOTO OF NOLA FALCONE APPEARS HERE]
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
[PHOTO OF PETER J. KOVALSKI APPEARS HERE]
PORTFOLIO STRUCTURE
The Fund's management team has assembled a diversified stock portfolio of 113
different companies. During the period since the Fund's inception, the team has
found a number of attractive opportunities among companies that fit one or more
of these categories. This has resulted in a portfolio of companies that, in the
aggregate, have lower valuations, as measured by traditional price measures such
as price-to-earnings and price-to-book ratios, than the overall stock market,
yet higher earnings growth rates. Opportunities were particularly evident among
consumer-sensitive companies whose businesses rely principally on the U.S. Many
of the best-performing companies have found ways to take advantage of the
growing needs of the large, baby-boomer generation that is approaching late
middle age. Those companies that have products or services appealing to this
market have benefited from an environment of low unemployment and strong
consumer demand.
Portfolio
Characteristics
---------------
Total Net Assets $179,797,740
Number of Issues 63
P/E Ratio 31.4x
Beta 1.08
Among the prime examples of these small-cap companies that appeal to home-owning
baby-boomers is Eagle Hardware, a regional retail chain based in the Western
United States. The Fund's investment in this company, made at the Fund
inception on December 22, 1997, had appreciated by 27.7% by the end of the
fiscal year on June 30. Another strong example is
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
La-Z-Boy, Inc., which has benefited from strong, baby-boomer demand. The Fund
made 23.8% on its investment in this company in the five months in which the
stock was held. A third consumer-related stock was that of Gerber Children's
Wear Inc. After the Fund purchased this stock at its initial public offering on
June 10, the stock appreciated by 18.7% by June 30.
The popularity of home ownership helped the performance of two title insurance
companies that benefited from the wave of new and refinanced mortgages. The
Fund's investment in Fidelity National Financial, Inc., appreciated by 25.15%
since the original purchase on March 9, while the investment in LandAmerica
Financial Group rose by 27.88% since the purchase on March 10.
The same theme of home ownership helped the stocks of two homebuilders. Lennar
Corp. rose by 38.5% during the brief period that its stock was owned by the
Fund, from January 5 through March 23, while the stock of D.R. Horton Inc. rose
by 13.27% since its purchase on April 27. The home-building trend also had a
favorable impact on Genlyte Group, Inc., a manufacturer of light fixtures. The
stock of this company rose by 21% since its purchase on April 23.
Top 5 Industries
----------------
(as a percentage of net assets)
Banks 12.4%
Oil Field Services 6.8%
Finance & Insurance 6.6%
Healthcare Products & Services 6.5%
Consumer Products & Services 6.0%
The Fund's performance was helped by consumer-oriented regional brokerage firms,
most notably Morgan Keegan, Inc., a firm based in Memphis, Tenn., and
Interstate/Johnson Lane, Inc., of Charlotte, N.C. The stocks of both these
companies benefited both from strong demand by consumers for brokerage services
and from the possibility that they may be candidates for acquisitions by larger
financial service companies.
While energy-related stocks were, in general, relatively poor performers during
the period, the Fund sought to take advantage of temporary weakness in the
energy sector to build up its position. We believe that the price of oil
ultimately should stabilize and that values can be found among companies whose
stocks had suffered unfairly in the general industry slump.
One particularly strong performer within the energy group was Barrett Resources
Corp., a gas and exploration company whose stock was purchased at the Fund's
inception. This stock had appreciated 35.46% by June 30. Another contributor was
Camco International Inc., an oil services company purchased by the Fund on April
1. It later was the subject of an acquisition announcement by Schlumberger Ltd.
for a potential gain of 32% by the end of June.
A third company that helped performance was Quaker State. This company has been
re-structuring itself for several years and is moving toward being a consumer-
oriented retail company offering a variety of car maintenance products.
Management is focused on stockholder interests by emphasizing improvements in
margins and earnings.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
A very different consumer company that also is benefiting from a corporate
restructuring is Ann Taylor Stores Corp., the specialty retailer of women's
clothing. The stock of this company, purchased in December, appreciated by 39.9%
before the Fund sold it on May 12.
The stocks of smaller bank and thrift companies lagged during the period as the
market's attention was captured by news of mergers among very large financial
companies. We believe, however, that the consolidation trend will resume among
the smaller companies, to the benefit of the Fund.
Three small, banking-related stocks had good performance, however, due in large
part to merger-and-acquisition announcements. The stock of Maryland Federal
Bancorp, purchased at the Fund's inception, had a pending appreciation of 25.7%
by June 30, because of the announcement that BB&T CORP would acquire it.
Similarly, the stock of Beverly Bancorporation, Inc., purchased on December 31,
had a pending appreciation of 9.83% on June 30 following the announcement it
would be acquired by St. Paul Bancorp, Inc. Dime Financial Corp., whose stock
was purchased by the Fund in February, had a pending appreciation of 30.12% on
June 30 after Hubco announced that it would buy the company.
The general business trend toward consolidation continued in other industries,
as witnessed by the Fund's experience with BGS Systems Inc., a software company
whose stock was purchased by the Fund on December 31, 1998. BMC Software Inc.
took over this company in May, for a gain of 43.8% for the Fund by June 30. We
believe there will be further consolidation in the software industry due to the
strong demand for, and limited supply of, proven teams of software designers and
engineers. In addition, the makers of mainframe computers are exploring
opportunities in the acquisition of software companies.
The new-product theme is well illustrated by the Fund's investment on April 17
in Aspect Telecommunications, a developer of equipment and software for phone
calling systems. Another technology-related company with an attractive, new
product was ADAC Laboratories, whose stock rose by 9.7% from December 22 through
June 30. This company has introduced a new imaging product that helps detect the
spread of cancer.
The value-timing theme was carried through in the investment in Seaway Food
Town, Inc., a chain of groceries and discount pharmacies located primarily in
Ohio and Michigan. The stock of this company had a 45.4% appreciation from
December 29 through June 30, helped both by strong cash flow and the
consolidation trend in the grocery industry.
Re-structuring helped the performance of Knoll International, a manufacturer of
office and workplace furniture. This company, formerly a division of
Westinghouse, which has undergone a restructuring, is gaining market support as
investors begin to understand the true value of Knoll's premium position in the
marketplace.
Top 10 Equity Holdings
-------------------------------
(as a percentage of net assets)
Aspect Telecommunications Corp. 2.1%
S & K Famous Brands, Inc. 1.8%
Micros Systems, Inc. 1.7%
Commercial Bankshares, Inc. 1.7%
Morgan Keegan, Inc. 1.7%
Civic Bancorp 1.6%
Seacoast Banking Corp of Florida Cl. A 1.5%
Interstate/Johnson Lane, Inc. 1.5%
Fair Issac & Co., Inc. 1.5%
ADAC Laboratories 1.4%
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PERFORMANCE
This report covers the Evergreen Select Small Company Value Fund's start-up
period, during which the initial portfolio was assembled. Typically, performance
during such start-up periods is not an indication of long-term performance. The
Fund produced a total return of 1.28% since its inception on December 22, 1997,
versus the 8.43% return of the Russell 2000 Index; however, as the period
progressed, the Fund's relative performance improved markedly. The period also
was one in which the stock market favored the stocks of very large companies,
usually trading at high price/earnings ratios. During the first six months of
1998, these "large-cap, high p/e" stocks substantially outperformed the "small-
cap, low p/e" stocks emphasized by the Fund. Fund management believes, however,
that the portfolio is well positioned for opportunities in the small cap sector
during the latter part of 1998.
OUTLOOK
We have a positive outlook for the Select Small Company Value Fund for the
remainder of 1998 because of several trends we see, including:
. A continuation of the general consolidation trend in American industry;
. Signs of a growing recognition of the attractive values to be found among
small company stocks; and
. Positive earnings reports from many small companies.
The general merger-and-acquisition trend is not losing steam. Deals totaling
$900 billion were announced during the first half of the year, and the U.S.
Department of Justice's Anti-Trust Division has estimated the total should reach
$1.75 trillion by the end of the year. The strong stock market that has been
favoring large company stocks has given the big companies high stock valuations
that they can use as the currency to buy smaller companies that have been
reporting stronger growth. Often, larger companies can buy fast-growing small
companies at prices that result in improved earnings-per-share performance for
the larger companies.
Moreover, investment and pension fund consulting companies increasingly are
recommending that their clients enlarge small company stock allocations in their
overall portfolios because of the attractive valuations. Any growth in
institutional investors' purchases of small company stocks should have a
significant effect on cash flow, and therefore stock prices, in the small stock
sector.
Finally, a large portion of the Fund's holdings have been issuing positive
earnings reports, validating the value of the independent research by the
Evergreen investment team and supporting our view that small company value
investments have strong potential for the remainder of 1998.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Social Principles Fund invests in the stocks of mid-sized U.S.
companies, average market capitalization of $3 billion. The Fund emphasizes
companies that generally respect human rights, play a role in local communities,
and produce useful products in an environmentally sound way. This philosophy
holds that socially conscious investing promotes responsible values without
impairing long-term performance.
PROCESS
The Fund utilizes a fundamental, bottom-up stock selection process which is
research intensive. In addition, the Fund utilizes an external Advisory Board
whose role is to develop and continually review guiding policies and principles
of social investing. All holdings are periodically reviewed to assure adherence
to the Advisory Board Standards.
BENCHMARK
S & P 400 Mid Cap Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I ClassIS Class IC
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS
1 year 20.62% 20.41% 20.54%
5 years 17.78% 17.51% 17.77%
10 years 15.19% 14.91% 15.18%
Since Inception 15.38% 15.10% 15.37%
Fiscal YTD income dividends per share $0.04 $0.01 $0.04
</TABLE>
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date S&P 500 Midcap Class IC
6/30/88 $10,000 $10,000
6/30/89 12,215 11,283
6/30/90 14,100 12,020
6/30/91 15,911 12,868
6/30/92 18,863 14,492
6/30/93 23,143 18,147
6/30/94 23,126 17,218
6/30/95 28,271 24,066
6/30/96 34,364 28,971
6/30/97 42,379 34,101
6/30/98 53,779 41,106
Comparison of change in value of a $10,000 investment in Evergreen Select Social
Principles Fund, Class IC, and the S & P 400 Midcap Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I, IS and IC performance
information includes the performance of the Fund's predecessor common trust fund
for periods before the Fund's registration statement became effective on
November 21, 1997. The inception date of the predecessor common trust fund was
May 31, 1988. Performance for the common trust fund has been adjusted to include
the effect of estimated expenses based upon the mutual fund expense ratios as
stated in the Fund's current prospectus. Performance information for Class IS
also includes performance of the Fund's Class IC for the period from November
24, 1997 to March 12, 1998 (commencement of Class IS operations), adjusted for
differences between class expenses. Returns of Class I, IS and IC since their
respective commencement of class operations were 6.41%, 1.32% and 6.38%,
respectively. The common trust fund was not registered under the Investment
Company Act of 1940 (the "1940 Act") or subject to certain investment
restrictions that are imposed by the 1940 Act. If the common trust fund had been
registered under the 1940 Act, its performance may have been adversely affected.
Index returns do not reflect expenses, which have been deducted from the Fund's
return.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
The Evergreen Select Social Principles Fund is managed by Eric M. Wiegand and
assistant manager A. Jay Zelko who have over 22 years of combined investment
experience. The team-oriented approach identifies the most attractive
opportunities in the market and ensures adherence to the style-specific
objectives.
[PHOTO OF ERIC M. WIEGAND APPEARS HERE] [PHOTO OF A. JAY ZELKO APPEARS HERE]
PERFORMANCE AND MARKET ACTIVITY
For the fiscal year ending June 30, 1998, the Evergreen Select Social Principles
Fund Class I shares posted a 20.6% total return compared to the 27.2% return for
the S&P Mid Cap 400 Index and 30.2% return for the S&P 500 Index.
Underlying the indices' positive returns was a widening gap between a select
handful of large cap stocks with stellar gains and the majority of companies
which lagged the narrow bull market. Large cap indices surged ahead while mid-
and small-cap indices trailed, but still posted positive returns. The last three
months of the fiscal period reflect the market's narrow advance as the ten
largest stocks in the S&P 500 Index rose 31.7%, while the equally weighted
average of all 500 stocks rose just 8.6%; and, nearly a third actually declined.
Portfolio
Characteristics
---------------
Total Net Assets $179,797,740
Number of Issues 63
P/E Ratio 31.4x
Beta 1.08
INVESTMENT STRATEGY
As the period progressed and the Asian financial crisis emerged as the primary
threat to U.S. equities, we adjusted the portfolio to emphasize companies with
reduced exposure to this region. Even now, Asian concerns continue to weigh
heavily on mid-cap stocks. Consistent with our strategy, exposure to AGCO Corp.,
the leading manufacturer of agricultural equipment throughout the world, was
scaled back due to its reliance on foreign markets for earnings growth. We
eliminated our holdings in Calloway Golf, a manufacturer of golf-related
products, which experienced a dramatic reduction in demand for its equipment
within crippled Asian economies.
In addition to reducing exposure to international markets, we continue to favor
companies which are in a position to exploit a particular market niche.
Companies that enjoy a distinctive product or service are poised for growth and
better able to maintain -- and even expand --their market share with pricing
flexibility, regardless of negative external factors. An example of such a firm
is HBO & Company, a provider of integrated patient, clinical, financial and
strategic management software solutions for the healthcare industry. HBO is well
positioned to expand its client base within the healthcare community due to its
unique specialization and lack of quality competition.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
TOP 5 INDUSTRY ALLOCATION
- -------------------------------
(as a percentage of net assets)
Healthcare Products & Services 18.3%
Information Services & Technology 11.4%
Finance & Insurance 8.5%
Retailing & Wholesale 6.8%
Banks 6.3%
AREAS OF PREFERENCE
Technology is currently the portfolio's second largest sector weighting at
11.4%, versus 18% for the S&P Midcap 400 Index, which has been positive to the
Fund's performance over the past six months. Although Asia has been a problem
for a number of technology companies, we remain committed to this sector due to
Corporate America's increasing reliance on technological solutions to increase
productivity and cut costs. Our strategy in this sector has been to invest in
industry leaders with proprietary, cost effective solutions. In an effort to
strengthen the portfolio, we sold two peripheral companies, 3Com and Adaptec,
which were experiencing execution issues and maintained our sector overweighting
by increasing our exposure to business software with the purchase of Compuware,
a solution provider for the year 2000 problems.
The portfolio's most substantial overweight -- nearly double the index -- is in
the healthcare sector which is poised to benefit from positive demographic
trends as well as increasing demand for healthcare-related products and
services. Underlying this exposure is a focus on emerging industry leaders that
offer quality services at lower costs than traditional providers. Representative
of this strategy is Safeskin, the leading manufacturer of latex medical
examination gloves. In addition to a strong industry position, Safeskin has
actually benefited from the Asian crisis as the company's Asian manufacturing
facilities have experienced plummeting operating expenses as a result of
currency devaluations, and a strong U.S. economy continues to drive revenue
growth.
TOP 10 HOLDINGS
- ------------------------------
(as a percentage of net assets)
EMC. Corp. 3.1%
HBO & Co. 3.1%
Networks Associates, Inc. 3.0%
Comair Holdings, Inc. 3.0%
HEALTHSOUTH Corp. 2.7%
Biochem Pharmaceuticals, Inc. 2.5%
Partnerre Ltd. 2.3%
General Nutrition Companies, Inc. 2.1%
Century Telephone Enterprises, Inc. 2.1%
Conseco, Inc. 2.0%
OUTLOOK
Although long-term market fundamentals remain favorable, there are several
factors that could challenge equity returns in the short term. Our primary
concern is the Asian financial crisis and, more specifically, the degree to
which it will negatively impact U.S. corporate earnings.
Consequently, we will maintain an emphasis on domestically oriented companies
which don't rely heavily on overseas markets for earnings growth. This strategy
is designed to cushion the portfolio should the Asian crisis continue to spread
and possibly worsen. Individual stock selection will continue to emphasize well-
managed, dominant companies with reasonable valuation levels which demonstrate
the ability to meet and exceed earnings expectations.
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Strategic Growth Fund is a growth-style equity product that
emphasizes large and mid-sized U.S. companies. We believe that superior long-
term returns can be achieved through a disciplined approach of investing in
stocks with excellent historical and future earnings growth.
PROCESS
The Fund is managed by two investment professionals who utilize a unique blend
of quantitative and qualitative fundamental analysis. This bottom-up stock
selection process is research-intensive and identifies companies which exhibit
strong current fundamentals, histories of superior earnings/dividend growth and
rising earnings expectations.
BENCHMARK
Russell 1000 Growth Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class I Class IS
<S> <C> <C>
AVERAGE ANNUAL RETURNS
1 year 30.87% 30.52%
3 years 28.45% 29.12%
Since Inception 31.74% 37.41%
FISCAL YTD INCOME DIVIDENDS PER SHARE $0.04 --
</TABLE>
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date Russell 1000 Class I
12/31/94 $10,000 $10,000
6/30/95 12,029 12,099
6/30/96 15,375 15,167
6/30/97 20,193 20,053
6/30/98 26,530 26,243
Comparison of change in value of a $10,000 investment in Evergreen Select
Strategic Growth Fund, Class I, and the Russell 1000 Growth Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was December 31, 1994.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. Performance information for Class IS also includes
performance of the Fund's Class I for the period from November 24, 1997 to
February 27, 1998 (commencement of Class IS operations), adjusted for
differences between class expenses. Returns of Class I and IS since their
respective commencement of class operations were 18.53% and 6.29%, respectively.
The common trust fund was not registered under the Investment Company Act of
1940 (the "1940 Act") or subject to certain investment restrictions that are
imposed by the 1940 Act. If the common trust fund had been registered under the
1940 Act, its performance may have been adversely affected. Index returns do not
reflect expenses, which have been deducted from the Fund's return.
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
SELECT STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
Timothy M. Stevenson and W. Shannon Reid manage the Evergreen Select Strategic
Growth Fund. They have over 29 years combined investment experience and boast a
unique blend of quantitative and traditional fundamental analysis skills.
Their disciplined approach assures consistency of results and superior service.
[PHOTO OF TIMOTHY M. STEVENSON] [PHOTO OF W.SHANNON REID]
PERFORMANCE
For the fiscal year ended June 30, 1998, the Evergreen Select Strategic Growth
Fund Class I shares had a 30.9% total return which compares favorably to the
31.4% return of the Russell 1000 Growth Index and the 30.9% average return among
large cap growth funds tracked by Morningstar Inc., a mutual fund rating
company.
PORTFOLIO
CHARACTERISTICS
---------------
Total Net Assets $323,905,332
Number of Issues 55
P/E Ratio 34.4x
Beta 1.18
LARGE CAPS CONTINUE TO DOMINATE
Underlying the broad market's strong returns was a relatively narrow market
advance in which a select handful of the largest companies surged ahead while
mid- and small-cap issues lagged. We believe the factors driving the
outperformance of large cap stocks are fourfold.
First, as active managers fail to outperform the indices, index funds gain in
popularity, thus attracting more investor money and driving the prices of their
holdings ever higher. Second, as equity mutual funds continue to experience
strong money flows many portfolio managers, who under the terms of their funds
must be fully invested, feel the safest place to be invested within an expensive
market is in the largest, liquid stocks.
The third factor in the success of large caps is the increasing flow of foreign
money because of the strong dollar, a healthy domestic economy and international
turmoil all increase the attractiveness of U.S. stocks. The fourth and final
factor -- and perhaps the most fundamentally grounded -- is the concern over an
earnings slowdown and the possibility of an earnings recession. As we reach the
latter stages of the business cycle, investors tend to value earnings
predictability more than earnings growth.
TOP 5 INDUSTRIES
----------------
(as a percentage of net assets)
Healthcare Products & Services 19.6%
Information Services & Technology 15.2%
Financial & Insurance 9.0%
Business Equipment & Services 7.8%
Consumer Products & Services 6.5%
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
SELECT STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
INVESTMENT STRATEGY AND MARKET CAP
The Fund's lower exposure to large capitalization stocks relative to our
benchmark was the most significant factor in explaining underperformance,
especially in the second half of the fiscal period. Going forward, we will look
for opportunities to increase the market-cap of the Fund; however, we will not
buy a stock simply because of its size, but rather will rely on the disciplined
stock selection process which is responsible for the Fund's past success.
SECTOR WEIGHTINGS
As a policy, we do not make big sector bets. Generally, portfolio positions are
limited to 80% to 120% of the sector weightings for the benchmark Russell 1000
Growth Index.
As of June 30, the greatest sector weighting was 19.6% in healthcare. This
sector continues to be influenced by favorable demographic trends which continue
to drive demand for healthcare-related products and services. Three of the
Fund's top five holdings fall within this category.
Technology is the Fund's second largest sector weighting. Underlying this
exposure is an emphasis on software and information technology issues. In fact,
for the final six months of the fiscal year, the Fund's three top performers
were all technology companies such as Dell Computer, Microsoft and Cisco
Systems, which posted returns of 121%, 68% and 66%, respectively.
TOP 10 EQUITY HOLDINGS
----------------------
(as a percentage of net assets)
General Electric Co. 5.4%
Microsoft Corp. 4.1%
Merck & Co., Inc. 3.5%
Pfizer, Inc. 3.0%
Bristol-Myers Squibb Co. 3.0%
Tyco International Ltd. 2.9%
Schering-Plough Corp. 2.8%
Procter & Gamble Co. 2.6%
Dell Companies, Corp. 2.4%
Costco Companies, Inc. 2.2%
OUTLOOK
Looking ahead, we anticipate a challenging equity environment as companies
encounter slower revenue growth and reduced pricing power. Our primary concern
continues to be the Asian financial crisis and, more specifically, the degree to
which it will negatively impact U.S. corporate earnings.
Consequently, we will maintain an emphasis on market-leading companies with
histories of stable, predictable earnings growth. The Fund will continue to
overweight sectors such as technology and healthcare that are positioned to
benefit from positive secular trends.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
SELECT STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
FUND AT A GLANCE AS OF JUNE 30, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
PHILOSOPHY
Evergreen Select Strategic Value Fund is a value-style equity product which
emphasizes large and mid-capitalization U.S. companies. This philosophy holds
that stocks, over time, can become mispriced relative to their true value and
that attractive opportunities can be identified through a combination of
quantitative analysis and rigorous fundamental research.
PROCESS
Following the initial screen by our proprietary model which determines that
a stock is selling at a reasonable valuation level, the Strategic Value team
employs a labor intensive research effort in order to dig deep for clues to
uncover value. Qualitative factors which are analyzed include industry
leadership, quality of management, the company's current competitive position
and future earnings prospects.
BENCHMARK
Russell 1000 Value Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
CLASS I CLASS IS
AVERAGE ANNUAL RETURNS
1 Year 24.43% 24.05%
5 Years 21.14% 20.82%
10 Years 15.58% 15.29%
Since Inception 18.07% 17.78%
FISCAL YTD INCOME DIVIDENDS PER SHARE $1.60 $0.78
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Class I Shares Russell 1000 Value Index
6/30/88 $10,000 $10,000
6/30/89 $11,459 $11,999
6/30/90 $12,167 $12,803
6/30/91 $11,934 $13,486
6/30/92 $13,295 $15,637
6/30/93 $16,317 $19,069
6/30/94 $16,949 $19,378
6/30/95 $21,720 $23,336
6/30/96 $25,249 $29,084
6/30/97 $34,205 $38,735
6/30/98 $42,561 $49,910
Comparison of change in value of a $10,000 investment in Evergreen Select
Strategic Value Fund, Class I, and the Russell 1000 Value Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for periods
before the Fund's registration statement became effective on November 21, 1997.
The inception date of the predecessor common trust fund was December 31, 1981.
Performance for the common trust fund has been adjusted to include the effect of
estimated expenses based upon the mutual fund expense ratios as stated in the
Fund's current prospectus. Performance information for Class IS also includes
performance of the Fund's Class I for the period from November 24, 1997 to March
11, 1998 (commencement of Class IS operations), adjusted for differences between
class expenses. Returns of Class I and IS since their respective commencement of
class operations were 11.95% and 1.68%, respectively. The common trust fund was
not registered under the Investment Company Act of 1940 (the "1940 Act") or
subject to certain investment restrictions that are imposed by the 1940 Act. If
the common trust fund had been registered under the 1940 Act, its performance
may have been adversely affected. Index returns do not reflect expenses, which
have been deducted from the Fund's return.
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
PORTFOLIO MANAGEMENT TEAM
The Evergreen Select Strategic Value Fund is managed by a team of 3 portfolio
managers with over 61 years of combined investment experience and expertise in
value equity analysis and management. The team-oriented approach incorporates
multiple perspectives to identify the most attractive opportunities in the
market and ensures adherence to the style specific objectives.
[PHOTO OF ELIZABETH SMITH]
[PHOTO OF JACK GRAY] [PHOTO OF TIM O'GRADY]
PERFORMANCE
The Evergreen Select Strategic Value Fund Class I shares posted a 24.4% total
return for the fiscal year ended June 30, 1998, slightly below the 28.8% return
for the Russell 1000 Value Index.
Underperformance in a few key sectors penalized performance, as did an extremely
narrow market advance in which a select handful of the largest stocks drove the
indices higher, while many stocks lagged.
Portfolio
Characteristics
---------------
Total Net Assets $288,520.393
Number of Issues 54
P/E Ratio 14.9x
Beta 0.93
INVESTING ENVIRONMENT
As previously stated, strong equity returns masked a very narrow market advance
in which investors' demand for large stocks with visible earnings drove their
prices higher and left a large number of smaller issues in their dust. For
example, over the past six months the ten largest stocks in the S&P 500 rose
31.7%, while the equally weighted average of all 500 stocks rose just 8.6%; and,
nearly a third actually declined. Investors' growing appetite for large cap
stocks explains why the majority of fund managers continue to struggle versus
the strong returns of the S&P 500 Index.
TOP 5 INDUSTRIES
----------------
(as a percentage of net assets)
Banks 23.9%
Oil/Energy 11.9%
Finance & Insurance 10.9%
Information Services & Technology 9.4%
Utilities -- Electric 5.0%
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
SELECT STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
SECTOR ACTIVITY
Within the portfolio, energy stocks have lagged in terms of absolute and
relative performance. A number of factors have contributed to this, most notably
the sharp decline in oil prices. Although we maintain a neutral weight in the
sector, our industry weightings are markedly different from those of the Russell
1000 Value Index. Our heavy emphasis on offshore drilling companies and
refiners, and away from the large international oil companies that dominate the
Index's sector composition, essentially explains the entire performance
differential.
Our performance shortfall relative to the benchmark in the utility sector is
traceable to our significant underweighting in telephone utilities. We feel that
the utility sector currently holds relatively high value, especially if the
equity market is perceived to be late in its cycle.
Although the financial sector has been the equity market's best performer for
the past several years, the past 12 months have witnessed some unwinding in the
banking industry. On the positive front, we participated to the fullest extent
in the "merger-mania" sweeping this sector. We benefited from owning both
Citicorp and Travelers, two companies that agreed to merge in a landmark deal
which signaled the era of convergence in financial services. Two other portfolio
holdings, Nationsbank and First Chicago partnered with Bank America and Banc
One, respectively, also as mergers of equals. On the other hand, we have
witnessed a deterioration in the valuation of our regional bank franchises which
has caused recent declines in holdings such as Union Planters, Summit Bancorp,
and PNC Bank Corp.
TOP 10 EQUITY HOLDINGS
----------------------
(as a percentage of net assets)
Chase Manhattan Corp. 3.1%
Philip Morris Companies, Inc. 3.0%
NationsBank Corp. 2.9%
Fleet Financial Group, Inc. 2.9%
BankBoston Corp. 2.9%
Citicorp 2.8%
Bristol-Myers Squibb Co. 2.7%
Union Planters Corp. 2.6%
Merrill Lynch & Co., Inc. 2.6%
Williams Companies, Inc. 2.6%
A DETACHED, LONG-TERM PERSPECTIVE
Despite ever-stretching valuation levels for stocks, the underlying forces
continue to support a favorable equity investing environment going forward.
While equities are clearly trading at the high end of an acceptable range, it is
important to recognize that they can stay within this band for a long time. We
remain constructive on the intermediate- to long-term outlook for the equity
market and would characterize our forecast as "cautiously bullish." In our
opinion, further significant advances in the equity market require evidence of
earnings improvement in order to sustain and justify higher prices.
Although the Fund's performance has trailed the benchmark over the past twelve
months, our Select Value investment disciplines remain intact and valid. Our
equity philosophy is one of maintaining our Select Value approach through both
favorable and unfavorable equity market environments, independent of short-term
market and performance trends. While the merits of this approach can not always
be demonstrated in a short-term time period, the long-term soundness and
validity of this approach is confirmed by our solid performance over time.
35
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS**
<S> <C> <C>
Net asset value beginning of period $ 12.58 $ 13.34
------------- ------------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.16 0.07
.........................................................................
Net realized and unrealized gain on investments 0.81 0.09
------------- ------------
.........................................................................
Total from investment operations 0.97 0.16
------------- ------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.16) (0.08)
------------- ------------
.........................................................................
.........................................................................
Total distributions (0.16) (0.08)
------------- ------------
.........................................................................
Net asset value end of period $ 13.39 $ 13.42
------------- ------------
.........................................................................
Total return 7.76% 1.23%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.70%+ 0.95%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.70%+ 0.95%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursements 0.80%+ 1.05%+
.........................................................................
Net investment income 2.80%+ 2.58%+
.........................................................................
Portfolio turnover rate 37% 37%
.........................................................................
Average commission rate per share $ 0.0597 $ 0.0597
.........................................................................
Net assets end of period (thousands) $ 723,850 $ 215
.........................................................................
</TABLE>
+ Annualized.
* For the period from January 22, 1998 (commencement of class operations) to
June 30, 1998.
** For the period from April 9, 1998 (commencement of class operations) to June
30, 1998.
36
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS**
<S> <C> <C>
Net asset value beginning of period $ 82.97 $ 80.21
------------- -------------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.51 0.27
.........................................................................
Net realized and unrealized gain on
investments 9.62 7.16
------------- -------------
.........................................................................
Total from investment operations 10.13 7.43
------------- -------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.51) (0.31)
------------- -------------
.........................................................................
Total distributions (0.51) (0.31)
------------- -------------
.........................................................................
Net asset value end of period $ 92.59 $ 87.33
------------- -------------
.........................................................................
Total return 12.23% 9.27%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.70%+ 0.95%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.70%+ 0.95%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.82%+ 1.12%+
.........................................................................
Net investment income 0.96%+ 0.60%+
.........................................................................
Portfolio turnover rate 22% 22%
.........................................................................
Average commission rate per share $ 0.0573 $ 0.0573
.........................................................................
Net assets end of period (millions) $ 1,952 $ 18
.........................................................................
</TABLE>
+ Annualized.
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from February 4, 1998 (commencement of class operations) to
June 30, 1998.
37
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS**
<S> <C> <C>
Net asset value beginning of period $ 23.81 $ 26.56
------------- ------------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.14 0.06
.........................................................................
Net realized and unrealized gain on investments 2.41 (0.64)
------------- ------------
.........................................................................
Total from investment operations 2.55 (0.58)
------------- ------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.14) (0.05)
------------- ------------
.........................................................................
Total distributions (0.14) (0.05)
------------- ------------
.........................................................................
Net asset value end of period $ 26.22 $ 25.93
------------- ------------
.........................................................................
Total return 10.72% (2.19%)
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.68%+ 0.93%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.68%+ 0.93%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.78%+ 1.03%+
.........................................................................
Net investment income 1.24%+ 0.80%+
.........................................................................
Portfolio turnover rate 56% 56%
.........................................................................
Average commission rate per share $ 0.0567 $ 0.0567
.........................................................................
Net assets end of period (thousands) $ 797,352 $ 210
.........................................................................
</TABLE>
+ Annualized.
* For the period from January 22, 1998 (commencement of class operations) to
June 30, 1998.
** For the period from March 31, 1998 (commencement of class operations) to
June 30, 1998.
38
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS**
<S> <C> <C>
Net asset value beginning of period $ 87.31 $ 90.83
------------- ------------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 1.50 0.65
.........................................................................
Net realized and unrealized gain on investments 1.73 (1.69)
------------- ------------
.........................................................................
Total from investment operations 3.23 (1.04)
------------- ------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (1.50) (0.63)
.........................................................................
In excess of net investment income (0.01) (0.11)
------------- ------------
.........................................................................
Total distributions (1.51) (0.74)
------------- ------------
.........................................................................
Net asset value end of period $ 89.03 $ 89.05
------------- ------------
.........................................................................
Total return 3.70% (1.16%)
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.78%+ 1.04%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.77%+ 1.03%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.88%+ 1.13%+
.........................................................................
Net investment income 2.80%+ 2.46%+
.........................................................................
Portfolio turnover rate 51% 51%
.........................................................................
Average commission rate per share $ 0.0594 $ 0.0594
.........................................................................
Net assets end of period (thousands) $ 204,248 $ 1,497
.........................................................................
</TABLE>
+ Annualized.
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
39
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I*** CLASS IS** CLASS IC*
<S> <C> <C> <C>
Net asset value beginning of period $ 44.59 $ 49.75 $ 45.05
------- ------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.19 0.08 0.23
.........................................................................
Net realized and unrealized gain on
investments 6.18 1.00 5.70
------- ------- --------
.........................................................................
Total from investment operations 6.37 1.08 5.93
------- ------- --------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.19) (0.08) (0.23)
.........................................................................
In excess of net invtment income (0.03) (0.01) (0.01)
------- ------- --------
.........................................................................
Total distributions (0.22) (0.09) (0.24)
------- ------- --------
.........................................................................
Net asset value end of period $ 50.74 $ 50.74 $ 50.74
------- ------- --------
.........................................................................
Total return 14.31% 2.17% 13.18%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.71%+ 0.96%+ 0.71%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.71%+ 0.96%+ 0.71%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.83%+ 1.08%+ 0.83%+
.........................................................................
Net investment income 0.78%+ 0.57%+ 0.80%+
.........................................................................
Portfolio turnover rate 42% 42% 42%
.........................................................................
Average commission rate per share $0.0591 $0.0591 $ 0.0591
.........................................................................
Net assets end of period (thousands) $14,032 $ 301 $497,534
.........................................................................
</TABLE>
+ Annualized.
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
*** For the period from December 19, 1997 (commencement of class operations) to
June 30, 1998.
40
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended February 28,
Period Ended -------------------------- Period ended
June 30, 1998*** 1998 1997** June 30, 1996*
CLASS I
<S> <C> <C> <C> <C>
Net asset value
beginning of period $ 13.23 $ 11.28 $ 11.65 $ 10.00
------- ----------- ----------- -------
.........................................................................
Income (loss) from
investment operations
.........................................................................
Net investment loss (0.03) (0.06)# (0.04)# (0.03)
.........................................................................
Net realized and
unrealized gain (loss)
on investments (0.08) 2.48 (0.16) 1.68
------- ----------- ----------- -------
.........................................................................
Total from investment
operations (0.11) 2.42 (0.20) 1.65
------- ----------- ----------- -------
.........................................................................
From net realized gain
on investments 0 (0.47) (0.17) 0
------- ----------- ----------- -------
Distributions to
shareholders
.........................................................................
Total distributions 0 (0.47) (0.17) 0
------- ----------- ----------- -------
.........................................................................
Net asset value end of
period $ 13.12 $ 13.23 $ 11.28 $ 11.65
------- ----------- ----------- -------
.........................................................................
.........................................................................
Total return (0.83%) 21.67% (1.75%) 16.50%
.........................................................................
Ratios/supplemental data
Ratios to average net
assets:
Total expenses 1.01%+ 0.92% 1.00%+ 1.00%+
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.01%+ N/A N/A N/A
.........................................................................
Total expenses,
excluding fee waiver
and expense
reimbursement N/A 0.95% 2.53%+ 2.81%+
.........................................................................
Net investment loss (0.62%)+ (0.48%) (0.57%)+ (0.45%)+
.........................................................................
Portfolio turnover rate 54% 166% 123% 57%
.........................................................................
Average commission rate
per share $0.0406 $ 0.0493 $ 0.0509 $0.0847
.........................................................................
Net assets end of period
(thousands) $69,283 $ 47,524 $ 2,888 $ 2,446
.........................................................................
</TABLE>
+ Annualized.
* For the period from December 28, 1995 (commencement of class operations) to
June 30, 1996.
** For the eight-month period ended February 28,1997. The fund changed its fis-
cal year end from June 30 to February 28, effective February 28, 1997.
*** For the period from March 1, 1998 to June 30, 1998. The fund changed its
fiscal year end from February 28 to June 30, effective June 30, 1998.
# Net investment income (loss) is based on average shares outstanding during
the period.
41
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended
June 30, 1998*
CLASS I*
<S> <C>
Net asset value
beginning of period $ 10.00
-------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income 0.04
.........................................................................
Net realized and
unrealized gain on
investments 0.09
-------
.........................................................................
Total from investment
operations 0.13
-------
.........................................................................
From net investment
income (0.04)
-------
Distributions to
shareholders
.........................................................................
Total distributions (0.04)
-------
.........................................................................
Net asset value end of
period $ 10.09
-------
.........................................................................
.........................................................................
Total return 1.28%
.........................................................................
Ratios/supplemental data
Ratios to average net
assets:
Total expenses 1.01%+
.........................................................................
Total expenses,
excluding indirectly
paid expenses 1.00%+
.........................................................................
Total expenses,
excluding fee waiver
and expense
reimbursement 1.26%+
.........................................................................
Net investment income 0.68%+
.........................................................................
Portfolio turnover rate 23%
.........................................................................
Average commission rate
per share $0.0583
.........................................................................
Net assets end of period
(thousands) $77,647
.........................................................................
</TABLE>
+Annualized.
*For the period from December 23, 1997 (commencement of class operations) to
June 30, 1998.
42
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS** CLASS IC*
<S> <C> <C> <C>
Net asset value beginning of period $ 36.65 $ 38.44 $ 36.65
------- ------- --------
.........................................................................
Income (loss) from investment operations
.........................................................................
Net investment income (loss) 0.03 (0.01) 0.03
.........................................................................
Net realized and unrealized gain on
investments 2.32 0.52 2.31
------- ------- --------
.........................................................................
Total from investment operations 2.35 0.51 2.34
------- ------- --------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.03) (0.01) (0.03)
.........................................................................
In excess of net investment income (0.01) 0 (0.01)
------- ------- --------
.........................................................................
Total distributions (0.04) (0.01) (0.04)
------- ------- --------
.........................................................................
Net asset value end of period $ 38.96 $ 38.94 $ 38.95
------- ------- --------
.........................................................................
Total return 6.41% 1.32% 6.38%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.86%+ 1.11%+ 0.86%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.86%+ 1.11%+ 0.86%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.99%+ 1.24%+ 0.99%+
.........................................................................
Net investment income (loss) 0.19%+ (0.12%)+ 0.12%+
.........................................................................
Portfolio turnover rate 24% 24% 24%
.........................................................................
Average commission rate per share $0.0585 $0.0585 $ 0.0585
.........................................................................
Net assets end of period (thousands) $ 2,405 $ 205 $177,187
.........................................................................
</TABLE>
+ Annualized.
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
43
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I** CLASS IS*
<S> <C> <C>
Net asset value beginning of period $ 32.45 $ 36.10
------------- ------------
.........................................................................
Income (loss) from investment operations
.........................................................................
Net investment income (loss) 0.04 (0.08)
.........................................................................
Net realized and unrealized gain on
investments 5.96 2.34
------------- ------------
.........................................................................
Total from investment operations 6.00 2.26
------------- ------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (0.04) 0
------------- ------------
.........................................................................
Total distributions (0.04) 0
------------- ------------
.........................................................................
Net asset value end of period $ 38.41 $ 38.36
------------- ------------
.........................................................................
Total return 18.53% 6.29%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.72%+ 0.97%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.72%+ 0.97%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.84%+ 1.09%+
.........................................................................
Net investment income (loss) 0.19%+ (0.27%)+
.........................................................................
Portfolio turnover rate 80% 80%
.........................................................................
Average commission rate per share $ 0.0595 $ 0.0595
.........................................................................
Net assets end of period (thousands) $ 321,532 $ 2,373
.........................................................................
</TABLE>
+ Annualized.
* For the period from February 27, 1998 (commencement of class operations) to
June 30, 1998.
** For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
44
<PAGE>
Financial Highlights
(For a share outstanding throughout the period)
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Period Ended June 30, 1998
CLASS I* CLASS IS**
<S> <C> <C>
Net asset value beginning of period $ 203.35 $ 223.08
------------- ------------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 1.60 0.61
.........................................................................
Net realized and unrealized gain on investments 22.67 3.13
------------- ------------
.........................................................................
Total from investment operations 24.27 3.74
------------- ------------
.........................................................................
Distributions to shareholders
.........................................................................
From net investment income (1.60) (0.78)
------------- ------------
.........................................................................
.........................................................................
Total distributions (1.60) (0.78)
------------- ------------
.........................................................................
Net asset value end of period $ 226.02 $ 226.04
------------- ------------
.........................................................................
Total return 11.95% 1.68%
.........................................................................
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.75%+ 1.00%+
.........................................................................
Total expenses, excluding indirectly paid
expenses 0.75%+ 1.00%+
.........................................................................
Total expenses, excluding fee waiver and
expense reimbursement 0.85%+ 1.10%+
.........................................................................
Net investment income 1.26%+ 0.93%+
.........................................................................
Portfolio turnover rate 12% 12%
.........................................................................
Average commission rate per share $ 0.0619 $ 0.0619
.........................................................................
Net assets end of period (thousands) $ 287,194 $ 1,327
.........................................................................
</TABLE>
+ Annualized.
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
45
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 56.3%
Banks - 6.7%
90,000 Banc One Corp. ...................................... $ 5,023,125
195,600 BankBoston Corp. .................................... 10,880,250
46,000 Bankers Trust Corp. ................................. 5,338,875
75,000 First Chicago NBD Corp. ............................. 6,646,875
66,000 Fleet Financial Group, Inc. ......................... 5,511,000
135,000 NationsBank Corp. ................................... 10,327,500
85,900 Union Planters Corp. ................................ 5,051,994
------------
48,779,619
------------
Building, Construction &
Furnishings - 0.8%
95,000 Masco Corp. ......................................... 5,747,500
------------
Business Equipment &
Services - 0.8%
110,000 *Compuware Corp. .................................... 5,623,750
------------
Chemical & Agricultural
Products - 1.3%
129,000 Du Pont (E. I.) De Nemours & Co. .................... 9,626,625
------------
Communication Systems &
Services - 3.0%
120,000 *Cisco Systems, Inc. ................................ 11,047,500
77,500 *Tellabs, Inc. ...................................... 5,550,937
111,000 *WorldCom, Inc. ..................................... 5,376,563
------------
21,975,000
------------
Consumer Products &
Services - 4.0%
349,100 *Cendant Corp. ...................................... 7,287,463
121,000 Procter & Gamble Co. ................................ 11,018,562
115,100 Stanley Works........................................ 4,783,844
80,000 Whirlpool Corp. ..................................... 5,500,000
------------
28,589,869
------------
Diversified Companies - 1.5%
174,000 Tyco International Ltd. ............................. 10,962,000
------------
Electrical Equipment &
Services - 1.6%
128,000 General Electric Co. ................................ 11,648,000
------------
Finance & Insurance - 4.1%
120,000 Allstate Corp. ...................................... 10,987,500
52,000 Merrill Lynch & Co., Inc. ........................... 4,797,000
143,000 Travelers Group, Inc. ............................... 8,669,375
100,000 UNUM Corp. .......................................... 5,550,000
------------
30,003,875
------------
Food & Beverage Products - 3.6%
85,000 Bestfoods............................................ 4,935,313
127,275 Coca Cola Co. ....................................... 10,882,012
142,000 *Safeway, Inc. ...................................... 5,777,625
82,300 Sara Lee Corp. ...................................... 4,603,656
------------
26,198,606
------------
Healthcare Products &
Services - 10.1%
95,000 Bristol-Myers Squibb Co. ............................ 10,919,062
320,000 HBO & Co. ........................................... 11,280,000
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - continued
390,000 *HEALTHSOUTH Corp. .................................. $ 10,408,125
155,800 Johnson & Johnson.................................... 11,490,250
170,000 *Lincare Holdings, Inc. ............................. 7,150,625
80,000 Pfizer, Inc. ........................................ 8,695,000
100,000 *Quintiles Transnational Corp. ...................... 4,918,750
84,000 SmithKline Beecham Plc, ADR.......................... 5,082,000
50,000 *Universal Health Services, Inc. Cl. B............... 2,918,750
------------
72,862,562
------------
Industrial Specialty Products &
Services - 0.7%
102,000 *USA Waste Services, Inc. ........................... 5,036,250
------------
Information Services &
Technology - 5.8%
346,900 Compaq Computer Corp. ............................... 9,843,288
54,000 Intel Corp. ......................................... 4,002,750
153,500 *Microsoft Corp. .................................... 16,635,562
160,050 *Network Associates, Inc. ........................... 7,662,394
92,000 *Sanmina Corp. ...................................... 3,990,500
------------
42,134,494
------------
Metal Products & Services - 0.6%
70,000 Aluminum Co. of America.............................. 4,615,625
------------
Oil/Energy - 3.6%
72,900 Mobil Corp. ......................................... 5,585,962
178,900 Texaco, Inc. ........................................ 10,678,094
171,600 Tosco Corp. ......................................... 5,040,750
157,300 YPF SA, ADR.......................................... 4,728,831
------------
26,033,637
------------
Publishing, Broadcasting & Entertainment - 0.9%
196,000 News Corp, Ltd. ..................................... 6,296,500
------------
Real Estate - 0.6%
129,000 FelCor Suite Hotels, Inc. REIT....................... 4,047,375
------------
Retailing & Wholesale - 1.5%
109,000 Dayton Hudson Corp. ................................. 5,286,500
100,000 *Federated Department Stores, Inc. .................. 5,381,250
------------
10,667,750
------------
Transportation - 0.7%
52,200 Burlington Northern Santa Fe......................... 5,125,388
------------
Utilities - Electric - 2.1%
287,700 Cinergy Corp. ....................................... 10,069,500
214,800 PacifiCorp........................................... 4,859,850
------------
14,929,350
------------
Utilities - Telephone - 2.3%
155,000 Century Telephone Enterprises, Inc. ................. 7,110,625
170,000 GTE Corp. ........................................... 9,456,250
------------
16,566,875
------------
Total Common Stocks
(cost $368,785,743)................................. 407,470,650
------------
</TABLE>
46
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - 11.1%
Banks - 2.0%
$ 2,302,000 Boatmen's Bancshares, Inc.
6.75%, 3/15/03.................................... $ 2,365,641
3,836,000 First Chicago Corp.
9.875%, 8/15/00................................... 4,129,170
7,673,000 NationsBank Corp.
7.625%, 4/15/05................................... 8,298,741
------------
14,793,552
------------
Chemical & Agricultural
Products - 0.6%
3,836,000 Dow Chemical Co.
8.625%, 4/1/06.................................... 4,380,827
------------
Consumer Products &
Services - 0.5%
3,299,000 Stanley Works
7.375%, 12/15/02.................................. 3,476,631
------------
Finance & Insurance - 3.8%
4,220,000 Dean Witter, Discover & Co.
6.75%, 10/15/13................................... 4,367,983
4,220,000 General Electric Capital Corp.
8.75%, 3/14/03.................................... 4,676,722
2,110,000 International Bank For Reconstruction &
Development COLTS
7.95%, 5/15/16.................................... 2,564,905
7,673,000 Loews Corp.
6.75%, 12/15/06................................... 7,859,707
3,836,000 Merrill Lynch, Pierce, Fenner & Smith, Inc.
7.00%, 4/27/08.................................... 4,066,195
3,836,000 Salomon, Inc.
5.50%, 1/15/99.................................... 3,826,955
------------
27,362,467
------------
Food & Beverage Products - 1.0%
3,836,000 General Mills, Inc.
9.00%, 12/20/02................................... 4,299,481
3,261,000 PepsiCo, Inc.
7.625%, 11/1/98................................... 3,278,521
------------
7,578,002
------------
Healthcare Products &
Services - 0.6%
3,836,000 Baxter International
7.25%, 2/15/08.................................... 4,137,421
------------
Industrial Specialty Products & Services - 1.1%
5,371,000 Jet Equipment Trust 144A
9.41%, 6/15/10.................................... 6,544,231
1,074,000 Waste Management, Inc.
8.75%, 5/1/18..................................... 1,212,720
------------
7,756,951
------------
</TABLE>
*Non-income producing securities.
144A Securities that may be resold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the
Fund's Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipt
COLTS Continuously Offered Longer Term Securities
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
CORPORATE BONDS - continued
Oil Field Services - 0.5%
$ 3,069,000 Atlantic Richfield Co.
9.00%, 4/1/21..................................... $ 4,011,950
------------
Sovereign Government - 0.6%
3,836,000 Ontario Province Canada
7.75%, 6/4/02..................................... 4,073,640
------------
Utilities - Electric - 0.4%
2,762,000 Union Electric Co.
8.00%, 12/15/22................................... 2,969,744
------------
Total Corporate Bonds
(cost $80,331,899)................................ 80,541,185
------------
U.S. GOVERNMENT & AGENCYOBLIGATIONS - 32.4%
Treasury Notes & Bonds - 31.2%
U.S. Treasury Bonds:
27,423,000 6.125%, 11/15/27................................... 29,394,056
15,346,000 7.625%, 2/15/07.................................... 16,314,732
15,346,000 8.75%, 5/15/17..................................... 20,673,947
16,113,000 8.875%, 8/15/17.................................... 21,979,147
17,428,000 9.125%, 5/15/18.................................... 24,415,547
U.S. Treasury Notes:
5,138,000 6.375%, 7/15/99.................................... 5,182,963
14,500,000 6.625%, 4/30/02.................................... 15,034,702
14,579,000 7.75%, 11/30/99.................................... 15,016,384
47,173,000 7.75%, 2/15/01..................................... 49,708,596
27,091,000 9.125%, 5/15/99.................................... 27,920,689
------------
225,640,763
------------
U.S. Government Agency Obligations - 1.2%
Government National Mortgage Association:
1,618,610 8.50%, 5/15/21..................................... 1,708,645
975,293 8.50%, 7/15/21..................................... 1,029,544
2,055,534 8.50%, 6/15/22..................................... 2,169,874
1,097,955 9.00%, 9/15/21..................................... 1,176,184
1,730,951 9.00%, 10/15/21.................................... 1,854,281
977,916 9.50%, 2/15/21..................................... 1,057,066
------------
8,995,594
------------
Total U.S. Government & Agency Obligations (cost
$233,066,452)..................................... 234,636,357
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $682,184,094).......................... 99.8% 722,648,192
Other Assets and
Liabilities - net............................ 0.2 1,416,896
----- ------------
Net Assets.................................... 100.0% $724,065,088
===== ============
</TABLE>
47
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 97.5%
Automotive Equipment & Manufacturing - 2.7%
275,000 Arvin Industries, Inc. ........................... $ 9,985,937
725,000 Ford Motor Co. ................................... 42,775,000
--------------
52,760,937
--------------
Banks - 10.2%
478,500 Banc One Corp. ................................... 26,706,281
350,000 BankBoston Corp. ................................. 19,468,750
155,000 Bankers Trust Corp. .............................. 17,989,688
410,000 Chase Manhattan Corp. ............................ 30,955,000
260,000 First Chicago NBD Corp. .......................... 23,042,500
225,000 Fleet Financial Group, Inc. ...................... 18,787,500
550,000 KeyCorp........................................... 19,593,750
375,000 NationsBank Corp. ................................ 28,687,500
375,000 SouthTrust Corp. ................................. 16,312,500
--------------
201,543,469
--------------
Building, Construction & Furnishings - 1.6%
235,000 *American Standard Companies, Inc................. 10,501,563
360,000 Masco Corp. ...................................... 21,780,000
--------------
32,281,563
--------------
Business Equipment &
Services - 0.5%
200,000 *Compuware Corp. ................................. 10,225,000
--------------
Capital Goods - 1.3%
200,000 Case Corp. ....................................... 9,650,000
100,000 Deere & Co. ...................................... 5,287,500
285,000 LucasVarity Plc, ADR.............................. 11,346,563
--------------
26,284,063
--------------
Chemical & Agricultural
Products - 3.6%
200,000 *Cytec Industries, Inc. .......................... 8,850,000
120,000 Dow Chemical Co. ................................. 11,602,500
460,000 Du Pont (E. I.) De Nemours & Co. ................. 34,327,500
175,000 Pioneer Hi-Bred International, Inc. .............. 7,240,625
165,000 Union Carbide Corp. .............................. 8,806,875
--------------
70,827,500
--------------
Communication Systems & Services - 2.8%
390,000 *Cisco Systems, Inc. ............................. 35,904,375
400,000 *WorldCom, Inc. .................................. 19,375,000
--------------
55,279,375
--------------
Consumer Products &
Services - 4.3%
300,000 Black & Decker Corp. ............................. 18,300,000
425,000 *Fruit Of The Loom, Inc. Cl. A.................... 14,104,688
150,000 Gillette Co. ..................................... 8,503,125
375,000 Premark International, Inc. ...................... 12,093,750
355,000 Stanley Works..................................... 14,754,687
250,000 Whirlpool Corp. .................................. 17,187,500
--------------
84,943,750
--------------
Diversified Companies - 1.1%
335,000 Tyco International Ltd. .......................... 21,105,000
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - 2.3%
490,000 General Electric Co. ............................. $ 44,590,000
--------------
Environmental Services - 1.6%
400,000 *Allied Waste Industries, Inc. ................... 9,587,500
460,000 *USA Waste Services, Inc. ........................ 22,712,500
--------------
32,300,000
--------------
Finance & Insurance - 6.4%
215,000 Allmerica Financial Corp. ........................ 13,975,000
150,000 Allstate Corp. ................................... 13,734,375
235,000 *Amerin Corp. .................................... 6,859,063
290,000 Franklin Resources, Inc. ......................... 15,660,000
100,000 Loews Corp. ...................................... 8,712,500
280,000 Morgan Stanley, Dean Witter,
Discover & Co. .................................. 25,585,000
135,000 PMI Group, Inc. .................................. 9,905,625
215,000 Providian Financial Corp. ........................ 16,890,937
280,000 UNUM Corp. ....................................... 15,540,000
--------------
126,862,500
--------------
Food & Beverage Products - 7.4%
250,000 Bestfoods......................................... 14,515,625
400,000 Coca Cola Co. .................................... 34,200,000
460,000 Conagra, Inc. .................................... 14,576,250
280,000 Fortune Brands, Inc. ............................. 10,762,500
625,000 Philip Morris Companies, Inc. .................... 24,609,375
520,000 RJR Nabisco Holdings Corp. ....................... 12,350,000
430,000 *Safeway, Inc. ................................... 17,495,625
305,000 Sara Lee Corp. ................................... 17,060,937
--------------
145,570,312
--------------
Healthcare Products &
Services - 11.1%
460,000 Abbott Laboratories............................... 18,802,500
305,000 *Amgen, Inc. ..................................... 19,939,375
300,000 *Boston Scientific Corp. ......................... 21,487,500
270,000 *Covance, Inc. ................................... 6,075,000
460,000 HBO & Co. ........................................ 16,215,000
450,000 *Health Management Associates, Inc. Cl. A......... 15,046,875
620,000 *HEALTHSOUTH Corp. ............................... 16,546,250
300,000 *Lincare Holdings, Inc. .......................... 12,618,750
970,000 *MedPartners, Inc. ............................... 7,760,000
100,000 Pfizer, Inc. ..................................... 10,868,750
200,000 Schering-Plough Corp. ............................ 18,325,000
525,000 SmithKline Beecham Plc, ADR....................... 31,762,500
540,000 *Tenet Healthcare Corp. .......................... 16,875,000
190,000 Teva Pharmaceutical Industries Ltd., ADR.......... 6,685,625
--------------
219,008,125
--------------
Information Services & Technology - 12.2%
280,000 *3Com Corp. ...................................... 8,592,500
350,000 *Adaptec, Inc. ................................... 5,009,375
270,000 *Altera Corp. .................................... 7,981,875
325,000 *Applied Materials, Inc. ......................... 9,587,500
400,000 *Cadence Design Systems, Inc. .................... 12,500,000
765,000 Compaq Computer Corp. ............................ 21,706,875
</TABLE>
48
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Information Services &
Technology - continued
275,000 Computer Associates International, Inc. .......... $ 15,279,687
180,000 *Dell Computer Corp. ............................. 16,706,250
270,000 Intel Corp. ...................................... 20,013,750
300,000 International Business Machines Corp. ............ 34,443,750
245,000 *Microsoft Corp. ................................. 26,551,875
210,000 *Network Associates, Inc. ........................ 10,053,750
500,000 *Oracle Systems Corp. ............................ 12,281,250
390,000 *Quantum Corp. ................................... 8,092,500
210,000 *Sanmina Corp. ................................... 9,108,750
200,000 *SCI Systems, Inc. ............................... 7,525,000
200,000 *Synopsys, Inc. .................................. 9,150,000
175,000 Varian Associates, Inc. .......................... 6,825,000
--------------
241,409,687
--------------
Metal Products & Services - 1.1%
110,000 Aluminum Co. of America........................... 7,253,125
285,000 Crown Cork & Seal Co., Inc. ...................... 13,537,500
--------------
20,790,625
--------------
Oil/Energy - 8.5%
140,000 Anadarko Petroleum Corp. ......................... 9,406,250
145,000 Ashland, Inc. .................................... 7,485,625
465,000 Enron Corp. ...................................... 25,139,062
530,000 *Newpark Resources, Inc. ......................... 5,896,250
339,300 *Ocean Energy, Inc. .............................. 6,637,556
435,000 Phillips Petroleum Co. ........................... 20,961,563
300,000 Sonat, Inc. ...................................... 11,587,500
520,000 Texaco, Inc. ..................................... 31,037,500
460,000 Tosco Corp. ...................................... 13,512,500
460,000 Ultramar Diamond Shamrock Corp. .................. 14,518,750
680,000 YPF SA, ADR....................................... 20,442,500
--------------
166,625,056
--------------
Oil Field Services - 1.8%
380,000 Diamond Offshore Drilling, Inc. .................. 15,200,000
270,000 *EVI Weatherford Inc. ............................ 10,023,750
478,000 *R & B Falcon Corp. .............................. 10,814,750
--------------
36,038,500
--------------
Real Estate - 1.6%
460,000 FelCor Suite Hotels, Inc. REIT.................... 14,432,500
500,000 Simon DeBartolo Group, Inc. REIT.................. 16,250,000
--------------
30,682,500
--------------
Retailing & Wholesale - 6.5%
530,000 Dayton Hudson Corp. .............................. 25,705,000
890,000 Family Dollar Stores, Inc. ....................... 16,465,000
425,000 *Federated Department Stores, Inc. ............... 22,870,313
200,000 Liz Claiborne, Inc. .............................. 10,450,000
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$14,505,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest --$14,719,779.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
400,000 *Reebok International Ltd. ...................... $ 11,075,000
475,000 Sears, Roebuck & Co. ............................ 29,004,687
520,000 *Toys R Us, Inc. ................................ 12,252,500
--------------
127,822,500
--------------
Telecommunication Services & Equipment - 1.3%
130,000 Nokia Corp. ADR.................................. 9,433,125
437,287 *Qwest Communications International Inc. ........ 15,250,384
--------------
24,683,509
--------------
Transportation - 1.5%
210,000 Burlington Northern Santa Fe..................... 20,619,375
295,000 Norfolk Southern Corp. .......................... 8,794,688
--------------
29,414,063
--------------
Utilities - Electric - 3.7%
585,000 Cinergy Corp. ................................... 20,475,000
370,000 CMS Energy Corp. ................................ 16,280,000
510,000 GPU, Inc. ....................................... 19,284,375
465,000 UtiliCorp United, Inc. .......................... 17,524,687
--------------
73,564,062
--------------
Utilities - Telephone - 2.4%
312,500 Century Telephone Enterprises, Inc. ............. 14,335,938
575,000 GTE Corp. ....................................... 31,984,375
--------------
46,320,313
--------------
Total Common Stocks
(cost $1,309,844,291)........................... 1,920,932,409
--------------
SHORT-TERM INVESTMENTS - 2.5%
Money Market Shares - 1.8%
35,709,596 Valiant General Fund
5.44%, 7/1/98
(cost $35,709,596).............................. 35,709,596
--------------
<CAPTION>
Principal
Amount
<C> <S> <C>
Repurchase Agreement - 0.7%
$14,430,904 Dresdner Bank AG
5.70%, purchased 6/30/98, maturing 7/1/98,
maturity value $14,433,189 (cost
$14,430,904) (a) ............................... 14,430,904
--------------
Total Short-Term Investments
(cost $50,140,500).............................. 50,140,500
--------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $1,359,984,791)..................... 100.0% 1,971,072,909
Other Assets and
Liabilities - net......................... 0.0 (412,972)
----- --------------
Net Assets................................. 100.0% $1,970,659,937
===== ==============
</TABLE>
49
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - 98.3%
Automotive Equipment & Manufacturing -
1.0%
125,000 Goodyear Tire & Rubber Co................ $ 8,054,688
------------
Banks - 12.7%
108,800 Bankers Trust Corp....................... 12,627,600
376,800 Chase Manhattan Corp..................... 28,448,400
92,300 Citicorp................................. 13,775,775
135,800 First Chicago NBD Corp................... 12,035,275
49,200 Fleet Financial Group, Inc............... 4,108,200
350,800 NationsBank Corp......................... 26,836,200
58,400 PNC Bank Corp............................ 3,142,650
------------
100,974,100
------------
Business Equipment & Services - 1.4%
116,500 *Compuware Corp.......................... 5,956,063
219,700 *Stratus Computer, Inc................... 5,561,156
------------
11,517,219
------------
Capital Goods - 0.6%
97,400 Case Corp................................ 4,699,550
------------
Chemical & Agricultural Products - 1.9%
205,400 Du Pont (E. I.) De Nemours & Co.......... 15,327,975
------------
Communication Systems & Services - 5.8%
210,200 *Cisco Systems, Inc...................... 19,351,537
149,700 *Tellabs, Inc............................ 10,722,263
341,000 *WorldCom, Inc........................... 16,517,187
------------
46,590,987
------------
Consumer Products & Services - 3.7%
200,000 Procter & Gamble Co...................... 18,212,500
56,300 Stanley Works............................ 2,339,969
132,600 Whirlpool Corp........................... 9,116,250
------------
29,668,719
------------
Diversified Companies - 3.1%
385,800 Tyco International Ltd................... 24,305,400
------------
Electrical Equipment & Services - 3.6%
310,900 General Electric Co...................... 28,291,900
------------
Finance & Insurance - 5.4%
151,800 Allstate Corp............................ 13,899,187
137,500 Countrywide Credit Industries, Inc....... 6,978,125
102,400 Lehman Brothers Holdings, Inc............ 7,942,400
130,000 Loews Corp............................... 11,326,250
46,200 Travelers Group, Inc..................... 2,800,875
------------
42,946,837
------------
Food & Beverage Products - 10.1%
363,300 Bestfoods................................ 21,094,106
224,800 Coca Cola Co............................. 19,220,400
141,700 Fortune Brands, Inc...................... 5,446,594
472,300 Philip Morris Companies, Inc............. 18,596,812
390,000 *Safeway, Inc............................ 15,868,125
------------
80,226,037
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Healthcare Products & Services - 14.4%
236,300 Bristol-Myers Squibb Co................. $ 27,159,731
526,400 HBO & Co................................ 18,555,600
419,800 *HEALTHSOUTH Corp....................... 11,203,412
88,700 *Lincare Holdings, Inc.................. 3,730,944
228,500 Pfizer, Inc............................. 24,835,094
82,300 *Quintiles Transnational Corp........... 4,048,131
255,000 SmithKline Beecham Plc, ADR............. 15,427,500
322,600 *Tenet Healthcare Corp.................. 10,081,250
------------
115,041,662
------------
Industrial Specialty Products &
Services - 0.3%
50,000 *USA Waste Services, Inc................ 2,468,750
------------
Information Services & Technology - 5.5%
78,200 Intel Corp.............................. 5,796,575
103,900 International Business Machines Corp.... 11,929,019
131,000 *Microsoft Corp......................... 14,197,125
190,300 *Network Associates, Inc................ 9,110,612
69,300 *Sun Microsystems, Inc.................. 3,010,219
------------
44,043,550
------------
Manufacturing - Distributing - 1.8%
167,400 Philips Electronics NV.................. 14,229,000
------------
Metal Products & Services - 1.1%
22,875 Alumax, Inc............................. 1,060,828
238,000 USX United States Steel Group........... 7,854,000
------------
8,914,828
------------
Oil/Energy - 5.5%
170,000 Cabot Corp.............................. 5,493,125
220,400 Mobil Corp.............................. 16,888,150
192,700 Tosco Corp.............................. 5,660,562
315,500 Ultramar Diamond Shamrock Corp.......... 9,957,969
200,000 YPF SA, ADR............................. 6,012,500
------------
44,012,306
------------
Oil Field Services - 1.2%
79,800 Diamond Offshore Drilling, Inc.......... 3,192,000
280,300 *R & B Falcon Corp...................... 6,341,788
------------
9,533,788
------------
Publishing, Broadcasting &
Entertainment - 2.7%
760,000 News Corp. Ltd.......................... 21,470,000
------------
Real Estate - 1.8%
457,800 FelCor Suite Hotels, Inc. REIT.......... 14,363,475
------------
Retailing & Wholesale - 4.7%
99,000 Dayton Hudson Corp...................... 4,801,500
375,000 *Federated Department Stores, Inc....... 20,179,688
206,900 Sears, Roebuck & Co..................... 12,633,831
------------
37,615,019
------------
</TABLE>
50
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Telecommunication Services & Equipment -
0.7%
74,300 Nokia Corp., ADR........................ $ 5,391,394
------------
Textile & Apparel - 0.8%
129,300 V. F. Corp.............................. 6,658,950
------------
Transportation - 1.2%
100,000 Burlington Northern Santa Fe............ 9,818,750
------------
Utilities - Electric - 5.2%
367,900 Cinergy Corp............................ 12,876,500
554,300 Houston Industries, Inc................. 17,114,012
129,000 Pinnacle West Capital Corp.............. 5,805,000
143,000 UtiliCorp United, Inc................... 5,389,313
------------
41,184,825
------------
Utilities - Telephone - 2.1%
300,000 GTE Corp................................ 16,687,500
------------
Total Common Stocks
(cost $719,320,111).................... $784,037,209
------------
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$8,922,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest - $9,054,110 and $13,315,000 U.S. Treasury Notes,
5.625%, 12/31/99, value including accrued interest - $13,327,516.
144A Securities that may be resold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the
Fund's Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
CONVERTIBLE PREFERRED - 0.6%
Capital Goods - 0.6%
45,400 Case Corp.
4.50%, Series A, 144A............................. $ 5,079,125
------------
Total Convertible Preferred (cost $6,310,600)...... $ 5,079,125
------------
SHORT-TERM INVESTMENTS - 2.8%
Repurchase Agreement - 2.8%
$21,939,066 Dresdner Bank AG 5.70%, purchased 6/30/98, maturing
7/1/98, maturity value $21,942,540
(cost $21,939,066) (a)............................ $ 21,939,066
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $747,569,777)....... 101.7% 811,055,400
Other Assets and Liabilities - net........... (1.7) (13,493,304)
----- ------------
Net Assets................................... 100.0% $797,562,096
===== ============
</TABLE>
51
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - 74.9%
Aerospace & Defense - 0.9%
20,000 United Technologies Corp.................. $ 1,850,000
------------
Banks - 10.6%
110,000 BankBoston Corp........................... 6,118,750
80,000 Fleet Financial Group, Inc................ 6,680,000
80,000 PNC Bank Corp............................. 4,305,000
80,000 Union Planters Corp. Rts.................. 4,705,000
------------
21,808,750
------------
Chemical & Agricultural Products - 2.8%
60,000 Dow Chemical Co........................... 5,801,250
------------
Communication Systems & Services - 2.4%
100,000 *WorldCom, Inc............................ 4,843,750
------------
Electrical Equipment & Services - 3.1%
70,000 General Electric Co....................... 6,370,000
------------
Food & Beverage Products - 3.4%
100,000 Philip Morris Companies, Inc.............. 3,937,500
130,000 RJR Nabisco Holdings Corp................. 3,087,500
------------
7,025,000
------------
Healthcare Products & Services - 2.8%
50,000 Bristol-Myers Squibb Co................... 5,746,875
------------
Information Services & Technology - 5.4%
100,000 *Altera Corp.............................. 2,953,125
40,000 International Business Machines Corp...... 4,592,500
75,000 *Network Associates, Inc.................. 3,588,281
------------
11,133,906
------------
Oil/Energy - 11.3%
100,000 Enron Corp................................ 5,406,250
250,000 *Newpark Resources, Inc................... 2,781,250
70,000 Texaco, Inc............................... 4,178,125
200,000 Ultramar Diamond Shamrock Corp............ 6,312,500
155,000 YPF SA, ADR............................... 4,659,688
------------
23,337,813
------------
Oil Field Services - 1.1%
100,000 *R & B Falcon Corp........................ 2,262,500
------------
Real Estate - 4.7%
100,000 FelCor Suite Hotels, Inc. REIT............ 3,137,500
200,000 Simon DeBartolo Group, Inc. REIT.......... 6,500,000
------------
9,637,500
------------
Transportation - 1.9%
40,280 Burlington Northern Santa Fe.............. 3,954,993
------------
Utilities - Electric - 21.5%
225,000 Cinergy Corp.............................. 7,875,000
130,000 CMS Energy Corp........................... 5,720,000
175,000 GPU, Inc.................................. 6,617,187
220,000 Houston Industries, Inc................... 6,792,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C> <C>
COMMON STOCKS - continued
Utilities - Electric - (continued)
250,000 PacifiCorp.......................... $ 5,656,250
125,000 Pinnacle West Capital Corp.......... 5,625,000
160,000 UtiliCorp United, Inc............... 6,030,000
------------
44,315,937
------------
Utilities - Telephone - 3.0%
110,000 GTE Corp............................ 6,118,750
------------
Total Common Stocks
(cost $120,529,688)................ $154,207,024
------------
CONVERTIBLE PREFERRED - 13.6%
Capital Goods - 2.2%
40,000 Case Corp. 4.50%, Series A.......... 4,475,000
------------
Food & Beverage Products - 3.1%
100,000 Ralston Purina Co. 7.00%, SAILS
(exchangeable for Interstate
Bakeries Common Stock)............. 6,350,000
------------
Oil/Energy - 2.2%
65,000 Tosco Financing Trust 5.75%, 144A... 3,640,000
15,000 Tosco Financing Trust 5.75%......... 840,000
------------
4,480,000
------------
Oil Field Services - 2.2%
110,000 EVI, Inc. 5.00%, 144A............... 4,661,800
------------
Paper & Packaging - 2.4%
110,000 Crown Cork & Seal Co., Inc.
4.50%, MIPS........................ 4,922,500
------------
Real Estate - 1.5%
125,000 Felcor Suite Hotels, Inc.
$1.95, Series A.................... 3,031,250
------------
Total Convertible Preferred
(cost $30,188,834)................. $ 27,920,550
------------
<CAPTION>
Principal
Amount
<C> <S> <C> <C> <C> <C> <C>
CONVERTIBLE DEBENTURES - 2.4%
Environmental Services - 2.4%
$4,000,000 *USA Waste Services, Inc.
4.00%, 2/1/02...................... 4,970,000
------------
Total Convertible Debentures
(cost $4,281,453).................. $ 4,970,000
------------
U.S. GOVERNMENT OBLIGATIONS - 6.7%
U.S. Treasury Notes
2,000,000 6.125%, 7/31/00..................... 2,024,376
2,000,000 6.125%, 9/30/00..................... 2,025,626
2,000,000 6.125%, 12/31/01.................... 2,036,252
1,500,000 6.50%, 4/30/99...................... 1,512,189
2,000,000 6.50%, 8/31/01...................... 2,054,376
500,000 6.625%, 6/30/01..................... 514,688
1,940,000 6.875%, 7/31/99..................... 1,967,282
500,000 7.25%, 5/15/04...................... 542,656
1,000,000 7.75%, 11/30/99..................... 1,030,001
------------
Total U.S. Government Obligations
(cost $13,440,446)................. $ 13,707,446
------------
</TABLE>
52
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS - 2.4%
Repurchase Agreement -
1.9%
$3,928,059 Dresdner Bank AG
5.70%, purchased
6/30/98, maturing
7/1/98, maturity value
$3,928,681
(cost $3,928,059) (a).. $ 3,928,059
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS - continued
Money Market Shares - 0.5%
1,047,329 Valiant General Fund 5.44%, 7/1/98 (cost
1,047,329).............................. $ 1,047,329
------------
Total Short-Term Investments
(cost $4,975,388)....................... $ 4,975,388
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $173,415,809)........ 100.0% 205,780,408
Other Assets and Liabilities - net............ 0.0 (35,207)
----- ------------
Net Assets.................................... 100.0% $205,745,201
===== ============
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$3,950,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including accrued in-
terest - $4,008,489.
144A Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. These securities have been deter-
mined to be liquid under guidelines established by the Fund's Board of
Trustees.
Summary of Abbreviations:
ADR American Depository Receipt
MIPS Monthly Income Producing Securities
REIT Real Estate Investment Trust
53
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 98.5%
Banks - 11.7%
125,000 Banc One Corp......................................... $ 6,976,563
248,400 BankBoston Corp....................................... 13,817,250
60,070 Bankers Trust Corp.................................... 6,971,874
69,000 First Chicago NBD Corp................................ 6,115,125
82,000 Fleet Financial Group, Inc............................ 6,847,000
171,000 NationsBank Corp...................................... 13,081,500
98,900 Union Planters Corp................................... 5,816,556
------------
59,625,868
------------
Building, Construction & Furnishings - 2.6%
217,200 Masco Corp............................................ 13,140,600
------------
Business Equipment & Services - 1.4%
141,000 *Compuware Corp....................................... 7,208,625
------------
Chemical & Agricultural Products - 2.3%
158,300 Du Pont (E. I.) De Nemours & Co....................... 11,813,137
------------
Communication Systems & Services - 5.3%
147,700 *Cisco Systems, Inc................................... 13,597,631
96,000 *Tellabs, Inc......................................... 6,876,000
133,000 *WorldCom, Inc........................................ 6,442,188
------------
26,915,819
------------
Consumer Products & Services - 6.6%
413,800 *Cendant Corp......................................... 8,638,075
145,900 Procter & Gamble Co................................... 13,286,019
125,350 Stanley Works......................................... 5,209,859
97,600 Whirlpool Corp........................................ 6,710,000
------------
33,843,953
------------
Diversified Companies - 2.8%
226,000 Tyco International Ltd................................ 14,238,000
------------
Electrical Equipment & Services - 3.1%
172,560 General Electric Co................................... 15,702,960
------------
Finance & Insurance - 7.7%
139,800 Allstate Corp......................................... 12,800,438
68,500 Merrill Lynch & Co., Inc.............................. 6,319,125
224,500 Travelers Group, Inc.................................. 13,610,312
119,000 UNUM Corp............................................. 6,604,500
------------
39,334,375
------------
Food & Beverage Products - 6.5%
113,500 Bestfoods............................................. 6,590,094
162,850 Coca Cola Co.......................................... 13,923,675
173,600 *Safeway, Inc......................................... 7,063,350
105,500 Sara Lee Corp......................................... 5,901,406
------------
33,478,525
------------
Healthcare Products & Services - 17.3%
124,000 Bristol-Myers Squibb Co............................... 14,252,250
361,400 HBO & Co.............................................. 12,739,350
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Healthcare Products & Services - continued
515,000 *HEALTHSOUTH Corp........................ $ 13,744,062
172,885 Johnson & Johnson........................ 12,750,269
187,180 *Lincare Holdings, Inc................... 7,873,259
98,870 Pfizer, Inc.............................. 10,745,933
131,000 *Quintiles Transnational Corp............ 6,443,563
103,500 SmithKline Beecham Plc, ADR.............. 6,261,750
65,000 *Universal Health Services, Inc. Cl. B... 3,794,375
------------
88,604,811
------------
Industrial Specialty Products &
Services - 1.2%
129,300 *USA Waste Services, Inc................. 6,384,188
------------
Information Services & Technology - 9.4%
417,800 Compaq Computer Corp..................... 11,855,075
64,200 Intel Corp............................... 4,758,825
138,000 *Microsoft Corp.......................... 14,955,750
186,000 *Network Associates, Inc................. 8,904,750
180,960 *Sanmina Corp............................ 7,849,140
------------
48,323,540
------------
Metal Products & Services - 1.2%
92,400 Aluminum Co. of America.................. 6,092,625
------------
Oil/Energy - 5.8%
78,000 Mobil Corp............................... 5,976,750
197,400 Texaco, Inc.............................. 11,782,313
217,825 Tosco Corp............................... 6,398,609
183,700 YPF SA, ADR.............................. 5,522,481
------------
29,680,153
------------
Publishing, Broadcasting &
Entertainment - 1.6%
247,200 News Corp, Ltd........................... 7,941,300
------------
Real Estate - 0.9%
153,800 FelCor Suite Hotels, Inc. REIT........... 4,825,475
------------
Retailing & Wholesale - 2.9%
157,200 Dayton Hudson Corp....................... 7,624,200
138,415 *Federated Department Stores, Inc........ 7,448,457
------------
15,072,657
------------
Transportation - 1.2%
63,000 Burlington Northern Santa Fe............. 6,185,813
------------
Utilities - Electric - 3.2%
323,700 Cinergy Corp............................. 11,329,500
220,000 PacifiCorp............................... 4,977,500
------------
16,307,000
------------
Utilities - Telephone - 3.8%
172,500 Century Telephone Enterprises, Inc....... 7,913,438
207,700 GTE Corp................................. 11,553,312
------------
19,466,750
------------
Total Common Stocks (cost $383,644,524).. $504,186,174
------------
</TABLE>
54
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.3%
Repurchase Agreement - 1.3%
$6,563,308 Dresdner Bank AG
5.70%, purchased 6/30/98, maturing 7/1/98, maturity
value $6,564,347 (cost $6,563,308) (b)............. $ 6,563,308
------------
</TABLE>
* Non-income producing securities.
(a) Less than one-tenth percent.
(b) At June 30, 1998, the repurchase agreement was collateralized by:
$6,600,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest -$6,697,728.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS - continued
Money Market Shares - 0.0% (a)
317,568 Valiant General Fund
5.44%, 7/1/98 (cost $317,568)........... $ 317,568
------------
Total Short-Term Investments
(cost $6,880,876)....................... $ 6,880,876
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $390,525,400)......... 99.8% 511,067,050
Other Assets and
Liabilities - net............................. 0.2 799,527
----- ------------
Net Assets..................................... 100.0% $511,866,577
===== ============
</TABLE>
55
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 98.4%
Advertising & Related Services - 2.1%
51,100 *ADVO, Inc............................................. $ 1,440,381
-----------
Banks - 3.4%
35,900 Dime Community Bancorp, Inc. .......................... 1,000,713
34,300 SIS Bancorp, Inc. ..................................... 1,326,981
-----------
2,327,694
-----------
Building, Construction & Furnishings - 5.3%
22,100 *CompX International, Inc. Cl. A....................... 477,912
69,000 General Cable Corp..................................... 1,992,375
40,500 Oakwood Homes Corp. ................................... 1,215,000
-----------
3,685,287
-----------
Business Equipment & Services - 2.3%
73,500 *Market Facts, Inc. ................................... 1,571,062
-----------
Chemical & Agricultural Products - 2.0%
33,800 OM Group, Inc.......................................... 1,394,250
-----------
Consumer Products & Services - 7.8%
59,300 *Chattem, Inc.......................................... 1,578,863
64,450 *Equity Corp. International............................ 1,546,800
67,700 *Helen of Troy Ltd. ................................... 1,476,706
21,800 *Scotts Co. Cl. A ..................................... 812,050
-----------
5,414,419
-----------
Education - 7.0%
27,200 *Bright Horizons Childrens, Inc. ...................... 768,400
33,800 *Career Education Corp................................. 836,550
76,500 *Computer Learning Centers, Inc. ...................... 1,905,328
37,300 Strayer Education, Inc. ............................... 1,346,297
-----------
4,856,575
-----------
Electrical Equipment & Services - 7.9%
22,300 Applied Power, Inc. Cl. A.............................. 766,563
43,300 *Artisan Components, Inc............................... 573,725
55,200 *DII Group, Inc........................................ 943,575
40,500 *Parlex Corp........................................... 556,875
31,300 *Pri Automation, Inc................................... 534,056
24,400 *QLogic Corp........................................... 870,012
57,700 *Sipex Corp. .......................................... 1,238,747
-----------
5,483,553
-----------
Finance & Insurance - 5.3%
33,200 *Annuity & Life Re (Holdings), Ltd. ................... 740,775
12,900 Arthur J. Gallagher & Co............................... 577,275
34,400 Blanch E W Holdings, Inc. ............................. 1,264,200
14,890 *Delphi Financial Group, Inc. ......................... 838,493
14,600 *Freedom Securities Corp............................... 264,625
-----------
3,685,368
-----------
Food & Beverage Products - 1.8%
51,000 Smucker (J. M.) Co. Cl. A.............................. 1,265,438
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Healthcare Products & Services - 5.5%
28,800 *Curative Health Services, Inc. .......... $ 824,400
51,100 *Healthcare Recoveries, Inc............... 1,015,612
42,400 *ProMedCo Management Co................... 429,300
22,900 *Renal Care Group, Inc.................... 1,010,463
23,700 *Wesley Jessen Visioncare, Inc............ 547,322
-----------
3,827,097
-----------
Industrial Specialty Products & Services -
2.7%
59,400 *Halter Marine Group, Inc................. 894,712
37,200 Roper Industries, Inc. ................... 971,850
-----------
1,866,562
-----------
Information Services & Technology - 14.1%
38,700 *CCC Information Services Group, Inc...... 660,319
50,600 *Cognicase, Inc........................... 749,512
52,900 *DA Consulting Group, Inc. ............... 767,050
47,300 *Electronics for Imaging, Inc. ........... 996,256
29,100 *Evolving Systems, Inc. .................. 324,647
51,000 *FileNet Corp............................. 1,466,250
25,100 *International Integration, Inc........... 436,112
23,100 *JDA Software Group, Inc. ................ 1,012,069
13,900 *Lycos, Inc............................... 1,047,278
52,100 *Platinum Software Corp................... 1,271,566
50,300 *Project Software & Development, Inc. .... 1,020,147
-----------
9,751,206
-----------
Leisure & Tourism - 1.2%
28,700 *Steiner Leisure Ltd...................... 871,763
-----------
Manufacturing - Distributing - 1.5%
23,000 *National R. V. Holdings, Inc............. 1,035,000
-----------
Oil/Energy - 2.1%
72,500 *Newpark Resources, Inc................... 806,563
32,400 *Seven Seas Petroleum, Inc................ 656,100
-----------
1,462,663
-----------
Oil Field Services - 3.1%
24,600 *Cal Dive International, Inc. ............ 678,038
25,700 Core Laboratories N.V. ................... 554,156
31,300 *Friede Goldman International, Inc. ...... 902,809
-----------
2,135,003
-----------
Publishing, Broadcasting & Entertainment -
5.7%
42,900 *Big Flower Holdings, Inc................. 1,287,000
25,900 *Forrester Research, Inc.................. 1,036,000
40,700 *Hearst-Argyle Television, Inc. .......... 1,633,087
-----------
3,956,087
-----------
Retailing & Wholesale - 6.0%
28,400 *Brylane, Inc............................. 1,306,400
53,600 *Good Guys (The), Inc..................... 725,275
32,000 *K & G Men's Center, Inc.................. 726,000
39,000 *Michaels Stores, Inc..................... 1,375,969
-----------
4,133,644
-----------
</TABLE>
56
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Telecommunication Services & Equipment -
8.5%
45,100 *Antec Corp................................ $ 1,049,984
55,000 *Esprit Telecom Group, Plc-ADR............. 1,007,188
36,800 *Hyperion Telecommunications Cl. A......... 580,750
30,400 *IDT Corp.................................. 914,850
50,600 *LCC International, Inc.................... 931,356
24,700 *MGC Communications, Inc................... 380,534
61,200 *Viatel, Inc. ............................. 1,034,663
-----------
5,899,325
-----------
Transportation - 2.5%
85,700 *Fritz Companies, Inc...................... 1,146,238
29,700 *United Road Services, Inc................. 566,156
-----------
1,712,394
-----------
Utilities - Telephone - 0.6%
45,500 *Telegroup, Inc. .......................... 422,297
-----------
Total Common Stocks (cost $64,788,097)..... $68,197,068
-----------
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices plus accrued inter-
est at June 30, 1998.
Summary of Abbreviations:
ADR American Depository Receipt
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 3.0%
Repurchase Agreement - 3.0%
$2,053,000 Keystone Joint Repurchase Agreement, Investments in
repurchase agreements, in a joint trading account,
purchased 6/30/98,
6.06%, maturing 7/1/98, maturity value $2,053,346
(cost $2,053,000) (a).............................. $ 2,053,000
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $66,841,097).......... 101.4% 70,250,068
Other Assets and
Liabilities - net............................. (1.4) (966,580)
----- -----------
Net Assets..................................... 100.0% $69,283,488
===== ===========
</TABLE>
57
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 83.2%
Automotive Equipment & Manufacturing - 0.6%
30,000 *Sonic Automotive, Inc................................. $ 493,125
-----------
Banks - 12.4%
10,000 ABC Bancorp............................................ 162,500
5,000 Bank of Commerce....................................... 93,750
7,875 Beverly Bancorp, Inc................................... 188,016
14,500 *Britton & Koontz Capital Corp......................... 320,812
27,500 BSB Bancorp, Inc....................................... 831,875
67,400 *Civic Bancorp......................................... 1,204,775
54,200 Commercial Bankshares, Inc............................. 1,314,350
50,000 Cowlitz Bancorp........................................ 603,125
15,000 First Liberty Financial Corp........................... 367,500
20,000 First State Bancorp.................................... 482,500
30,000 Granite State Bankshares, Inc.......................... 836,250
14,000 Hancock Holding Co..................................... 742,000
25,000 Independent Bankshares, Inc............................ 387,500
5,000 Pointe Financial Corp.................................. 75,625
29,800 Seacoast Banking Corp. of Florida Cl. A................ 1,147,300
40,000 St. Paul Bancorp, Inc.................................. 903,750
-----------
9,661,628
-----------
Building, Construction & Furnishings - 5.2%
47,000 *CompX International, Inc. Cl. A....................... 1,016,375
20,000 *D.R. Horton, Inc...................................... 417,500
20,000 *Eagle Hardware & Garden, Inc.......................... 462,500
10,000 Knoll, Inc............................................. 295,000
15,000 *Monaco Coach Corp..................................... 438,750
75,000 Shelby Williams Industries, Inc........................ 1,125,000
10,000 *Toll Brothers, Inc.................................... 286,875
-----------
4,042,000
-----------
Business Equipment & Services - 0.5%
9,000 *Zebra Technologies Corp. Cl. A........................ 384,750
-----------
Consumer Products & Services - 6.0%
27,000 Bush Industries, Inc. Cl. A............................ 587,250
25,000 CPI Corp............................................... 595,312
50,000 Maxwell Shoe, Inc. Cl. A............................... 993,750
20,000 North Face, Inc. (The)................................. 480,000
40,000 *Play By Play Toys & Novelties, Inc.................... 412,500
20,000 Russ Berrie & Co., Inc................................. 500,000
30,000 Stride Rite Corp....................................... 451,875
35,000 York Group, Inc........................................ 665,000
-----------
4,685,687
-----------
Diversified Companies - 1.1%
35,000 Matthews International Corp. Cl. A..................... 859,688
-----------
Electrical Equipment & Services - 5.2%
50,000 *ADFlex Solutions, Inc................................. 443,750
5,000 *Electro Scientific Industries, Inc.................... 157,813
30,000 Fair Issac & Co., Inc.................................. 1,140,000
27,000 *Hadco Corp............................................ 629,437
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - (continued)
10,000 Harman International Industries, Inc...... $ 385,000
22,000 *Photronic, Inc........................... 485,375
55,000 *SMART Modular Technologies, Inc.......... 804,375
-----------
4,045,750
-----------
Finance & Insurance - 6.6%
5,000 *Farm Family Holdings, Inc................ 194,687
10,000 Fidelity National Financial, Inc.......... 398,125
22,000 Frontier Insurance Group, Inc............. 496,375
35,000 Grand Premier Financial, Inc.............. 560,000
36,400 Interstate/Johnson Lane, Inc.............. 1,146,600
10,000 LandAmerica Financial Group, Inc.......... 572,500
17,300 Meadowbrook Insurance Group, Inc.......... 470,344
50,000 Morgan Keegan, Inc........................ 1,293,750
-----------
5,132,381
-----------
Healthcare Products & Services - 6.5%
50,000 *ADAC Laboratories........................ 1,125,000
95,000 Air Methods Corp.......................... 430,469
5,000 *Alcide Corp.............................. 211,875
20,000 Depuy, Inc................................ 565,000
50,000 *Empi, Inc................................ 828,125
140,000 Encore Medical Corp....................... 630,000
90,000 *Exactech, Inc............................ 697,500
20,000 Hologic, Inc.............................. 363,750
7,000 *Maxxim Medical, Inc...................... 203,000
-----------
5,054,719
-----------
Industrial Specialty Products & Services -
3.9%
30,000 *Genlyte Group, Inc....................... 795,000
15,000 Graco, Inc................................ 523,125
20,000 Halter Marine Group, Inc.................. 301,250
55,000 Met-Pro Corp.............................. 821,562
20,000 Robbins & Myers, Inc...................... 581,250
-----------
3,022,187
-----------
Information Services & Technology - 3.7%
40,800 Alphanet Solutions, Inc................... 464,100
20,000 *Dupont Photomasks, Inc................... 690,000
40,000 Micros Systems, Inc....................... 1,323,750
20,000 Tecnomatix Technologies Ltd............... 400,000
-----------
2,877,850
-----------
Machinery - Diversified - 1.3%
41,250 Hardinge Brothers, Inc.................... 1,005,469
-----------
Metal Products & Services - 0.4%
20,000 *Steel Dynamics, Inc...................... 277,500
-----------
Oil/Energy - 4.7%
20,000 *Barrett Resources Corp................... 748,750
30,000 Berry Petroleum Co. Cl. A................. 390,000
32,000 Cabot Oil & Gas Corp. Cl. A............... 640,000
50,000 *COHO Energy, Inc......................... 337,500
9,900 *Forcenergy, Inc.......................... 176,344
</TABLE>
58
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Oil/Energy - (continued)
28,000 *Nuevo Energy Co............................ $ 899,500
15,000 Quaker State Corp........................... 245,625
20,000 Southwestern Energy Co...................... 183,750
----------
3,621,469
----------
Oil Field Services - 6.8%
13,000 *Atwood Oceanics, Inc....................... 517,562
10,000 Camco International, Inc.................... 778,750
16,000 *Cliffs Drilling Co......................... 525,000
20,000 *Hvide Marine, Inc. Cl. A................... 271,250
50,000 Louis Dreyfus Natural Gas Corp.............. 946,875
10,300 Lufkin Industries, Inc...................... 339,900
20,000 *Oceaneering International, Inc............. 355,000
20,000 *Offshore Logistics, Inc.................... 355,000
10,000 *SEACOR SMIT, Inc........................... 613,125
30,000 Tuboscope, Inc.............................. 592,500
----------
5,294,962
----------
Real Estate - 1.1%
6,700 *Beazer Homes USA, Inc...................... 173,781
15,000 Eastgroup Properties, Inc. REIT............. 300,938
20,000 *Servico, Inc............................... 300,000
4,100 Sunstone Hotel Investors, Inc. REIT......... 54,581
----------
829,300
----------
Retailing & Wholesale - 5.4%
22,000 *Cole National Corp. Cl. A.................. 880,000
50,000 Duckwall-ALCO Stores, Inc................... 875,000
10,000 *Petco Animal Supplies, Inc................. 199,375
80,000 S & K Famous Brands, Inc.................... 1,420,000
30,000 Seaway Food Town, Inc....................... 581,250
25,000 *SED International Holdings, Inc............ 203,125
----------
4,158,750
----------
Telecommunication Services & Equipment -
2.1%
60,000 *Aspect Telecommunications Corp............. 1,642,500
----------
Textile & Apparel - 1.8%
70,000 Gerber Childrenswear, Inc................... 1,080,625
18,100 Superior Surgical Manufacturing Co., Inc.... 294,125
----------
1,374,750
----------
</TABLE>
* Non-income producing securities.
Summary of Abbreviations:
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Thrift Institutions - 5.5%
10,000 Dime Financial Corp........................ $ 356,250
8,000 *Highland Bancorp, Inc..................... 331,000
65,400 Horizon Financial Corp..................... 1,046,400
20,000 Maryland Federal Bancorp, Inc.............. 792,500
14,200 *Mech Financial, Inc....................... 411,800
20,000 Monterey Bay Bancorp, Inc.................. 370,000
18,000 *Quaker City Bancorp, Inc.................. 414,000
29,000 Teche Holding Co........................... 569,125
-----------
4,291,075
-----------
Transportation - 0.3%
13,000 *Airnet Systems, Inc....................... 209,625
-----------
Utilities - Electric - 1.3%
20,000 Madison Gas & Electric Co.................. 457,500
15,000 MDU Resources Group, Inc................... 535,313
-----------
992,813
-----------
Utilities - Gas - 0.8%
10,000 South Jersey Industries, Inc............... 276,250
15,000 UGI Corp................................... 373,125
-----------
649,375
-----------
Total Common Stocks (cost $67,221,566)..... $64,607,353
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 3.5%
Government Agency Notes & Bonds - 3.5%
Federal Home Loan Mortgage Discount Notes
$1,000,000 5.46%, 7/16/98......................................... 997,725
485,000 5.50%, 7/20/98......................................... 483,592
Federal National Mortgage Association Discount Notes
1,265,000 5.47%, 7/10/98........................................ 1,263,270
----------
Total Short-Term Investments (cost $2,744,587)......... $2,744,587
----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $69,966,153)........... 86.7% 67,351,940
Other Assets and
Liabilities - net.............................. 13.3 10,294,861
----- -----------
Net Assets...................................... 100.0% $77,646,801
===== ===========
</TABLE>
59
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 94.3%
Advertising & Related
Services - 1.1%
64,000 *Ha Lo Industries Inc................................. $ 1,992,000
------------
Aerospace & Defense - 1.1%
70,000 *BE Aerospace, Inc. .................................. 2,038,750
------------
Banks - 6.3%
50,000 BankBoston Corp. ..................................... 2,781,250
81,000 SouthTrust Corp. ..................................... 3,523,500
43,000 Summit Bancorp ....................................... 2,042,500
50,000 Union Planters Corp................................... 2,940,625
------------
11,287,875
------------
Building, Construction & Furnishings - 4.8%
50,000 Masco Corp............................................ 3,025,000
38,000 Medusa Corp........................................... 2,384,500
55,000 *NCI Building Systems, Inc............................ 3,176,250
------------
8,585,750
------------
Business Equipment &
Services - 3.7%
56,700 *Compuware Corp....................................... 2,898,787
32,000 *Consolidated Graphics Inc............................ 1,888,000
34,000 *Robert Half International, Inc. ..................... 1,899,750
------------
6,686,537
------------
Chemical & Agricultural
Products - 0.8%
70,000 AGCO Corp. ........................................... 1,439,375
------------
Communication Systems & Services - 1.5%
36,500 *Tellabs, Inc......................................... 2,614,313
------------
Consumer Products &
Services - 1.1%
29,100 Whirlpool Corp........................................ 2,000,625
------------
Environmental Services - 2.8%
112,000 *Allied Waste Industries, Inc. ....................... 2,688,000
50,000 *American Disposal Services, Inc. .................... 2,343,750
------------
5,031,750
------------
Finance & Insurance - 8.5%
80,000 AFLAC, Inc............................................ 2,425,000
41,000 *Annuity & Life Re (Holdings), Ltd. .................. 907,125
78,000 Conseco, Inc. ........................................ 3,646,500
80,000 Partnerre Ltd. ....................................... 4,080,000
50,000 Price (T.) Rowe & Associates, Inc..................... 1,878,125
50,000 ReliaStar Financial Corp.............................. 2,400,000
------------
15,336,750
------------
Food & Beverage Products - 2.3%
42,000 Dean Foods Co......................................... 2,307,375
85,000 Richfood Holdings, Inc................................ 1,758,438
------------
4,065,813
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 18.3%
33,000 *Boston Scientific Corp.................. $ 2,363,625
4,250 *Clinichem Development Inc. ............. 24,438
56,000 *Elan Corp Plc, ADR...................... 3,601,500
52,000 *First Health Group Corp................. 1,482,000
90,000 *Genesis Health Ventures, Inc............ 2,250,000
156,000 HBO & Co................................. 5,499,000
182,300 *HEALTHSOUTH Corp........................ 4,865,131
56,000 *Lincare Holdings, Inc. ................. 2,355,500
120,000 *Orthodontic Centers of America, Inc..... 2,512,500
70,000 *Pediatrix Medical Group, Inc............ 2,603,125
60,000 *Quintiles Transnational Corp............ 2,951,250
60,000 *Safeskin Corp........................... 2,467,500
------------
32,975,569
------------
Industrial Specialty Products &
Services - 2.6%
35,000 Magna International, Inc. Cl. A ......... 2,401,875
88,500 Roper Industries, Inc.................... 2,312,062
------------
4,713,937
------------
Information Services &
Technology - 11.4%
44,000 *Edwards (J.D.) & Co..................... 1,889,250
124,000 *EMC Corp................................ 5,556,750
114,000 *Network Associates, Inc................. 5,457,750
65,000 *PMC-Sierra, Inc......................... 3,046,875
47,800 *Sanmina Corp............................ 2,073,325
40,000 *Uniphase Corp........................... 2,511,250
------------
20,535,200
------------
Leisure & Tourism - 0.5%
35,000 Brunswick Corp........................... 866,250
------------
Manufacturing - Distributing - 0.7%
45,000 *Teradyne, Inc........................... 1,203,750
------------
Oil/Energy - 4.0%
250,000 *Newpark Resources, Inc.................. 2,781,250
51,000 Sonat, Inc............................... 1,969,875
75,000 Ultramar Diamond Shamrock Corp........... 2,367,187
------------
7,118,312
------------
Paper & Packaging - 0.7%
106,000 Rock Tennessee Co. Cl. A................. 1,331,625
------------
Pharmaceuticals - 2.5%
170,000 *Biochem Pharmaceuticals, Inc............ 4,505,000
------------
Real Estate - 1.7%
98,000 FelCor Suite Hotels, Inc. REIT........... 3,074,750
------------
Retailing & Wholesale - 6.8%
62,500 Dollar General Corp. .................... 2,472,656
156,000 Family Dollar Stores, Inc. .............. 2,886,000
120,000 *General Nutrition Companies, Inc. ...... 3,735,000
58,000 *Starbucks Corp. ........................ 3,099,375
------------
12,193,031
------------
</TABLE>
60
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Telecommunication Services & Equipment -
1.0%
52,474 *Qwest Communications International
Inc. ................................... $ 1,830,031
------------
Transportation - 3.0%
175,000 Comair Holdings, Inc. ................... 5,403,125
------------
Utilities - Electric - 5.0%
100,000 Cinergy Corp. ........................... 3,500,000
68,000 Sierra Pacific Resources................. 2,469,250
80,000 UtiliCorp United, Inc.................... 3,015,000
------------
8,984,250
------------
Utilities - Telephone - 2.1%
81,000 Century Telephone Enterprises, Inc. ..... 3,715,875
------------
Total Common Stocks (cost $115,876,575).. $169,530,243
------------
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$2,345,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest -$2,379,723.
(b) Less than one-tenth percent.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Prtincipal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.3%
Repurchase Agreement-1.3%
$2,331,615 Dresdner Bank AG, 5.70%, purchased 6/30/98, maturing
7/1/98, maturity value $2,331,984
(cost $2,331,615) (a).............................. $ 2,331,615
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C>
Money Market Shares - 0.0% (b)
61,204 Valiant General Fund 5.44%, 7/1/98
(cost $61,204)......................................... 61,204
----------
Total Short-Term Investments (cost $2,392,819).......... $2,392,819
----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $118,269,394)......... 95.6% 171,923,062
Other Assets and
Liabilities - net............................. 4.4 7,874,678
----- ------------
Net Assets..................................... 100.0% $179,797,740
===== ============
</TABLE>
61
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 97.4%
Aerospace & Defense - 3.3%
116,425 Cordant Technologies, Inc............................ $ 5,370,103
58,515 United Technologies Corp............................. 5,412,638
------------
10,782,741
------------
Building, Construction & Furnishings - 4.7%
139,720 Centex Corp.......................................... 5,274,430
175,870 Mohawk Inds Inc. .................................... 5,572,881
59,725 Southdown, Inc....................................... 4,262,872
------------
15,110,183
------------
Business Equipment &
Services - 7.8%
150,615 *AccuStaff, Inc. .................................... 4,706,719
86,400 Computer Task Group, Inc............................. 2,894,400
119,720 *Compuware Corp...................................... 6,120,685
115,410 *Robert Half International, Inc. .................... 6,448,534
98,045 Saville System, Plc, ADR............................. 4,914,505
------------
25,084,843
------------
Communication Systems &
Services - 1.6%
15,060 *Cisco Systems, Inc.................................. 1,386,461
53,490 *Tellabs, Inc........................................ 3,831,221
------------
5,217,682
------------
Consumer Products &
Services - 6.5%
169,295 *Cendant Corp. ...................................... 3,534,033
281,280 *Foodmaker, Inc...................................... 4,746,600
93,470 Procter & Gamble Co.................................. 8,511,612
111,385 Universal Corp....................................... 4,163,014
------------
20,955,259
------------
Diversified Companies - 2.9%
148,970 Tyco International Ltd............................... 9,385,110
------------
Electrical Equipment &
Services - 5.4%
191,765 General Electric Co.................................. 17,450,615
------------
Finance & Insurance - 9.0%
55,010 American Express Co.................................. 6,271,140
71,365 EXEL Ltd............................................. 5,553,089
85,950 MGIC Investment Corp................................. 4,904,522
176,465 Price (T.) Rowe & Associates, Inc.................... 6,628,466
101,855 SunAmerica, Inc. .................................... 5,850,297
------------
29,207,514
------------
Food & Beverage Products - 5.7%
12,560 Coca Cola Co......................................... 1,073,880
138,780 Interstate Bakeries Corp............................. 4,605,761
173,160 Philip Morris Companies, Inc......................... 6,818,175
145,630 *Safeway, Inc. ...................................... 5,925,321
------------
18,423,137
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 19.6%
25,790 Abbott Laboratories..................... $ 1,054,166
84,450 Bristol-Myers Squibb Co................. 9,706,472
203,105 HBO & Co. .............................. 7,159,451
116,210 *Health Care & Retirement Corp.......... 4,583,032
212,550 *Health Management Associates, Inc.
Cl. A.................................. 7,107,141
13,215 Johnson & Johnson....................... 974,606
85,175 Merck & Co., Inc........................ 11,392,156
250,325 *Orthodontic Centers of America, Inc.... 5,241,180
109,855 *Quintiles Transnational Corp........... 5,403,493
182,535 *Quorum Health Group, Inc............... 4,831,473
105,435 *Universal Health Services, Inc. Cl. B.. 6,154,768
------------
63,607,938
------------
Information Services & Technology -
15.2%
122,695 *BMC Software, Inc...................... 6,372,472
108,640 *Computer Horizons Corp................. 4,026,470
83,310 *Dell Computer Corp..................... 7,732,209
11,105 Intel Corp.............................. 823,158
121,525 *Microsoft Corp. ....................... 13,170,272
118,405 *Peoplesoft, Inc. ...................... 5,565,035
153,810 *PMC-Sierra, Inc........................ 7,209,844
115,865 *Transaction Systems Architects, Inc.
Cl. A.................................. 4,460,802
------------
49,360,262
------------
Metal Products & Services - 0.7%
69,420 USX United States Steel Group........... 2,290,860
------------
Oil Field Services - 1.8%
124,860 *BJ Services Co., Inc................... 3,628,744
130,680 ENSCO International, Inc................ 2,270,565
------------
5,899,309
------------
Pharmaceuticals - 5.8%
90,215 Pfizer, Inc............................. 9,805,243
99,000 Schering-Plough Corp.................... 9,070,875
------------
18,876,118
------------
Publishing, Broadcasting &
Entertainment - 1.8%
116,945 Omnicom Group, Inc...................... 5,832,632
------------
Retailing & Wholesale - 5.6%
114,910 *Costco Companies, Inc.................. 7,246,512
100,480 Ethan Allen Interiors, Inc.............. 5,017,720
239,640 TJX Co., Inc............................ 5,781,315
------------
18,045,547
------------
Total Common Stocks
(cost $245,145,175).................... $315,529,750
------------
</TABLE>
62
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 7.3%
Repurchase Agreement - 6.8%
$22,111,838 Dresdner Bank AG 5.70%, purchased 6/30/98, maturing
7/1/98, maturity value $22,115,339
(cost $22,111,838) (a)............................ $ 22,111,838
------------
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$22,225,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest - $22,554,091.
Summary of Abbreviations:
ADR American Depository Receipt
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
Money Market Shares - 0.5%
1,526,516 Valiant General Fund 5.44%, 7/1/98 (cost
$1,526,516)........................................ $ 1,526,516
------------
Total Short-Term Investments (cost $23,638,354)..... $ 23,638,354
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $268,783,529)......................... 104.7% 339,168,104
Other Assets and Liabilities - net........... (4.7) (15,262,772)
----- ------------
Net Assets................................... 100.0% $323,905,332
===== ============
</TABLE>
63
<PAGE>
Schedule of Investments
June 30, 1998
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 92.2%
Automotive Equipment & Manufacturing - 1.3%
58,500 Goodyear Tire & Rubber Co. .......................... $ 3,769,594
------------
Banks - 23.9%
150,000 BankBoston Corp. .................................... 8,343,750
27,000 Bankers Trust Corp. ................................. 3,133,687
120,000 Chase Manhattan Corp. ............................... 9,060,000
55,000 Citicorp............................................. 8,208,750
39,750 First Chicago NBD Corp. ............................. 3,522,844
100,000 Fleet Financial Group, Inc. ......................... 8,350,000
110,000 NationsBank Corp. ................................... 8,415,000
70,000 PNC Bank Corp. ...................................... 3,766,875
65,000 SouthTrust Corp. .................................... 2,827,500
120,000 Summit Bancorp....................................... 5,700,000
130,000 Union Planters Corp. ................................ 7,645,625
------------
68,974,031
------------
Business Equipment &
Services - 0.4%
51,000 *Stratus Computer, Inc. ............................. 1,290,938
------------
Capital Goods - 1.4%
84,500 Case Corp. .......................................... 4,077,125
------------
Electrical Equipment &
Services - 0.6%
105,000 *Silicon Valley Group, Inc. ......................... 1,686,563
------------
Finance & Insurance - 10.9%
35,000 Allstate Corp. ...................................... 3,204,687
85,000 Countrywide Credit Industries, Inc. ................. 4,313,750
40,000 Lehman Brothers Holdings, Inc. ...................... 3,102,500
60,000 Loews Corp. ......................................... 5,227,500
82,000 Merrill Lynch & Co., Inc. ........................... 7,564,500
60,000 Nationwide Financial Services, Inc. Cl. A............ 3,060,000
103,600 ReliaStar Financial Corp. ........................... 4,972,800
------------
31,445,737
------------
Food & Beverage Products - 3.6%
40,000 Fortune Brands, Inc. ................................ 1,537,500
221,000 Philip Morris Companies, Inc. ....................... 8,701,875
------------
10,239,375
------------
Healthcare Products &
Services - 4.3%
68,000 Bristol-Myers Squibb Co. ............................ 7,815,750
145,000 *Tenet Healthcare Corp. ............................. 4,531,250
------------
12,347,000
------------
Information Services & Technology - 6.4%
80,000 Intel Corp. ......................................... 5,930,000
62,800 International Business Machines Corp. ............... 7,210,225
124,000 *Sun Microsystems, Inc. ............................. 5,386,250
------------
18,526,475
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C> <C> <C> <C>
COMMON STOCKS - continued
Manufacturing - Distributing - 2.3%
78,500 Philips Electronics NV.................. $ 6,672,500
------------
Metal Products & Services - 2.6%
30,442 Alumax, Inc. ........................... 1,411,748
62,100 Aluminum Co. of America................. 4,094,718
60,000 *USX United States Steel Group.......... 1,980,000
------------
7,486,466
------------
Oil/Energy - 11.9%
56,000 Atlantic Richfield Co. ................. 4,375,000
125,500 Cabot Corp. ............................ 4,055,219
95,000 Mobil Corp. ............................ 7,279,375
55,000 Texaco, Inc. ........................... 3,282,812
170,000 Tosco Corp. ............................ 4,993,750
96,000 Ultramar Diamond Shamrock Corp. ........ 3,030,000
220,000 Williams Companies, Inc. ............... 7,425,000
------------
34,441,156
------------
Oil Field Services - 2.5%
65,600 Diamond Offshore Drilling, Inc. ........ 2,624,000
200,000 *R & B Falcon Corp. .................... 4,525,000
------------
7,149,000
------------
Publishing, Broadcasting &
Entertainment - 2.4%
240,000 *News Corp. Ltd......................... 6,780,000
------------
Real Estate - 1.0%
90,000 FelCor Suite Hotels, Inc. REIT.......... 2,823,750
------------
Retailing & Wholesale - 1.9%
90,000 Sears, Roebuck & Co. ................... 5,495,625
------------
Telecommunication Services & Equipment -
2.4%
94,500 *Nokia Corp. ADR........................ 6,857,156
------------
Textile & Apparel - 1.8%
100,000 V. F. Corp. ............................ 5,150,000
------------
Transportation - 1.7%
51,000 Burlington Northern Santa Fe............ 5,007,563
------------
Utilities - Electric - 5.0%
138,000 Houston Industries, Inc. ............... 4,260,750
216,000 PacifiCorp.............................. 4,887,000
60,000 Pinnacle West Capital Corp. ............ 2,700,000
70,000 UtiliCorp United, Inc. ................. 2,638,125
------------
14,485,875
------------
Utilities - Gas - 1.4%
104,000 NICOR Inc. ............................. 4,173,000
------------
Utilities - Telephone - 2.5%
158,250 Century Telephone Enterprises, Inc. .... 7,259,719
------------
Total Common Stocks
(cost $205,372,775).................... 266,138,648
------------
</TABLE>
64
<PAGE>
Schedule of Investments(continued)
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 6.7%
Repurchase Agreement - 5.5%
$15,745,810 Dresdner Bank AG 5.70%,
purchased 6/30/98, maturing 7/1/98, maturity value
$15,748,303
(cost $15,745,810) (a)............................ $ 15,745,810
------------
</TABLE>
* Non-income producing securities.
(a) At June 30, 1998, the repurchase agreement was collateralized by:
$1,585,000 U.S. Treasury Notes, 4.75%, 8/31/98; value including ac-
crued interest -$1.508,469 and $12,746,000 U.S. Treasury Notes,
7.50%, 2/15/05; value including accrued interest - $14,456,764.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - continued
Money Market Shares - 1.2%
3,448,384 Valiant General Fund
5.44%, 7/1/98
(cost $3,448,384) .................................. $ 3,448,384
------------
Total Short-Term Investments
(cost $19,194,194).................................. $ 19,194,194
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -
(cost $224,566,969)............................ 98.9% 285,332,842
Other Assets and
Liabilities - net.............................. 1.1 3,187,551
----- ------------
Net Assets...................................... 100.0% $288,520,393
===== ============
</TABLE>
65
<PAGE>
Statements of Assets and Liabilities
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Common Diversified Equity Large Cap
Balanced Stock Value Income Blend
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at value
(identified cost,
$682,184,094,
$1,359,984,791,
$747,569,777,
$173,415,809 and
$390,525,400,
respectively)......... $722,648,192 $1,971,072,909 $811,055,400 $205,780,408 $511,067,050
Cash................... 4,968 740 0 49 52
Receivable for
investments sold...... 577,692 0 938,391 0 536,152
Receivable for Fund
shares sold........... 50,034 1,021,781 82,349 4,199 392,719
Dividends and interest
receivable............ 5,305,995 2,461,068 902,254 562,665 485,646
Prepaid expenses and
other assets.......... 50,296 50,608 49,831 40,946 59,434
- --------------------------------------------------------------------------------------------
Total assets........... 728,637,177 1,974,607,106 813,028,225 206,388,267 512,541,053
- --------------------------------------------------------------------------------------------
Liabilities
Payable for investments
purchased............. 0 0 9,262,180 0 0
Payable for Fund shares
redeemed.............. 3,239,849 1,193,328 5,349,622 178,433 23,583
Distributions payable.. 734,539 1,070,163 107,785 259,692 238,113
Advisory fee payable... 296,196 920,719 323,933 105,757 236,566
Distribution Plan
expenses payable...... 41 2,833 106 585 28
Due to related
parties............... 16,454 45,413 15,380 4,593 11,254
Accrued expenses and
other liabilities..... 285,010 714,713 407,123 94,006 164,932
- --------------------------------------------------------------------------------------------
Total liabilities...... 4,572,089 3,947,169 15,466,129 643,066 674,476
- --------------------------------------------------------------------------------------------
Net assets.............. $724,065,088 $1,970,659,937 $797,562,096 $205,745,201 $511,866,577
- --------------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital........ $676,887,742 $1,198,233,538 $716,619,504 $159,813,673 $339,345,988
Undistributed net
investment income..... 76,045 15,911 84,835 46,652 48,469
Accumulated net
realized gain on
investments and
written options....... 6,637,203 161,322,370 17,372,134 13,520,277 51,930,470
Net unrealized
appreciation of
investments........... 40,464,098 611,088,118 63,485,623 32,364,599 120,541,650
- --------------------------------------------------------------------------------------------
Total net assets....... $724,065,088 $1,970,659,937 $797,562,096 $205,745,201 $511,866,577
- --------------------------------------------------------------------------------------------
Net assets consist of
Class I................ $723,849,913 $1,952,435,832 $797,352,128 $204,247,804 $ 14,031,957
Class IS............... 215,175 18,224,105 209,968 1,497,397 300,748
Class IC............... -- -- -- -- 497,533,872
- --------------------------------------------------------------------------------------------
Total net assets....... $724,065,088 $1,970,659,937 $797,562,096 $205,745,201 $511,866,577
- --------------------------------------------------------------------------------------------
Shares outstanding
Class I................ 54,054,313 21,087,281 30,406,454 2,294,102 276,555
Class IS............... 16,038 208,674 8,099 16,815 5,927
Class IC............... -- -- -- -- 9,805,599
- --------------------------------------------------------------------------------------------
Net asset value per
share
Class I................ $ 13.39 $ 92.59 $ 26.22 $ 89.03 $ 50.74
Class IS............... $ 13.42 $ 87.33 $ 25.93 $ 89.05 $ 50.74
Class IC............... -- -- -- -- $ 50.74
- --------------------------------------------------------------------------------------------
</TABLE>
66
<PAGE>
Statements of Assets and Liabilities
June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Small Cap Small Social Strategic Strategic
Growth Company Value Principles Growth Value
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at value
(identified cost,
$66,841,097,
$69,966,153,
$118,269,394,
$268,783,529, and
$224,566,969,
respectively).......... $70,250,068 $67,351,940 $171,923,062 $339,168,104 $285,332,842
Cash................... 807 1,871 709 1,832 138
Receivable for
investments sold...... 568,417 0 0 0 0
Receivable for Fund
shares sold........... 139,000 10,331,666 9,440,000 10,003,014 11,402,108
Dividends and interest
receivable............ 3,391 42,655 46,782 193,998 334,274
Prepaid expenses and
other assets.......... 12,890 43,330 58,379 144,969 54,819
- --------------------------------------------------------------------------------------------
Total assets........... 70,974,573 77,771,462 181,468,932 349,511,917 297,124,181
- --------------------------------------------------------------------------------------------
Liabilities
Payable for investments
purchased............. 1,651,726 75,625 1,507,448 22,457,652 5,821,932
Payable for Fund shares
redeemed.............. 0 200 0 2,864,459 2,372,729
Distributions payable.. 0 472 0 50,207 206,136
Advisory fee payable... 37,388 24,681 92,232 141,078 131,023
Distribution Plan
expenses payable...... 0 0 19 502 231
Due to related
parties............... 850 1,284 2,992 6,519 12,104
Accrued expenses and
other liabilities..... 1,121 22,399 68,501 86,168 59,633
- --------------------------------------------------------------------------------------------
Total liabilities...... 1,691,085 124,661 1,671,192 25,606,585 8,603,788
- --------------------------------------------------------------------------------------------
Net assets.............. $69,283,488 $77,646,801 $179,797,740 $323,905,332 $288,520,393
- --------------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital........ $67,292,547 $79,879,678 $119,998,383 $220,817,878 $219,916,585
Undistributed net
investment income..... (334) 69,313 60,566 85,171 75,764
Accumulated net
realized gain (loss)
on investments and
written options....... (1,417,696) 312,023 6,085,130 32,617,708 7,762,171
Net unrealized
appreciation
(depreciation) of
investments........... 3,408,971 (2,614,213) 53,653,661 70,384,575 60,765,873
- --------------------------------------------------------------------------------------------
Total net assets....... $69,283,488 $77,646,801 $179,797,740 $323,905,332 $288,520,393
- --------------------------------------------------------------------------------------------
Net assets consist of
Class I................ $69,283,488 $77,646,801 $ 2,405,115 $321,531,944 $287,193,535
Class IS............... -- -- 205,357 2,373,388 1,326,858
Class IC............... -- -- 177,187,268 -- --
- --------------------------------------------------------------------------------------------
Total net assets....... $69,283,488 $77,646,801 $179,797,740 $323,905,332 $288,520,393
- --------------------------------------------------------------------------------------------
Shares outstanding
Class I................ 5,279,958 7,697,902 61,734 8,371,272 1,270,663
Class IS............... -- -- 5,274 61,872 5,870
Class IC............... -- -- 4,548,815 -- --
- --------------------------------------------------------------------------------------------
Net asset value per
share
Class I................ $ 13.12 $ 10.09 $ 38.96 $ 38.41 $ 226.02
Class IS............... -- -- $ 38.94 $ 38.36 $ 226.04
Class IC............... -- -- $ 38.95 -- --
- --------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
Statements of Operations
Period Ended June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Common Diversified Equity Large Cap
Balanced Stock Value Income Blend
Fund** Fund* Fund** Fund* Fund*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $9,552,
$121,941, $29,018, $0
and $8,863,
respectively).......... $ 2,692,823 $ 17,408,809 $ 6,339,698 $ 3,492,953 $ 3,931,410
Interest................ 8,687,526 1,987,284 666,341 911,449 458,775
- ---------------------------------------------------------------------------------------------
Total income........... 11,380,349 19,396,093 7,006,039 4,404,402 4,390,185
- ---------------------------------------------------------------------------------------------
Expenses
Advisory fee............ 1,954,563 8,171,550 2,181,562 862,925 2,031,616
Administrative service
fees................... 91,334 340,218 99,311 35,771 84,104
Distribution Plan
expenses............... 114 8,623 435 815 186
Transfer agent fees..... 195,483 2,405 93,370 171 184
Trustees fees........... 7,837 35,403 6,185 2,956 6,873
Registration fees....... 238,593 560,215 244,460 105,173 167,766
Custodian fees.......... 82,011 311,190 156,469 33,350 75,457
Professional fees....... 20,417 33,356 20,747 17,349 20,122
Printing................ 5,753 26,591 43,582 11,257 11,797
Organization expense.... 0 0 0 0 0
Other................... 4,229 45,240 5,318 10,707 13,698
- ---------------------------------------------------------------------------------------------
Total expenses......... 2,600,334 9,534,791 2,851,439 1,080,474 2,411,803
Less:Indirectly paid
expenses............... (571) (4,059) (439) (5,833) (4,131)
Fee waivers and/or
reimbursement from
investment adviser... (325,761) (1,350,561) (363,594) (124,620) (346,847)
- ---------------------------------------------------------------------------------------------
Net expenses........... 2,274,002 8,180,171 2,487,406 950,021 2,060,825
- ---------------------------------------------------------------------------------------------
Net investment income... 9,106,347 11,215,922 4,518,633 3,454,381 2,329,360
- ---------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments
Net realized gain on:
Investments............ 6,632,946 161,218,815 17,369,461 13,274,016 51,925,395
Written options........ 0 0 0 233,192 0
- ---------------------------------------------------------------------------------------------
Net realized gain on
investments and written
options................ 6,632,946 161,218,815 17,369,461 13,507,208 51,925,395
- ---------------------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) of
investments............ 40,464,098 53,230,680 63,485,623 (9,422,160) 5,211,744
- ---------------------------------------------------------------------------------------------
Net realized and
unrealized gain on
investments and written
options................ 47,097,044 214,449,495 80,855,084 4,085,048 57,137,139
- ---------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............. $56,203,391 $225,665,417 $85,373,717 $ 7,539,429 $59,466,499
- ---------------------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
** For the period from January 22, 1998 (commencement of operations) to June
30, 1998.
68
<PAGE>
Statements of Operations
Period Ended June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Small Cap Small Social Strategic Strategic
Growth Company Value Principles Growth Value
Fund*** Fund** Fund* Fund* Fund*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $0, $0,
$7,987, $0 and $21,024,
respectively).......... $ 34,625 $ 259,140 $ 823,054 $ 1,165,952 $ 2,293,823
Interest................ 46,145 130,522 137,705 443,574 375,250
- ---------------------------------------------------------------------------------------------
Total income........... 80,770 389,662 960,759 1,609,526 2,669,073
- ---------------------------------------------------------------------------------------------
Expenses
Advisory fee............ 166,954 208,402 782,703 1,235,649 930,128
Administrative service
fees................... 2,997 6,312 28,339 51,570 38,249
Distribution Plan
expenses............... 0 0 102 4,792 334
Transfer agent fees..... 283 62 120 8,516 312
Trustees fees........... 124 233 1,926 4,117 2,999
Registration fees....... 7,850 44,538 98,598 96,431 85,102
Custodian fees.......... 1,836 2,776 25,537 49,947 35,049
Professional fees....... 15,959 15,306 16,708 18,186 14,946
Printing................ 8,297 11,599 11,451 11,184 9,240
Organization expense.... 1,333 0 0 0 0
Other................... 5,696 2,210 6,978 6,185 8,590
- ---------------------------------------------------------------------------------------------
Total expenses......... 211,329 291,438 972,462 1,486,577 1,124,949
Less: Indirectly paid
expenses............... (410) (1,719) (984) (300) (1,953)
Fee waivers and/or
reimbursement from
investment adviser... 0 (58,160) (129,970) (210,851) (132,876)
- ---------------------------------------------------------------------------------------------
Net expenses............ 210,919 231,559 841,508 1,275,426 990,120
- ---------------------------------------------------------------------------------------------
Net investment income
(loss)................. (130,149) 158,103 119,251 334,100 1,678,953
- ---------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments
Net realized gain on:
Investments............ 407,197 302,967 6,082,094 32,617,708 7,762,171
Written options........ 0 0 0 0 0
- ---------------------------------------------------------------------------------------------
Net realized gain on
investments and written
options................ 407,197 302,967 6,082,094 32,617,708 7,762,171
- ---------------------------------------------------------------------------------------------
Net change in unrealized
appreciation
(depreciation) of
investments............ (1,425,687) (2,614,213) 4,046,653 17,033,702 12,371,066
- ---------------------------------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments and
written options........ (1,018,490) (2,311,246) 10,128,747 49,651,410 20,133,237
- ---------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations........ $(1,148,639) $(2,153,143) $10,247,998 $49,985,510 $21,812,190
- ---------------------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
** For the period from December 23, 1997 (commencement of operations) to June
30, 1998.
*** For the period from March 1, 1998 to June 30, 1998. The Fund changed its
fiscal year end from February 28 to June 30, effective June 30, 1998.
69
<PAGE>
Statement of Operations
Year Ended February 28, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Small Cap
Growth
Fund
- ---------------------------------------------------------------------------------
<S> <C>
Investment income
Dividends.......................................................... $ 64,120
Interest........................................................... 60,628
- ---------------------------------------------------------------------------------
Total income...................................................... 124,748
- ---------------------------------------------------------------------------------
Expenses
Advisory fee....................................................... 223,252
Administrative service fees........................................ 4,949
Organization expenses.............................................. 3,990
Trustees fees...................................................... 1,407
Transfer agent fees................................................ 130
Other.............................................................. 32,975
- ---------------------------------------------------------------------------------
Total expenses.................................................... 266,703
- ---------------------------------------------------------------------------------
Less: Indirectly paid expenses..................................... (856)
Fee waiver and/or reimbursement from Investment Advisor.......... (6,907)
- ---------------------------------------------------------------------------------
Net expenses...................................................... 258,940
- ---------------------------------------------------------------------------------
Net investment loss................................................ (134,192)
- ---------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
Realized loss on investments ...................................... (415,947)
Net change in unrealized appreciation of investments............... 4,981,029
- ---------------------------------------------------------------------------------
Net realized and unrealized gain on investments.................... 4,565,082
- ---------------------------------------------------------------------------------
Net increase in net assets resulting from operations............... $4,430,890
- ---------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
Statements of Changes in Net Assets
Period Ended June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Common Diversified Equity Large Cap
Balanced Stock Value Income Blend
Fund** Fund* Fund** Fund* Fund*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income... $ 9,106,347 $ 11,215,922 $ 4,518,633 $ 3,454,381 $ 2,329,360
Net realized gain on
investments and
written options........ 6,632,946 161,218,815 17,369,461 13,507,208 51,925,395
Net change in
unrealized
appreciation
(depreciation) of
investments............ 40,464,098 53,230,680 63,485,623 (9,422,160) 5,211,744
- ----------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 56,203,391 225,665,417 85,373,717 7,539,429 59,466,499
- ----------------------------------------------------------------------------------------------------
Distributions to
shareholders
From net investment
income
Class I................. (9,096,812) (11,166,520) (4,502,185) (3,446,367) (22,658)
Class IS................ (1,320) (29,555) (1,220) (8,014) (399)
Class IC................ 0 0 0 0 (2,306,303)
In excess of net
investment income
Class I................. 0 0 0 (20,379) (7,310)
Class IS................ 0 0 0 (1,453) (76)
Class IC................ 0 0 0 0 (50,974)
- ----------------------------------------------------------------------------------------------------
Total distributions to
shareholders........... (9,098,132) (11,196,075) (4,503,405) (3,476,213) (2,387,720)
- ----------------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 794,145,003 1,978,861,338 844,178,135 224,077,449 502,787,135
Payment of shares
redeemed............... (121,943,214) (222,735,836) (130,961,973) (22,411,624) (48,017,312)
Proceeds from
reinvestment of
distributions.......... 4,758,040 65,093 3,475,622 16,160 17,975
- ----------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 676,959,829 1,756,190,595 716,691,784 201,681,985 454,787,798
- ----------------------------------------------------------------------------------------------------
Total increase in net
assets............... 724,065,088 1,970,659,937 797,562,096 205,745,201 511,866,577
Net assets
Beginning of period..... 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------
End of period........... $ 724,065,088 $1,970,659,937 $ 797,562,096 $205,745,201 $511,866,577
- ----------------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ 76,045 $ 15,911 $ 84,835 $ 46,652 $ 48,469
- ----------------------------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
** For the period from January 22, 1998 (commencement of operations) to June
30, 1998.
71
<PAGE>
Statements of Changes in Net Assets
Period Ended June 30, 1998
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Small Cap Small Social Strategic Strategic
Growth Company Value Principles Growth Value
Fund*** Fund** Fund* Fund* Fund*
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income
(loss)................. $ (130,149) $ 158,103 $ 119,251 $ 334,100 $ 1,678,953
Net realized gain on
investments and
written options........ 407,197 302,967 6,082,094 32,617,708 7,762,171
Net change in
unrealized
appreciation
(depreciation) of
investments............ (1,425,687) (2,614,213) 4,046,653 17,033,702 12,371,066
- -----------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets resulting from
operations............ (1,148,639) (2,153,143) 10,247,998 49,985,510 21,812,190
- -----------------------------------------------------------------------------------------------
Distributions to
shareholders
From net investment
income
Class I................. 0 (152,163) (1,626) (325,046) (1,676,451)
Class IS................ 0 0 0 0 (2,273)
Class IC................ 0 0 (117,625) 0 0
In excess of net
investment income
Class I................. 0 0 0 0 0
Class IS................ 0 0 (42) 0 0
Class IC................ 0 0 (43,272) 0 0
- -----------------------------------------------------------------------------------------------
Total distributions to
shareholders........... 0 (152,163) (162,565) (325,046) (1,678,724)
- -----------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 24,034,367 86,504,946 181,779,780 341,558,248 284,680,865
Payment of shares
redeemed............... (1,126,600) (6,702,683) (12,070,972) (67,348,327) (16,580,621)
Proceeds from
reinvestment of
distributions.......... 0 149,844 3,499 34,947 286,683
- -----------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 22,907,767 79,952,107 169,712,307 274,244,868 268,386,927
- -----------------------------------------------------------------------------------------------
Total increase in net
assets............... 21,759,128 77,646,801 179,797,740 323,905,332 288,520,393
Net assets
Beginning of period..... 47,524,360 0 0 0 0
- -----------------------------------------------------------------------------------------------
End of period........... $69,283,488 $77,646,801 $179,797,740 $323,905,332 $288,520,393
- -----------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ (334) $ 69,313 $ 60,566 $ 85,171 $ 75,764
- -----------------------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
** For the period from December 23, 1997 (commencement of operations) to June
30, 1998.
*** For the period from March 1, 1998 to June 30, 1998. The Fund changed its
fiscal year end from February 28 to June 30, effective June 30, 1998.
72
<PAGE>
Statements of Changes in Net Assets
Periods Ended February 28, 1998 and 1997
See Combined Notes to Financial Statements.
<TABLE>
<CAPTION>
Small Cap
Growth Fund
-----------------------
1998 1997*
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment loss.................................. $ (134,192) $ (9,482)
Net realized loss on investments..................... (415,947) 398,376
Net change in unrealized appreciation on
investments......................................... 4,981,029 (462,663)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations......................................... 4,430,890 (73,769)
- -------------------------------------------------------------------------------
Distributions to shareholders
From net realized gain on investments................ (1,657,057) (35,700)
- -------------------------------------------------------------------------------
Total distributions to shareholders.................. (1,657,057) (35,700)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold............................ 42,857,020 517,700
Proceeds from reinvestment of distributions.......... (2,634,970) 0
Payment for shares redeemed.......................... 1,640,345 34,000
- -------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions................................. 41,862,395 551,700
- -------------------------------------------------------------------------------
Total increase in net assets....................... 44,636,228 442,231
Net assets
Beginning of year.................................... 2,888,132 2,445,901
- -------------------------------------------------------------------------------
End of year, including accumulated net investment
loss of $320 and $0, respectively................... $47,524,360 $2,888,132
- -------------------------------------------------------------------------------
</TABLE>
* For the eight-month period ended February 28, 1997. The Fund changed its
fiscal year end from June 30 to the last day of February effective February
28, 1997.
73
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Select Equity Funds (the "Funds") consist of Evergreen Select
Balanced Fund ("Balanced"), Evergreen Select Common Stock Fund ("Common
Stock"), Evergreen Select Diversified Value Fund ("Diversified Value"), Ever-
green Select Equity Income Fund ("Equity Income"), Evergreen Select Large Cap
Blend Fund ("Large Cap"), Evergreen Select Small Cap Growth Fund ("Small Cap"),
Evergreen Select Small Company Value Fund ("Small Company"), Evergreen Select
Social Principles Fund ("Social Principles"), Evergreen Select Strategic Growth
Fund ("Strategic Growth") and Evergreen Select Strategic Value Fund ("Strategic
Value"), each of which is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as diversified, open-end management investment
companies. Each of the Funds is a separate series of Evergreen Select Equity
Trust (the "Trust"), a Delaware business trust organized on September 17, 1997.
The Funds offer an Institutional Class of shares ("Class I") and an Institu-
tional Service Class of shares ("Class IS"). Additionally, Large Cap and Social
Principles offer an Institutional Charitable Class of shares ("Class IC"). Each
Class of shares is sold without a front-end sales charge or contingent deferred
sales charge. Class IS shares pay an ongoing service fee. Class I and Class IS
shares are available to institutional investors through broker dealers, banks
and other financial intermediaries. Class IC shares are available only to those
investors that qualify as a non-profit organization under the Internal Revenue
Code. Such organizations would include charitable trusts, non-profit hospitals,
private foundations, private schools and colleges, public charities, religious
entities and charitable remainder trusts.
The investment adviser to all the Funds, except Small Cap and Small Company, is
First Union National Bank ("FUNB"), a subsidiary of First Union Corporation
("First Union"). Keystone Investment Management Company ("Keystone"), a wholly-
owned subsidiary of First Union Corporation ("First Union"), is the investment
adviser to Small Cap. The investment adviser to Small Company is Evergreen As-
set Management Corp. ("Evergreen Asset"), a wholly-owned subsidiary of First
Union. Lieber & Company, a wholly-owned subsidiary of First Union, provides
certain sub-advisory services to Evergreen Asset in connection with its duties
as investment advisor to Small Cap.
2. CONVERSION INFORMATION
On November 24, 1997, the Common Stock, Equity Income, Strategic Growth and
Strategic Value Funds commenced operations of their respective Class I shares
as a result of a conversion of common trust funds managed by FUNB. Also, on
that date, the Large Cap and Social Principles Funds commenced operations of
their respective Class IC shares as a result of similar common trust fund con-
versions. The following chart summarizes pertinent data related to each Fund on
the date of conversion:
<TABLE>
<CAPTION>
Common Equity Large
Stock Income Cap
---------------------------------------
<S> <C> <C> <C>
Shares issued................. 22,828,425 2,271,990 10,264,770
Net assets.................... $1,894,078,143 $198,356,197 $462,393,873
Net asset value per share..... $ 82.97 $ 87.31 $ 45.05
Unrealized appreciation of
Investments.................. $ 557,857,438 $ 41,786,759 $115,329,906
<CAPTION>
Social Strategic Strategic
Principles Growth Value
---------------------------------------
<S> <C> <C> <C>
Shares issued................. 4,293,581 5,750,026 831,617
Net assets.................... $ 157,379,236 $186,600,811 $169,109,520
Net asset value per share..... $ 36.65 $ 32.45 $ 203.35
Unrealized appreciation of
Investments.................. $ 49,607,008 $ 53,350,873 $ 48,394,807
</TABLE>
The forgoing amounts are reflected in proceeds from shares sold in the state-
ments of changes in net assets.
3. ACQUISITION INFORMATION
Immediately following the common trust fund conversion, on November 24, 1997,
Strategic Growth acquired substantially all of the net assets of Equity Growth
Fund, a common trust fund managed by FUNB. The net assets were acquired through
a taxable exchange for 2,517,542 Class I shares of Strategic Growth, valued at
$32.45 per share. The acquired net assets consisted primarily of portfolio se-
curities with unrealized apprecia-
74
<PAGE>
Combined Notes to Financial Statements(continued)
tion of $25,897,713. The aggregate net assets of Equity Growth and Strategic
Growth immediately prior to the acquisition were $81,699,736 and $186,600,811,
respectively. The aggregate net assets and shares outstanding of Strategic
Growth immediately after the acquisition were $268,300,547 and 8,267,568, re-
spectively.
4. IN-KIND PURCHASE TRANSACTIONS
On January 21, 1998, the Evergreen Balanced Fund, Class Y, and Evergreen Value
Fund, Class Y, executed redemption in-kind transactions of $737,248,788 and
$793,367,277, respectively. These transactions resulted in the liquidation of
substantially all of the net assets of each Fund's Class Y shares. In turn, the
assets were transferred to Evergreen Select Balanced Fund Class I shares and
Evergreen Select Diversified Value Fund Class I shares.
On January 22, 1998, Balanced and Diversified Value commenced operations of
their respective Class I shares through in-kind purchases of shares in the fol-
lowing amounts:
<TABLE>
<CAPTION>
Diversified
Balanced Value
---------------------------
<S> <C> <C>
In-kind purchase amount....................... $737,248,788 $798,367,277
Shares issued................................. 58,643,231 33,532,392
</TABLE>
These amounts are reflected in proceeds from shares sold in the statements of
changes in net assets. In exchange for these shares, investment securities, ex-
cluding cash and cash equivalents, with a cost and market value of $708,705,595
and $774,879,156 were contributed to Balanced and Diversified Value, respec-
tively. Additionally, Balanced and Diversified Value received cash and cash
equivalents of $28,543,193 and $23,488,121, respectively, to complete the
transactions.
5. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements. The policies are in
conformity with generally accepted accounting principles, which require manage-
ment to make estimates and assumptions that affect amounts reported herein. Ac-
tual results could differ from these estimates.
A. Valuation of Securities
Securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") are valued at the last reported sales price on
the exchange where primarily traded. Securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the over-the-
counter market are valued at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which market quotations are not readily avail-
able, including restricted securities, are valued at fair value as determined
in good faith according to procedures approved by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees.
75
<PAGE>
Combined Notes to Financial Statements(continued)
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Small Cap, along with certain other funds managed by Keystone, may trans-
fer uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or federal agency obligations.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date.
D. Options Written
Equity Income is authorized to write covered call options. When the Fund writes
an option, an amount equal to the premium received is recorded as a liability
and is subsequently adjusted to the current market value of the written option.
Premiums received from writing options, which expire unexercised, are treated
by the Fund on the expiration date as realized gains from investments. The dif-
ference between the premium and the amount paid on effecting a closing purchase
transaction, including brokerage commissions, is treated as a realized gain or
loss. If a call option is exercised, the premium is added to the proceeds from
the sale of the underlying security in calculating the realized gain or loss on
the sale. The Fund as writer of an option bears the market risk of an unfavor-
able change in the price of the security underlying the written option.
E. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of ex-
change; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized appreciation (deprecia-
tion) on investments. Net realized foreign currency gains and losses resulting
from changes in exchange rates include: foreign currency gains and losses be-
tween trade date and settlement date on investment securities transactions,
foreign currency related transactions and the difference between the amounts of
interest and dividends recorded on the books of the Fund and the amount actu-
ally received. Such gains and losses are included in realized gain (loss) on
foreign currency related transactions. The portion of foreign currency gains
and losses related to fluctuations in exchange rates between the initial pur-
chase trade date and subsequent sale trade date is included in realized gain
(loss) on investments.
F. Federal Taxes
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). Thus, the Funds
will not incur any federal income tax liability since they are expected to dis-
tribute all of their net investment company taxable income, net tax-exempt in-
come and net capital gains, if any, to their shareholders. The Funds also in-
tend to avoid any excise tax liability by making the required distributions un-
der the Code. Accordingly, no provision for federal taxes is required. To the
extent that realized capital gains can be offset by capital loss carryforwards,
it is each Fund's policy not to distribute such gains.
G. Distributions
Distributions from net investment income for the Funds are declared and paid
monthly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statement
amounts available for distribution and distributions made in accordance with
income tax
76
<PAGE>
Combined Notes to Financial Statements(continued)
regulations are primarily due to differing treatment for certain distributions
received from real estate investment trusts and certain operating expenses.
H. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for Class IS.
77
<PAGE>
Combined Notes to Financial Statements(continued)
6. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Funds are currently di-
vided into Class I, Class IS and Class IC. Transactions in shares of the Funds
were as follows:
Balanced
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
------------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold........................................... 62,963,666 $793,932,091
Shares redeemed....................................... (9,271,066) (121,943,214)
Shares issued in reinvestment of distributions........ 361,713 4,756,721
- --------------------------------------------------------------------------------
Class I--net increase................................. 54,054,313 $676,745,598
- --------------------------------------------------------------------------------
Class IS**
Shares sold........................................... 15,938 212,912
Shares issued in reinvestment of distributions........ 100 1,319
- --------------------------------------------------------------------------------
Class IS--net increase................................ 16,038 214,231
- --------------------------------------------------------------------------------
Balanced--net increase................................ $676,959,829
- --------------------------------------------------------------------------------
</TABLE>
* For the period from January 22, 1998 (commencement of class operations) to
June 30,1998.
** For the period from April 9, 1998 (commencement of class operations) to June
30, 1998
Common Stock
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
--------------------------
Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold........................................ 23,538,750 $1,957,108,914
Shares redeemed.................................... (2,451,922) (219,096,830)
Shares issued in reinvestment of distributions..... 453 40,719
- -------------------------------------------------------------------------------
Class I--net increase.............................. 21,087,281 1,738,052,803
- -------------------------------------------------------------------------------
Class IS**
Shares sold........................................ 250,305 21,752,424
Shares redeemed.................................... (41,914) (3,639,006)
Shares issued in reinvestment of distributions..... 283 24,374
- -------------------------------------------------------------------------------
Class IS--net increase............................. 208,674 18,137,792
- -------------------------------------------------------------------------------
Common Stock--net increase......................... $1,756,190,595
- -------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from February 4, 1998 (commencement of class operations) to
June 30, 1998.
Diversified Value
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
-------------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold.......................................... 35,285,849 $ 843,364,554
Shares redeemed...................................... (5,013,312) (130,385,842)
Shares issued in reinvestment of distributions....... 133,917 3,474,402
- --------------------------------------------------------------------------------
Class I--net increase................................ 30,406,454 716,453,114
- --------------------------------------------------------------------------------
Class IS**
Shares sold.......................................... 30,796 $ 813,581
Shares redeemed...................................... (22,745) (576,131)
Shares issued in reinvestment of distributions....... 48 1,220
- --------------------------------------------------------------------------------
Class IS--net increase............................... 8,099 238,670
- --------------------------------------------------------------------------------
Diversified Value--net increase...................... $ 716,691,784
- --------------------------------------------------------------------------------
</TABLE>
* For the period from March 31, 1998 (commencement of class operations) to
June 30, 1998.
** For the period from April 1, 1998 (commencement of class operations) to June
30, 1998.
78
<PAGE>
Combined Notes to Financial Statements(continued)
Equity Income
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
-----------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold............................................ 2,538,811 $222,155,844
Shares redeemed........................................ (244,829) (22,042,302)
Shares issued in reinvestment of distributions......... 120 10,787
- --------------------------------------------------------------------------------
Class I--net increase.................................. 2,294,102 200,124,329
- --------------------------------------------------------------------------------
Class IS**
Shares sold............................................ 20,878 1,921,605
Shares redeemed........................................ (4,122) (369,322)
Shares issued in reinvestment of distributions......... 59 5,373
- --------------------------------------------------------------------------------
Class IS--net increase................................. 16,815 1,557,656
- --------------------------------------------------------------------------------
Equity Income--net increase............................ $201,681,985
- --------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
Large Cap
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
------------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold........................................... 281,458 $ 13,881,808
Shares redeemed....................................... (5,242) (257,909)
Shares issued in reinvestment of distributions........ 339 16,702
- --------------------------------------------------------------------------------
Class I--net increase................................. 276,555 13,640,601
- --------------------------------------------------------------------------------
Class IS**
Shares sold........................................... 5,917 297,598
Shares issued in reinvestment of distributions........ 10 475
- --------------------------------------------------------------------------------
Class IS--net increase................................ 5,927 298,073
- --------------------------------------------------------------------------------
Class IC***
Shares sold........................................... 10,802,599 488,607,729
Shares redeemed....................................... (997,016) (47,759,403)
Shares issued in reinvestment of distributions........ 16 798
- --------------------------------------------------------------------------------
Class IC--net increase................................ 9,805,599 440,849,124
- --------------------------------------------------------------------------------
Large Cap--net increase............................... $454,787,798
- --------------------------------------------------------------------------------
</TABLE>
* For the period from December 19, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
*** For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
Small Cap
<TABLE>
<CAPTION>
Period Ended Year Ended
June 30, 1998* February 28,
---------------------- ---------------------------------------
1998 1997**
---------------------- ---------------
Shares Amount Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class I
Shares sold............. 1,770,376 $22,034,367 3,414,877 $42,857,020 43,108 $517,700
Shares redeemed......... (82,127) (1,126,600) (209,509) (2,634,970) 0 0
Shares issued in
reinvestment of
distributions.......... 0 0 130,289 1,640,345 2,944 34,000
- ----------------------------------------------------------------------------------------
Small Cap--net
increase............... 1,688,249 $20,907,767 3,335,657 $41,862,395 46,052 $551,700
- ----------------------------------------------------------------------------------------
</TABLE>
* For the period from March 1, 1998 to June 30, 1998 the fund changed its fis-
cal year end from February 28 to June 30, effective June 30, 1998.
** For the eight-month period ended February 28, 1997. The Fund changed its
fiscal year end from June 30 to the last day of February, effective February
28, 1997.
Small Company
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
----------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold............................................. 8,353,679 $86,504,946
Shares redeemed......................................... (669,991) (6,702,683)
Shares issued in reinvestment of distributions.......... 14,214 149,844
- --------------------------------------------------------------------------------
Small Company--net increase............................. 7,697,902 $79,952,107
- --------------------------------------------------------------------------------
</TABLE>
* For the period from December 23, 1997 (commencement of class operations) to
June 30, 1998.
79
<PAGE>
Combined Notes to Financial Statements(continued)
Social Principles
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
-----------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold............................................ 61,760 $ 2,208,624
Shares redeemed........................................ (59) (2,272)
Shares issued in reinvestment of distributions......... 33 1,243
- --------------------------------------------------------------------------------
Class I--net increase.................................. 61,734 2,207,595
- --------------------------------------------------------------------------------
Class IS**
Shares sold............................................ 5,274 207,409
- --------------------------------------------------------------------------------
Class IS---net increase................................ 5,274 207,409
- --------------------------------------------------------------------------------
Class IC*
Shares sold............................................ 4,876,095 179,363,747
Shares redeemed........................................ (327,340) (12,068,700)
Shares issued in reinvestment of distributions......... 60 2,256
- --------------------------------------------------------------------------------
Class IC--net increase................................. 4,548,815 167,297,303
- --------------------------------------------------------------------------------
Social Principles--net increase........................ $169,712,307
- --------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
Strategic Growth
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
------------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold........................................... 9,834,675 $324,746,855
Shares redeemed....................................... (1,464,385) (53,203,209)
Shares issued in reinvestment of distributions........ 982 34,947
- --------------------------------------------------------------------------------
Class I--net increase................................. 8,371,272 271,578,593
- --------------------------------------------------------------------------------
Class IS**
Shares sold........................................... 447,254 16,811,393
Shares redeemed....................................... (385,382) (14,145,118)
- --------------------------------------------------------------------------------
Class IS--net increase................................ 61,872 2,666,275
- --------------------------------------------------------------------------------
Strategic Growth--net increase........................ $274,244,868
- --------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from February 27, 1998 (commencement of class operations) to
June 30, 1998.
Strategic Value
<TABLE>
<CAPTION>
Period Ended
June 30, 1998
-----------------------
Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C>
Class I*
Shares sold............................................ 1,344,196 $283,217,426
Shares redeemed........................................ (74,798) (16,435,232)
Shares issued in reinvestment of distributions......... 1,265 284,542
- --------------------------------------------------------------------------------
Class I--net increase.................................. 1,270,663 267,066,736
- --------------------------------------------------------------------------------
Class IS**
Shares sold............................................ 6,502 1,463,439
Shares redeemed........................................ (641) (145,389)
Shares issued in reinvestment of distributions......... 9 2,141
- --------------------------------------------------------------------------------
Class IS--net increase................................. 5,870 1,320,191
- --------------------------------------------------------------------------------
Strategic Value--net increase.......................... $268,386,927
- --------------------------------------------------------------------------------
</TABLE>
* For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
** For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
80
<PAGE>
Combined Notes to Financial Statements(continued)
7. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term investments) were as follows for the period ended June 30, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-----------------------------
<S> <C> <C>
Balanced***
U.S. Government..................... $141,630,295 $142,509,357
Non-U.S. Government................. 125,697,639 156,253,885
Common Stock*........................ 416,524,098 545,518,319
Diversified Value***................. 458,312,202 514,946,171
Equity Income*
U.S. Government..................... 5,175,570 7,128,125
Non-U.S. Government................. 99,299,866 94,509,704
Large Cap*........................... 200,633,227 210,148,512
Small Cap****........................ 55,479,697 32,347,519
Small Company**...................... 76,824,803 9,905,317
Social Principles*................... 46,254,245 38,293,955
Strategic Growth*.................... 239,655,519 228,692,749
Strategic Value *.................... 104,259,737 24,885,431
</TABLE>
* For the period from November 24, 1997 (com-
mencement of operations) to June 30, 1998.
** For the period from December 23, 1997 (com-
mencement of operations) to June 30, 1998.
*** For the period from January 22, 1998 (com-
mencement of operations) to June 30, 1998.
**** For the period from March 1, 1998 to June
30, 1998.
On June 30, 1998, the composition of unrealized appreciation and depreciation
of investment securities based on the aggregate cost of investments for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation /
Tax Cost Appreciation Depreciation (Depreciation)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Balanced....... $ 684,681,999 $ 49,865,941 $11,899,748 $ 37,966,193
Common Stock... 1,361,779,517 663,870,247 54,576,855 609,293,392
Diversified
Value......... 747,567,104 77,580,983 14,092,687 63,488,296
Equity Income.. 173,380,815 38,524,420 6,124,827 32,399,593
Large Cap...... 390,520,325 127,746,380 7,199,655 120,546,725
Small Cap...... 66,973,201 6,981,282 3,704,415 3,276,867
Small Company.. 70,009,852 3,244,591 5,902,503 (2,657,912)
Social
Principles.... 118,266,424 56,039,436 2,382,798 53,656,638
Strategic
Growth........ 269,000,342 78,210,137 8,042,375 70,167,762
Strategic
Value......... 224,566,969 64,994,248 4,228,375 60,765,873
</TABLE>
As of June 30, 1998, Small Cap had a capital loss carryover for federal income
tax purposes of $1,349,000, expiring in 2006.
During the period ended June 30, 1998, the Equity Income Fund had the following
written call option activity:
<TABLE>
<CAPTION>
Number of
Contracts Premium
---------------------
<S> <C> <C>
Open written call options, beginning of
period...................................... 600 $233,192
Options written.............................. -- --
Options exercised............................ -- --
Options expired.............................. 600 233,192
---- --------
Open written call options, end of period..... 0 0
==== ========
</TABLE>
8. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds. Each Fund
has adopted a Distribution Plan for Class IS shares, as allowed by Rule 12b-1
of the 1940 Act. Distribution plans permit a fund to reimburse its principal
underwriter for costs related to selling shares of the fund and for various
other services. These costs, which consist primarily of commissions and service
fees to broker-dealers who sell shares of the fund, are paid by the fund
through expenses called "Distribution Plan expenses". Class IS, currently pays
a service fee equal to 0.25% of the average daily net asset of the class. Dis-
tribution Plan expenses are calculated daily and paid monthly.
81
<PAGE>
Combined Notes to Financial Statements(continued)
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
9. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The investment adviser to each Fund, other than Small Cap and Small Company, is
FUNB. Each Fund, other than Small Cap and Small Company, pays FUNB a fee for
its services as set forth below. The annual advisory fees are calculated daily
and paid monthly and are based on a percentage of average daily net assets.
<TABLE>
<CAPTION>
Annual
Advisory fee
------------
<S> <C>
Balanced............................................ 0.60%
Common Stock........................................ 0.70%
Diversified Value................................... 0.60%
Equity Income....................................... 0.70%
Large Cap........................................... 0.70%
Social Principles................................... 0.80%
Strategic Growth.................................... 0.70%
Strategic Value..................................... 0.70%
</TABLE>
Keystone is the investment adviser to Small Cap. In return for its Services,
Keystone is paid an annual advisory fee equal to 0.80% of the Funds first $100
million of average daily net assets and at reduced rates thereafter.
Evergreen Asset is the investment adviser to Small Company. Small Company pays
Evergreen Asset an annual fee of 0.90% of average daily net assets.
Leiber & Company is the investment sub-adviser to Small Company and also pro-
vides brokerage services with respect to substantially all security transac-
tions effected on either the New York or American Stock Exchanges. For the pe-
riod ended June 30, 1998, Small Company incurred $96,640, in brokerage commis-
sions with Leiber & Company. Leiber & Company is reimbursed by Evergreen Asset,
at no additional cost to the Fund, for its cost of providing investment advi-
sory services.
Each investment adviser, except Keystone, has voluntarily agreed to reduce the
investment advisory fee on each Fund by 0.10% and to reimburse a portion of
each Fund's annual operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses). For the period ended June 30, 1998,
the investment advisers voluntarily reduced their fees by the following
amounts:
<TABLE>
<CAPTION>
Fee
Reduction
----------
<S> <C>
Balanced.............................................. $ 325,761
Common Stock.......................................... 1,350,561
Diversified Value..................................... 363,594
Equity Income......................................... 124,620
Large Cap............................................. 346,847
Small Company......................................... 58,160
Social Principles..................................... 129,970
Strategic Growth...................................... 210,851
Strategic Value....................................... 132,876
</TABLE>
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and BISYS Fund Services is sub-administrator to the Funds. As ad-
ministrator, EIS provides the Funds with facilities, equipment and personnel.
As sub-administrator to the Funds, BISYS Fund Services provides the officers of
the Funds. The administrator and sub-administrator for each Fund are entitled
to an annual fee based on the average daily net assets of the funds adminis-
tered by EIS for which First Union or its investment advisory subsidiaries are
also the investment advisers. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of each Fund. The sub-ad-
ministration fee is calculated by applying percentage rates, which start at
0.01% and decline to .004% per annum as net assets increase, to the average
daily net asset value of each Fund.
82
<PAGE>
Combined Notes to Financial Statements(continued)
The following amounts were paid by each Fund to EIS during the period ended
June 30, 1998:
<TABLE>
<S> <C>
Balanced................................................ $ 74,090
Common Stock............................................ 275,702
Diversified Value....................................... 82,685
Equity Income........................................... 29,143
Large Cap............................................... 68,507
Small Cap............................................... 2,069
Small Company........................................... 5,285
Social Principles....................................... 23,040
Strategic Growth........................................ 41,643
Strategic Value......................................... 26,195
</TABLE>
Evergreen Service Company ("ESC"), a subsidiary of First Union, serves as the
transfer and dividend disbursing agent for the Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
10. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
11. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000. As of December 31, 1997, the value of the Trustees deferral account
for Balanced, Common Stock, Diversified Value, Equity Income, Large Cap, Small
Cap, Small Company, Social Principles, Strategic Growth and Strategic Value was
$2,014, $14,696, $2,244, $975, $2,977, $334, $89, $766, $1,742 and $978, re-
spectively.
12. FINANCING AGREEMENT
Small Cap is currently a party to a financing agreement among certain Evergreen
Funds, State Street Bank and Trust ("State Street") and a group of Banks (the
"Banks"). Under this agreement, the Banks provide an unsecured credit facility
in the aggregate amount of $400 million ($275 million committed and $125 mil-
lion uncommitted). The credit facility is allocated among the Banks, under the
terms of the financing agreement. The credit facility is to be accessed by the
Funds for temporary or emergency purposes only and is subject to each Fund's
borrowing restrictions. Borrowings under this facility bear interest at 0.50%
per annum above the Federal Funds rate. A commitment fee of 0.065% per annum
will be incurred on the unused portion of the committed facility, which will be
allocated to all Funds. State Street serves as administrative agent for the
Banks, and as administrative agent is entitled to a fee of $20,000 per annum
which is allocated to all of the Funds. Small Cap did not borrow under this
agreement during the period ended June 30, 1998.
83
<PAGE>
Independent Auditors' Report
The Trustees and Shareholders
Evergreen Select Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments, of the Evergreen Select Balanced Fund, Ever-
green Select Common Stock Fund, Evergreen Select Diversified Value Fund, Ever-
green Select Equity Income Fund, Evergreen Select Large Cap Blend Fund, Ever-
green Select Small Cap Growth Fund, Evergreen Select Small Company Value Fund,
Evergreen Select Social Principles Fund, Evergreen Select Strategic Growth Fund
and Evergreen Select Strategic Value Fund of Evergreen Select Equity Trust (the
Trust) as of June 30, 1998, and the related statements of operations, state-
ments of changes in net assets and financial highlights for each of the years
or periods presented below:
Evergreen Select Balanced Fund -- statements of operations and changes in
net assets for the period from January 22, 1998 (commencement of opera-
tions) to June 30, 1998 and financial highlights for the periods presented
on page 36.
Evergreen Select Common Stock Fund -- statements of operations and changes
in net assets for the period from November 24, 1997 (commencement of opera-
tions) to June 30, 1998 and financial highlights for the periods presented
on page 37.
Evergreen Select Diversified Value Fund -- statements of operations and
changes in net assets for the period from January 22, 1998 (commencement of
operations) to June 30, 1998 and financial highlights for the periods pre-
sented on page 38.
Evergreen Select Equity Income Fund -- statements of operations and changes
in net assets for the period from November 24, 1997 (commencement of opera-
tions) to June 30, 1998 and financial highlights for the periods presented
on page 39.
Evergreen Select Large Cap Blend Fund -- statements of operations and
changes in net assets for the period from November 24, 1997 (commencement
of operations) to June 30, 1998 and financial highlights for the periods
presented on page 40.
Evergreen Select Small Cap Growth Fund -- statements of operations for the
period from March 1, 1998 to June 30, 1998 and for the year ended February
28, 1998, statements of changes in net assets for the period from March 1,
1998 to June 30, 1998, the year ended February 28, 1998 and the eight
months ended February 28, 1997 and financial highlights for the periods
presented on page 41.
Evergreen Select Small Company Value Fund -- statements of operations and
changes in net assets for the period from December 23, 1997 (commencement
of operations) to June 30, 1998 and financial highlights for the periods
presented on page 42.
Evergreen Select Social Principles Fund -- statements of operations and
changes in net assets for the period from November 24, 1997 (commencement
of operations) to June 30, 1998 and financial highlights for the periods
presented on page 43.
Evergreen Select Strategic Growth Fund -- statements of operations and
changes in net assets for the period from November 24, 1997 (commencement
of operations) to June 30, 1998 and financial highlights for the periods
presented on page 44.
Evergreen Select Strategic Value Fund -- statements of operations and
changes in net assets for the period from November 24, 1997 (commencement
of operations) to June 30, 1998 and financial highlights for the periods
presented on page 45.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of June 30, 1998 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall fi-
nancial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Evergreen Select Balanced Fund, Evergreen Select Common Stock Fund, Evergreen
Select Diversified Value Fund, Evergreen Select Equity Income Fund, Evergreen
Select Large Cap Blend Fund, Evergreen Select Small Cap Growth Fund, Evergreen
Select Small Company Value Fund, Evergreen Select Social Principles Fund, Ever-
green Select Strategic Growth Fund and Evergreen Select Strategic Value Fund,
as of June 30, 1998 and the results of their operations, changes in their net
assets and financial highlights for the periods specified in the first para-
graph above in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
July 31, 1998
84
<PAGE>
Additional Information (Unaudited)
DIVIDENDS RECEIVED DEDUCTION (Unaudited)
For corporate shareholders, the following percentages of the dividends paid
during the fiscal year ended June 30, 1998 qualified for the dividends received
deduction.
<TABLE>
<S> <C>
Balanced.................................................. 11.26%
Common Stock.............................................. 100.00
Diversified Value......................................... 23.30
Equity Income............................................. 50.12
Large Cap................................................. 32.19
Small Cap................................................. 0.00
Small Company............................................. 25.86
Social Principles......................................... 100.00
Strategic Growth.......................................... 12.20
Strategic Value........................................... 57.40
</TABLE>
85
<PAGE>
EVERGREEN SELECT FUNDS
MONEY MARKET
Money Market Fund
Treasury Money Market Fund
100% Treasury Money Market Fund
Municipal Money Market Fund
MUNICIPAL FIXED
INCOME
Intermediate Tax Exempt Bond Fund
TAXABLE FIXED
INCOME
International Bond Fund
Total Return Bond Fund
Income Plus Fund
Core Bond Fund
Fixed Income Fund
Adjustable Rate Fund
Limited Duration Fund
GROWTH AND INCOME/BALANCED
Equity Income Fund
Balanced Fund
GROWTH
Small Company Growth Fund
Small CompanyValue Fund
Strategic Growth Fund
Common Stock Fund
Large Cap Blend Fund
Strategic Value Fund
Diversified Value Fund
Social Principles Fund
-------------------
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 19
HUDSON, MA
-------------------
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
200 BERKELEY STREET
BOSTON, MA 02116
<PAGE>
December 31, 1998
[ARTWORK APPEARS HERE]
Evergreen Select Semi Annual Report
Equity Funds
Evergreen Select Balanced Fund
Evergreen Select Equity Income Fund
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
<PAGE>
December 31, 1998
[ARTWORK APPEARS HERE]
Evergreen Select Semi Annual Report
Equity Funds
Evergreen Select Balanced Fund
Evergreen Select Equity Income Fund
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
<PAGE>
December 31, 1998
[ARTWORK APPEARS HERE]
Evergreen Select Semi Annual Report
Equity Funds
Evergreen Select Balanced Fund
Evergreen Select Equity Income Fund
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
The Evergreen Select Balanced Fund uses a systematic and disciplined investment
approach which provides exposure to both the equity and fixed income markets.
The basis of this approach is founded in the belief that stocks offer the
greatest long-term growth opportunities while bonds provide income and less risk
to principal.
Process
The Fund employs a blended approach to equity investing, utilizing companies
with both value- and growth-oriented characteristics. Within the fixed income
component, portfolio performance is enhanced while seeking to control risk by
managing duration, sector allocation and security selection.
Benchmark
S&P 500 and the Lehman Brothers
Government/Corporate Bond Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
- --------------------------------------------------------------------------------
6 months 3.53% 3.39%
- --------------------------------------------------------------------------------
1 year 11.30% 11.31%
- --------------------------------------------------------------------------------
3 years 14.65% 14.66%
- --------------------------------------------------------------------------------
5 years 13.34% 13.34%
- --------------------------------------------------------------------------------
Since Inception 12.86% 12.86%
- --------------------------------------------------------------------------------
6-month income dividends per share $0.25 $0.23
- --------------------------------------------------------------------------------
6-month capital gain distributions per share $0.14 $0.14
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Select Balanced Consumer Price Index - US S & P 500 Composite Lehman Brothers Govt/Corp
--------------- ------------------------- ------------------- -------------------------
<S> <C> <C> <C> <C>
3/31/91 1,000,000 1,000,000 1,000,000 1,000,000
12/31/91 1,099,357 1,021,474 1,139,198 1,130,782
12/31/92 1,234,859 1,050,800 1,225,975 1,216,511
12/31/93 1,366,825 1,079,993 1,349,546 1,350,712
12/31/94 1,337,385 1,108,889 1,367,374 1,303,321
12/31/95 1,688,366 1,136,259 1,881,278 1,554,111
12/31/96 1,921,251 1,174,815 2,313,128 1,599,216
12/31/97 2,249,296 1,194,815 3,084,864 1,755,270
12/31/98 2,554,050 1,216,306 3,966,332 1,921,815
</TABLE>
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Balanced Fund Class I, the S&P 500 Index, the Lehman Brothers
Government/Corporate Bond Index and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I shares' historical performance
prior to 1/22/98, is that of the original Evergreen Balanced Fund II Class Y,
which was merged with Evergreen Balanced Fund on 1/23/98. Class IS shares'
historical performance prior to 1/22/98 is that of the original Evergreen
Balanced Fund II Class Y, and subsequently reflects that of the original Class I
shares and does not reflect 12b-1 fees. If 12b-1 fees had been included,
performance for the Class IS shares for these periods would have been lower.
Returns of Class I and IS, since their respective commencement of class
operations, were 11.57% and 4.65%, respectively. Index returns do not reflect
expenses, which have been deducted from the Fund's return. It is not possible to
invest directly in an index.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
[PHOTOGRAPH OF DEAN HAWES [PHOTOGRAPH OF ROLLIN C.
APPEARS HERE] WILLIAMS APPEARS HERE]
Dean Hawes Rollin C. Williams
Performance and
Portfolio Composition
For the six months ended December 31,1998, the Evergreen Select Balanced Fund
Class I shares posted a 3.53% total return. This performance compared to the
5.09% total return for the Lehman Brothers Government/Corporate Index and the
S&P 500 Index's 9.35% return.
During the six months, the portfolio's equity weighting increased from 56% to
over 67%, while the fixed income portion declined from 44% to 33%. Our increased
equity weighting had a positive impact on performance, particularly during the
last three months, when all segments of the U.S. equity market posted
spectacular returns.
Portfolio
Characteristics
---------------
Total Net Assets $714,783,233
---------------------------------------------------------------
Number of Holdings 88
---------------------------------------------------------------
P/E Ratio 33.0x
---------------------------------------------------------------
Beta 1.01
---------------------------------------------------------------
Market Environment
The six months were characterized by two distinctly different periods. Whereas
bonds strongly outpaced stocks in the first three months, stocks rebounded
dramatically during the final months of the period as evidenced by the S&P 500
Index's dramatic 21% fourth quarter return.
In addition to volatility, there were some common themes throughout the six
months. Benign inflation, strong consumer spending and resilient economic growth
continued to boost investor confidence. Meanwhile, the Federal Reserve Board--in
an effort to insulate the U.S. from global economic turmoil--helped both equity
and fixed income markets by cutting interest rates three times in the final four
months.
Top 5 Industries - Equity
------------------------------
(based on 12/31/98 net assets)
Healthcare Products & Services 9.4%
---------------------------------------------------------------
Information Services & Technology 7.4%
---------------------------------------------------------------
Banks 5.9%
---------------------------------------------------------------
Finance & Insurance 4.2%
---------------------------------------------------------------
Communication Systems & Services 3.7%
---------------------------------------------------------------
Equity Strategy
The Fund's equity component continues to emphasize industries that we believe
are poised for growth as a result of favorable underlying economic themes; two
such sectors are healthcare and technology. As companies turn to technological
solutions to increase productivity (and profits), technology has emerged as the
prominent high-growth sector, a trend that we expect to continue. Our technology
weighting has helped the Fund's performance, as companies such as Cisco Systems
and Intel posted total returns of 62.1% and 42.1%, respectively, during the
final three months of the period.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Balanced Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 10 Equity Holdings
-----------------------------
(based on 12/31/98 net assets)
Microsoft Corp. 2.3%
---------------------------------------------------------------
Compaq Computer Corp. 2.0%
---------------------------------------------------------------
Cisco Systems, Inc. 1.9%
---------------------------------------------------------------
Johnson & Johnson 1.8%
---------------------------------------------------------------
General Electric Co. 1.8%
---------------------------------------------------------------
Bristol-Myers Squibb Co. 1.8%
---------------------------------------------------------------
MCI WorldCom, Inc. 1.8%
---------------------------------------------------------------
Tyco International Ltd. 1.8%
---------------------------------------------------------------
Pfizer Inc. 1.7%
---------------------------------------------------------------
GTE Corp. 1.6%
---------------------------------------------------------------
Activity within the healthcare sector included the sale of SmithKline Beecham
and the addition of Warner Lambert, a diversified and somewhat more
recession-proof pharmaceutical company whose product line-up includes Zantac,
Sudafed, Listerine and Rolaids. Within the financial industry, we sold
investment giant T. Rowe Price after a solid run-up in price and used the
proceeds to purchase Fannie Mae, a financially strong, high growth opportunity
selling at an attractive valuation. Conversely, we have de-emphasized energy and
basic material stocks. Both of these industries are experiencing tough times.
Energy companies have been hurt by plummeting oil prices, while basic material
stocks, we feel, will continue to struggle amid the global economic slowdown.
Top 5 Bond Holdings
------------------------------
(based on 12/31/98 net assets)
U.S. Treasury Notes (7.75% 2/15/01) 7.0%
---------------------------------------------------------------
U.S. Treasury Notes (9.125% 5/15/99) 3.9%
---------------------------------------------------------------
U.S. Treasury Bonds (5.25% 11/15/28) 3.6%
---------------------------------------------------------------
U.S. Treasury Bonds (9.125% 5/15/18) 3.5%
---------------------------------------------------------------
U.S. Treasury Bonds (8.875% 8/15/17) 3.2%
---------------------------------------------------------------
Top 5 Industries - Bonds
-------------------------------
(as a percentage of net assets)
Treasury Notes & Bonds 30.7%
---------------------------------------------------------------
Finance & Insurance 3.2%
---------------------------------------------------------------
Banks 2.1%
---------------------------------------------------------------
Communication Systems & Services 1.3%
---------------------------------------------------------------
Industrial Specialty Products & Services 1.1%
---------------------------------------------------------------
Fixed Income Exposure
Within the fixed income portion of the Fund, we generally maintained duration in
excess of the benchmark for the six months; duration closed the period at 5.68
years. Limited trades in the Treasury market moved the portfolio's long Treasury
position to the new thirty-year bond. Comcast Cable Communications was added to
the portfolio in the final months of the period to bolster the portfolio's
corporate exposure.
Market Outlook
Going forward, we anticipate a volatile investing environment as the effects of
the global economic crisis continue to filter back to U.S. financial markets.
Despite any short-term volatility, however, our long-term outlook remains very
favorable as an increasingly competitive global economy and low worldwide
inflation bode well for both the U.S. equity and fixed income markets.
Consistent with our long-term, bottom-up investment strategy, the Fund will
emphasize what we believe to be well-managed, industry-dominant companies with
reasonable valuation levels that demonstrate the ability to meet--and
exceed--earnings expectations. Within our fixed income weighting, we expect to
maintain a duration longer than that of our benchmark in the coming months to
capitalize on steady-to-declining interest rates.
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- -------------------------------------------------------------------------------
PORTFOLIO PROFILE
- -------------------------------------------------------------------------------
Philosophy
Evergreen Select Equity Income Fund utilizes both value- and growth-oriented
stocks in pursuit of its objective: high current income and long-term capital
appreciation. The Fund provides investors a degree of safety by emphasizing
companies with below average price-to-earnings ratios and higher dividend yields
relative to their industry groups.
Process
The Fund uses a bottom-up stock selection process, focusing on security
fundamentals rather than broad economic forecasts. The portfolio construction
process consists of a unique blend of quantitative and traditional fundamental
analysis skills.
Benchmark
S&P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
- --------------------------------------------------------------------------------
6 months -2.94% -3.05%
- --------------------------------------------------------------------------------
1 year -3.24% -3.41%
- --------------------------------------------------------------------------------
3 years 13.29% 13.06%
- --------------------------------------------------------------------------------
5 years 13.30% 13.04%
- --------------------------------------------------------------------------------
10 years 12.45% 12.18%
- --------------------------------------------------------------------------------
Since Inception 14.02% 13.75%
- --------------------------------------------------------------------------------
6-month income dividends per share $1.35 $1.24
- --------------------------------------------------------------------------------
6-month capital gains distributions per share $6.00 $6.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Select Equity Income Consumer Price Index - US S & P 500 Composite
-------------------- ------------------------- -------------------
12/31/78 1,000,000 1,000,000 1,000,000
12/31/80 1,406,031 1,273,535 1,569,508
12/31/82 1,772,616 1,441,107 1,813,219
12/31/84 2,443,068 1,554,952 2,361,621
12/31/86 3,697,855 1,631,838 3,691,614
12/31/88 4,266,612 1,778,598 4,530,759
12/31/90 5,532,829 1,974,893 5,781,086
12/31/92 6,912,362 2,093,845 8,117,044
12/31/94 7,177,437 2,209,594 9,053,227
12/31/96 11,098,126 2,340,959 15,314,963
12/31/98 13,791,274 2,423,635 26,260,637
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Equity Income Fund Class I, the S&P 500 Index, and the Consumer Price Index
(CPI).
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for the
periods before the Fund's registration statement became effective on 11/21/97.
Performance for the common trust fund has been adjusted to include the effect of
estimated mutual fund class gross expense ratios at the time the Fund was
converted to a mutual fund. If fee waivers and expense reimbursements had been
calculated into the mutual fund class expense ratio, the total returns would be
as follows: Class I--3 years = 13.36%; 5 years = 13.38%; 10 years = 12.54%;
since 12/31/78 = 14.12%. Class IS--3 years = 13.11%; 5 years = 13.12%; 10 years
= 12.27%; since 12/31/78 = 13.84%. Class IS shares performance for the period
from 11/24/97 through 3/11/98 (class inception date) is based upon the
historical performance of the Class I shares and therefore does not reflect
12b-1 fees. If 12b-1 fees had been included, performance for Class IS shares for
this period would have been lower. The common trust fund was not registered
under the Investment Company Act of 1940 (the "1940 Act") or subject to certain
investment restrictions that are imposed by the 1940 Act. If the common trust
fund had been registered under the 1940 Act, its performance may have been
adversely affected. Index returns do not reflect expenses, which have been
deducted from the Fund's return. It is not possible to invest directly in an
index.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management
Paul A. DiLella who has 16 years of investment experience manages the Evergreen
Select Equity Income Fund. In addition to managing Evergreen Select Equity
Income Fund, Mr. DiLella is also responsible for the co-management of the
Evergreen Utility Fund. He also has research responsibility for the electric
utility, natural gas distribution, and REIT areas.
[PHOTOGRAPH OF PAUL A. DILELLA APPEARS HERE]
Paul A. DiLella
Performance
For the six months ended December 31, 1998 the Evergreen Select Equity Income
Fund Class I's -2.94% total return trailed the 9.35% return for the S&P 500
Index.
The stock market's relatively narrow advance--in which a select number of the
largest companies dominated the market--and a strong growth bias were the
primary reasons the Fund underperformed its benchmark. The Fund actually
outperformed the index during the first three months of the period, then lagged
substantially during the final three months during which the market's growth
bias was most evident.
Portfolio
Characteristics
---------------
Total Net Assets $188,239,412
---------------------------------------------------------------
Number of Issues 41
---------------------------------------------------------------
P/E Ratio 18.4x
---------------------------------------------------------------
Beta 0.70
---------------------------------------------------------------
Strategy and Performance
The Fund seeks high current income and to provide a current yield greater than
that of the S&P 500 Index. To accomplish this, we maintain a strong weighting in
traditionally income-oriented sectors such as energy and utilities. For
instance, five of the Fund's top seven holdings--companies such as Cinergy and
Houston Industries--fall into these two categories. Unfortunately, these two
sectors were the hardest hit in the recent market environment.
R&B Falcon and NewPark Resources, two drilling-related energy companies, posted
negative returns in the past three months. Despite a difficult period for the
energy sector, we are confident in a near-term rebound and, as a result,
purchased MCN Energy and El Paso Energy in order to capitalize on this eventual
turnaround.
Top 5 Industries
----------------
(based on 12/31/98 net assets)
---------------------------------------------------------------
Utilities - Electric 21.8%
---------------------------------------------------------------
Banks 13.7%
---------------------------------------------------------------
Oil/Energy 7.4%
---------------------------------------------------------------
Healthcare Products & Services 6.6%
---------------------------------------------------------------
Food & Beverage Products 6.4%
---------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Income Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Activity Within the Fund
Early in the period, solid performances by Sealed Air and Network Associates
allowed these stocks to reach their price targets, prompting us to sell them in
order to lock in the capital gains. These sell decisions proved timely when both
stocks dropped after we sold them.
We also strategically added Merrill Lynch and Philips Electronics NV, two large
industry-dominant companies whose share prices have been beaten down and, we
feel, currently represent attractive values. We were rewarded by our timely
purchases as both companies posted solid subsequent gains.
From a sector standpoint, we reduced exposure to basic material stocks, a sector
that subsequently underperformed due to the global economic slowdown. The recent
purchase of PacifiCorp also proved timely because this Oregon-based energy
provider was subsequently acquired by Scottish Power, prompting a solid price
run-up. Within the technology sector, standout performers included IBM and
Altera Corp., which posted total returns of 61% and 106%, respectively, during
the six months.
Top 10 Holdings
------------------------------
(based on 12/31/98 net assets)
PacifiCorp 4.5%
---------------------------------------------------------------
Cinergy Corp. 4.1%
---------------------------------------------------------------
GPU, Inc. 4.1%
---------------------------------------------------------------
GTE Corp. 3.8%
---------------------------------------------------------------
Fleet Financial Group, Inc. 3.8%
---------------------------------------------------------------
General Electric Co. 3.8%
---------------------------------------------------------------
Houston Industries, Inc. 3.8%
---------------------------------------------------------------
Mellon Bank Corp. 3.7%
---------------------------------------------------------------
Philips Electronics NV 3.6%
---------------------------------------------------------------
Bristol-Myers Squibb Co. 3.6%
---------------------------------------------------------------
A Consistent, Strong Current Yield
The Fund's strong 2.18% 30-day SEC current yield underscores our income-oriented
investment strategy. We think the portfolio's current yield will provide
investors a degree of stability within this uncertain market environment marked
by soaring valuation levels.
Looking Ahead to 1999
Looking back at 1998, it is evident that the performance of our Fund, as well as
the majority of equity funds, was hurt by the stock market's narrow advance and
strong growth bias. In fact, according to Lipper, Inc., while the S&P 500 Index
gained over 28.72% for the 12 months ended December 31, 1998, the average
diversified U.S. stock fund returned only 14.5%.
As we have stated in previous commentaries, we believe the best way to protect
our shareholders' interests is to remain focused on the Fund's income-oriented
strategy. We continue to believe that the portfolio's emphasis on quality,
high-dividend-paying companies will serve our shareholders well during the
coming quarters as well as over the long term.
7
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Balanced Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
- --------------------------------------------------------------------------------
CLASS I SHARES
- --------------------------------------------------------------------------------
Net asset value beginning of period $ 13.39 $ 12.58
-------- --------
...............................................................................
Income from investment operations
...............................................................................
Net investment income 0.24 0.16
...............................................................................
Net realized and unrealized gains or losses
on securities 0.22 0.81
-------- --------
...............................................................................
Total from investment operations 0.46 0.97
-------- --------
...............................................................................
Less distributions from
...............................................................................
Net investment income (0.25) (0.16)
...............................................................................
Net realized gain on securities (0.14) 0
-------- --------
...............................................................................
Total distributions (0.39) (0.16)
-------- --------
...............................................................................
Net asset value end of period $ 13.46 $ 13.39
-------- --------
...............................................................................
Total return 3.53% 7.76%
...............................................................................
Ratios/supplemental data
...............................................................................
Net assets end of period (thousands) $711,570 $723,850
...............................................................................
Ratios to average net assets:
Expenses 0.73%+ 0.70%+
...............................................................................
Expenses, excluding fee credits 0.73%+ 0.70%+
...............................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.83%+ 0.80%+
...............................................................................
Net investment income 3.75%+ 2.80%+
...............................................................................
Portfolio turnover rate 20% 37%
...............................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (b)
<S> <C> <C>
- --------------------------------------------------------------------------------
CLASS IS SHARES
- --------------------------------------------------------------------------------
Net asset value beginning of period $13.42 $13.34
------ ------
...............................................................................
Income from investment operations
...............................................................................
Net investment income 0.22 0.07
...............................................................................
Net realized and unrealized gains or losses
on securities 0.22 0.09
------ ------
...............................................................................
Total from investment operations 0.44 0.16
------ ------
...............................................................................
Less distributions from
...............................................................................
Net investment income (0.23) (0.08)
...............................................................................
Net realized gain on securities (0.14) 0
------ ------
...............................................................................
Total distributions (0.37) (0.08)
------ ------
...............................................................................
Net asset value end of period $13.49 $13.42
------ ------
...............................................................................
Total return 3.39% 1.23%
...............................................................................
Ratios/supplemental data
...............................................................................
Net assets end of period (thousands) $3,213 $ 215
...............................................................................
Ratios to average net assets:
Expenses 1.00%+ 0.95%+
...............................................................................
Expenses, excluding fee credits 1.00%+ 0.95%+
...............................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.10%+ 1.05%+
...............................................................................
Net investment income 4.21%+ 2.58%+
...............................................................................
Portfolio turnover rate 20% 37%
...............................................................................
</TABLE>
+ Annualized.
(a) For the period from January 22, 1998 (commencement of class operations) to
June 30, 1998.
(b) For the period from April 9, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
<S> <C> <C>
- --------------------------------------------------------------------------------
CLASS I SHARES
- --------------------------------------------------------------------------------
Net asset value beginning of period $ 89.03 $ 87.31
-------- --------
................................................................................
Income from investment operations
................................................................................
Net investment income 1.35 1.50
................................................................................
Net realized and unrealized gains or losses
on securities (4.09) 1.73
-------- --------
................................................................................
Total from investment operations (2.74) 3.23
-------- --------
................................................................................
Less distributions from
................................................................................
Net investment income (1.35) (1.51)
................................................................................
Net realized gains on securities (6.00) 0
-------- --------
................................................................................
Total distributions (7.35) (1.51)
-------- --------
................................................................................
Net asset value end of period $ 78.94 $ 89.03
-------- --------
................................................................................
Total return (2.94%) 3.70%
................................................................................
Ratios/supplemental data
................................................................................
Net assets end of period (thousands) $186,810 $204,248
................................................................................
Ratios to average net assets:
Expenses 0.74%+ 0.78%+
................................................................................
Expenses, excluding fee credits 0.73%+ 0.77%+
................................................................................
Expenses, excluding fee credits, waivers and
reimbursements 0.84%+ 0.88%+
................................................................................
Net investment income 3.25%+ 2.80%+
................................................................................
Portfolio turnover rate 40% 51%
................................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(b)
<S> <C> <C>
- --------------------------------------------------------------------------------
CLASS IS SHARES
- --------------------------------------------------------------------------------
Net asset value beginning of period $89.05 $90.83
------ ------
................................................................................
Income from investment operations
................................................................................
Net investment income 1.27 0.65
................................................................................
Net realized and unrealized gains or losses
on securities (4.10) (1.69)
------ ------
................................................................................
Total from investment operations (2.83) (1.04)
------ ------
................................................................................
Less distributions from
................................................................................
Net investment income (1.24) (0.74)
................................................................................
Net realized gains on securities (6.00) 0
------ ------
................................................................................
Total distributions (7.24) (0.74)
------ ------
................................................................................
Net asset value end of period $78.98 $89.05
------ ------
................................................................................
Total return (3.05%) (1.16%)
................................................................................
Ratios/supplemental data
................................................................................
Net assets end of period (thousands) $1,429 $1,497
................................................................................
Ratios to average net assets:
Expenses 0.99%+ 1.04%+
................................................................................
Expenses, excluding fee credits 0.98%+ 1.03%+
................................................................................
Expenses, excluding fee credits, waivers and
reimbursements 1.09%+ 1.13%+
................................................................................
Net investment income 2.97%+ 2.46%+
................................................................................
Portfolio turnover rate 40% 51%
................................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Balanced Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 55.9%
Advertising & Related Services - 0.4%
55,000 Omnicom Group, Inc. ................................. $ 3,190,000
------------
Automotive Equipment & Manufacturing - 0.6%
85,000 Goodyear Tire & Rubber Co. .......................... 4,287,187
------------
Banks - 5.9%
211,500 Bank One Corp. ...................................... 10,799,719
140,200 Bankamerica Corp. ................................... 8,429,525
195,600 BankBoston Corp. .................................... 7,616,175
46,000 Bankers Trust Corp. ................................. 3,930,125
132,000 Fleet Financial Group, Inc. ......................... 5,898,750
75,000 Mellon Bank Corp. ................................... 5,156,250
------------
41,830,544
------------
Building, Construction & Furnishings - 0.8%
190,000 Masco Corp. ......................................... 5,462,500
------------
Business Equipment & Services - 1.0%
90,000 *Compuware Corp. .................................... 7,031,250
------------
Chemical & Agricultural Products - 0.6%
76,000 Du Pont (E. I.) De Nemours & Co. .................... 4,032,750
------------
Communication Systems & Services - 3.7%
149,362 *Cisco Systems, Inc. ................................ 13,862,661
176,000 *MCI WorldCom, Inc. ................................. 12,628,000
------------
26,490,661
------------
Consumer Products & Services - 2.2%
121,000 Procter & Gamble Co. ................................ 11,048,812
80,000 Whirlpool Corp. ..................................... 4,430,000
------------
15,478,812
------------
Diversified Companies - 1.8%
167,000 Tyco International Ltd. ............................. 12,598,062
------------
Electrical Equipment & Services - 1.8%
128,000 General Electric Co. ................................ 13,064,000
------------
Environmental Services - 1.3%
204,000 Waste Management, Inc. .............................. 9,511,500
------------
Finance & Insurance - 4.2%
240,000 Allstate Corp. ...................................... 9,270,000
143,000 Citigroup, Inc. ..................................... 7,078,500
141,000 Federal National Mortgage Association................ 10,434,000
52,000 Merrill Lynch & Co., Inc. ........................... 3,471,000
------------
30,253,500
------------
Food & Beverage Products - 3.6%
85,000 Bestfoods............................................ 4,526,250
127,275 Coca Cola Co. ....................................... 8,511,516
78,000 Philip Morris Companies, Inc. ....................... 4,173,000
142,000 *Safeway, Inc. ...................................... 8,653,125
------------
25,863,891
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products & Services - 9.4%
95,000 Bristol-Myers Squibb Co. ........................... $ 12,712,187
285,000 HBO & Co. .......................................... 8,175,938
390,000 *HEALTHSOUTH Corp. ................................. 6,020,625
155,800 Johnson & Johnson................................... 13,067,725
120,000 *Lincare Holdings, Inc. ............................ 4,867,500
94,000 Pfizer, Inc. ....................................... 11,791,125
100,000 *Quintiles Transnational Corp. ..................... 5,337,500
66,000 Warner-Lambert Co. ................................. 4,962,375
------------
66,934,975
------------
Information Services & Technology - 7.4%
346,900 Compaq Computer Corp. .............................. 14,548,119
54,000 Intel Corp. ........................................ 6,402,375
37,000 International Business Machines Corp. .............. 6,835,750
120,000 *Microsoft Corp. ................................... 16,642,500
100,000 *Network Associates, Inc. .......................... 6,625,000
100,000 *Quantum Corp. ..................................... 2,125,000
------------
53,178,744
------------
Metal Products & Services - 0.6%
60,000 Aluminum Co. of America............................. 4,473,750
------------
Oil/Energy - 2.8%
72,900 Mobil Corp. ........................................ 6,351,413
178,900 Texaco, Inc. ....................................... 9,459,337
157,300 YPF SA, ADR......................................... 4,394,569
------------
20,205,319
------------
Paper & Packaging - 0.6%
100,000 Bowater, Inc. ...................................... 4,143,750
------------
Printing, Publishing, Broadcasting & Entertainment -
0.7%
196,000 News Corp, Ltd. .................................... 5,181,750
------------
Real Estate - 0.4%
129,000 FelCor Lodging Trust Inc. REIT...................... 2,975,063
------------
Retailing & Wholesale - 1.3%
109,000 Dayton Hudson Corp. ................................ 5,913,250
137,300 Family Dollar Stores, Inc. ......................... 3,020,600
------------
8,933,850
------------
Transportation - 0.7%
156,600 Burlington Northern Santa Fe Corp. ................. 5,285,250
------------
Utilities - Electric - 1.4%
287,700 Cinergy Corp. ...................................... 9,889,687
------------
Utilities - Telephone - 2.7%
120,000 Century Telephone Enterprises, Inc. ................ 8,100,000
170,000 GTE Corp. .......................................... 11,050,000
------------
19,150,000
------------
Total Common Stocks (cost $344,677,163)............. 399,446,795
------------
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Balanced Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - 12.2%
Banks - 2.1%
$ 2,302,000 Boatmen's Bancshares, Inc. 6.75%, 3/15/03........ $ 2,399,518
3,836,000 First Chicago Corp. 9.875%, 8/15/00.............. 4,090,549
7,673,000 NationsBank Corp. 7.625%, 4/15/05................ 8,446,584
------------
14,936,651
------------
Chemical & Agricultural Products - 0.6%
3,836,000 Dow Chemical Co. 8.625%, 4/1/06.................. 4,399,742
------------
Communication Systems & Services - 1.3%
9,000,000 Comcast Cable Communications I 6.20%, 11/15/08... 9,182,700
------------
Consumer Products & Services - 0.5%
3,299,000 Stanley Works 7.375%, 12/15/02................... 3,538,729
------------
Finance & Insurance - 3.2%
4,220,000 Dean Witter, Discover & Co. 6.75%, 10/15/13...... 4,325,192
2,110,000 International Bank For Reconstruction &
Development Co. 7.95%, 5/15/16.................. 2,617,921
7,673,000 Loews Corp. 6.75%, 12/15/06...................... 8,118,448
3,836,000 Merrill Lynch, Pierce, Fenner & Smith, Inc.
7.00%, 4/27/08.................................. 4,094,704
3,836,000 Salomon, Inc. 5.50%, 1/15/99..................... 3,835,920
------------
22,992,185
------------
Food & Beverage Products - 0.6%
3,836,000 General Mills, Inc. 9.00%, 12/20/02.............. 4,309,339
------------
Healthcare Products & Services - 0.6%
3,836,000 Baxter International 7.25%, 2/15/08.............. 4,241,607
------------
Industrial Specialty Products & Services - 1.1%
5,371,000 Jet Equipment Trust 144A 9.41%, 6/15/10.......... 6,475,004
1,074,000 Waste Management, Inc. 8.75%, 5/1/18............. 1,223,320
------------
7,698,324
------------
Oil Field Services - 0.5%
3,069,000 Atlantic Richfield Co. 9.00%, 4/1/21............. 3,964,405
------------
Sovereign Government - 0.6%
3,836,000 Ontario Province Canada 7.75%, 6/4/02............ 4,121,552
------------
Telecommunication Services & Equipment - 0.7%
4,200,000 General Electric Capital Corp. 8.75%, 3/14/03.... 4,713,564
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS - continued
Utilities - Electric - 0.4%
$ 2,762,000 Union Electric Co. 8.00%, 12/15/22................. $ 2,987,948
------------
Total Corporate Bonds (cost $86,272,142)........... 87,086,746
------------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 31.7%
Government Agency Notes & Bonds - 1.0%
Government National Mortgage Association
1,310,699 8.50%, 5/15/21..................................... 1,390,979
781,400 8.50%, 7/15/21..................................... 829,261
1,628,748 8.50%, 6/15/22..................................... 1,728,508
925,629 9.00%, 9/15/21..................................... 988,687
1,328,486 9.00%, 10/15/21.................................... 1,418,989
741,183 9.50%, 2/15/21..................................... 800,710
------------
7,157,134
------------
Treasury Notes & Bonds - 30.7%
U.S. Treasury Bonds
24,864,000 5.25%, 11/15/28.................................... 25,493,383
15,346,000 7.625%, 2/15/07.................................... 16,616,848
15,346,000 8.75%, 5/15/17..................................... 21,374,108
16,113,000 8.875%, 8/15/17.................................... 22,724,373
17,428,000 9.125%, 5/15/18.................................... 25,243,378
U.S. Treasury Notes
4,008,000 6.375%, 7/15/99.................................... 4,046,829
14,500,000 6.625%, 4/30/02.................................... 15,347,351
10,879,000 7.75%, 11/30/99.................................... 11,178,173
47,173,000 7.75%, 2/15/01..................................... 50,091,829
27,091,000 9.125%, 5/15/99.................................... 27,522,776
------------
219,639,048
------------
Total U.S. Government & Agency Obligations
(cost $223,905,438)............................... 226,796,182
------------
SHORT-TERM INVESTMENTS - 0.6%
Repurchase Agreement - 0.6%
4,559,648 Dresdner Bank AG, 4.25%, dated 12/31/98, due
1/4/99, maturity value $4,561,801
(cost $4,559,648) (a)............................. 4,559,648
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments -(cost $659,414,391)...... 100.4% 717,889,371
Other Assets and Liabilities - net.......... (0.4) (3,106,138)
----- ------------
Net Assets.................................. 100.0% $714,783,233
===== ============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by
$575,000 U.S. Treasury 30 year inflation index bond, 3.625%, 4/15/28;
value including accrued interest - $564,789 and $4,065,000 U.S. Trea-
sury 10 year inflation index bond, 3.625%, 1/15/08; value including
accrued interest - $4,088,955.
144A Securities that may be resold to "qualified institutional buyers"
under rule 144A of the securities act of 1933. These securities have
been determined to be liquid under guidelines established by the
Fund's Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Income Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 81.2%
Banks - 13.7%
160,000 Fleet Financial Group, Inc............................ $ 7,150,000
200,000 KeyCorp............................................... 6,400,000
100,000 Mellon Bank Corp. .................................... 6,875,000
100,000 PNC Bank Corp. ....................................... 5,412,500
------------
25,837,500
------------
Chemical & Agricultural
Products - 1.4%
50,000 Du Pont (E. I.) De Nemours & Co. ..................... 2,653,125
------------
Consumer Products & Services - 3.6%
100,000 Philips Electronics NV................................ 6,768,750
------------
Electrical Equipment &
Services - 3.8%
70,000 General Electric Co. ................................. 7,144,375
------------
Finance & Insurance - 1.2%
35,000 Merrill Lynch & Co., Inc. ............................ 2,336,250
------------
Food & Beverage Products - 3.6%
125,000 Philip Morris Companies, Inc. ........................ 6,687,500
------------
Healthcare Products & Services - 6.6%
50,000 Bristol-Myers Squibb Co. ............................. 6,690,625
200,000 HBO & Co. ............................................ 5,737,500
------------
12,428,125
------------
Information Services &
Technology - 2.0%
20,000 International Business Machines Corp. ................ 3,695,000
------------
Natural Gas - 2.8%
150,000 El Paso Energy Corp. Delaware......................... 5,221,875
------------
Oil / Energy - 4.8%
100,000 Enron Corp. .......................................... 5,706,250
500,000 *Newpark Resources, Inc. ............................. 3,406,250
------------
9,112,500
------------
Oil Field Services - 1.6%
400,000 *R & B Falcon Corp.................................... 3,050,000
------------
Real Estate - 5.5%
200,000 FelCor Lodging Trust Inc. REIT........................ 4,612,500
200,000 Simon Property Group Inc. REIT........................ 5,700,000
------------
10,312,500
------------
Transportation - 2.2%
120,840 Burlington Northern Santa Fe Corp. ................... 4,078,350
------------
Utilities - Electric - 21.8%
225,000 Cinergy Corp.......................................... 7,734,375
100,000 CMS Energy Corp. ..................................... 4,843,750
175,000 GPU, Inc. ............................................ 7,732,812
220,000 Houston Industries, Inc. ............................. 7,067,500
400,000 PacifiCorp............................................ 8,425,000
125,000 Pinnacle West Capital Corp. .......................... 5,296,875
------------
41,100,312
------------
Utilities - Telephone - 3.8%
110,000 GTE Corp.............................................. 7,150,000
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - continued
Utilities - 2.8%
275,000 MCN Corp. .......................................... $ 5,242,188
------------
Total Common Stocks
(cost $125,490,502)................................ 152,818,350
------------
PREFERRED STOCKS - 2.0%
Printing, Publishing, Broadcasting & Entertainment -
2.0%
150,000 News Corp. Ltd. ADR
(cost $3,602,610).................................. 3,703,125
------------
CONVERTIBLE PREFERRED - 8.7%
Capital Goods - 0.6%
20,000 Case Corp. 4.50%, Series A, 144A.................... 1,150,000
------------
Food & Beverage Products - 2.8%
100,000 Ralston Purina Co.
7.00%, SAILS (exchangeable for Interstate Bakeries
common stock)...................................... 5,225,000
------------
Oil / Energy - 2.6%
Tosco Financing Trust
65,000 5.75%, 144A......................................... 3,128,125
35,000 5.75%............................................... 1,684,375
------------
4,812,500
------------
Oil Field Services - 1.8%
110,000 EVI, Inc. 5.00%, 144A............................... 3,423,750
------------
Paper & Packaging - 0.9%
60,000 Crown Cork & Seal Co., Inc.
4.50%, MIPS........................................ 1,755,000
------------
Total Convertible Preferred
(cost $22,248,865)................................. 16,366,250
------------
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE DEBENTURES - 2.5%
Environmental Services - 2.5%
$4,000,000 Waste Management, Inc. 4.00%, 2/1/02 (cost
$4,241,951)........................................ $ 4,795,000
------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 4.4%
Treasury Notes & Bonds - 4.4%
U.S. Treasury Notes
2,000,000 6.125%, 9/30/00..................................... 2,050,000
2,000,000 6.125%, 12/31/01.................................... 2,081,250
2,000,000 6.50%, 8/31/01...................................... 2,091,250
500,000 6.625%, 6/30/01..................................... 523,125
500,000 7.25%, 5/15/04...................................... 560,469
1,000,000 7.75%, 11/30/99..................................... 1,027,500
------------
Total U.S. Government & Agency Obligations
(cost $7,995,821).................................. 8,333,594
------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Income Fund
- --------------------------------------------------------------------------------
Schedule of Investments(continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS - 1.2%
Repurchase Agreement - 1.2%
$2,200,809 Dresdner Bank AG 4.25%,
dated 12/31/98, due 1/4/99,
maturity value $2,201,848
(cost $2,200,809) (a).............................. $ 2,200,809
------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
<C> <S> <C>
Money Market Shares - 0.0%
1,734 Valiant General Fund
(cost $1,734)....................................... $ 1,734
------------
Total Short-Term Investments -
(cost $2,202,543).............................. 2,202,543
------------
Total Investments -
(cost $165,782,291)........................ 100.0% 188,218,862
Other Assets and
Liabilities - net.......................... 0.0 20,550
----- ------------
Net Assets.................................. 100.0% $188,239,412
===== ============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$2,290,000 U.S. Treasury 30 year inflation index bond, 3.625%,
4/15/28; value including accrued interest - $2,249,334.
144A Securities that may be resold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933. These securities have
been determined to be liquid under guidelines established by the
Fund's Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipt
MIPS Monthly Income Producing Securities
REIT Real Estate Investment Trust
SAILS Stock Appreciation Income Linked Securities
See Combined Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Funds
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Balanced Equity Income
Fund Fund
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Identified cost of securities..................... $659,414,391 $165,782,291
Net unrealized gains on securities................ 58,474,980 22,436,571
- --------------------------------------------------------------------------------
Market value of securities........................ 717,889,371 188,218,862
Cash.............................................. 8,151 0
Receivable for Fund shares sold................... 110,272 9,733
Dividends and interest receivable................. 5,411,443 526,254
Prepaid expenses and other assets................. 43,264 34,887
- --------------------------------------------------------------------------------
Total assets...................................... 723,462,501 188,789,736
- --------------------------------------------------------------------------------
Liabilities
Payable for Fund shares repurchased............... 7,244,331 126,606
Distributions payable............................. 1,060,101 283,849
Advisory fee payable.............................. 302,542 95,401
Distribution Plan expenses payable................ 505 187
Due to other related parties...................... 15,813 4,087
Accrued expenses and other liabilities............ 55,976 40,194
- --------------------------------------------------------------------------------
Total liabilities................................. 8,679,268 550,324
- --------------------------------------------------------------------------------
Net assets......................................... $714,783,233 $188,239,412
- --------------------------------------------------------------------------------
Net assets represented by
Paid-in capital................................... $664,415,866 $165,319,619
Undistributed net investment income............... (60,564) 52,281
Accumulated net realized gains or losses on
securities....................................... (8,047,049) 430,941
Net unrealized gains on securities................ 58,474,980 22,436,571
- --------------------------------------------------------------------------------
Total net assets.................................. $714,783,233 $188,239,412
- --------------------------------------------------------------------------------
Net assets consist of
Class I........................................... $711,569,971 $186,810,374
Class IS.......................................... 3,213,262 1,429,038
- --------------------------------------------------------------------------------
Total net assets.................................. $714,783,233 $188,239,412
- --------------------------------------------------------------------------------
Shares outstanding
Class I........................................... 52,863,384 2,366,384
Class IS.......................................... 238,202 18,093
- --------------------------------------------------------------------------------
Net asset value per share
Class I........................................... $ 13.46 $ 78.94
- --------------------------------------------------------------------------------
Class IS.......................................... $ 13.49 $ 78.98
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Fund
- --------------------------------------------------------------------------------
Statements of Operations
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Balanced Equity Income
Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of
$3,983 and $2,096, respectively).................. $ 2,695,944 $ 3,255,988
Interest........................................... 12,961,732 519,490
- -------------------------------------------------------------------------------
Total income........................................ 15,657,676 3,775,478
Expenses
Advisory fee....................................... 2,096,637 665,141
Transfer agent fee................................. 585,599 854
Administrative service fees........................ 93,641 25,467
Trustees' fees and expenses........................ 4,937 1,013
Distribution Plan Expenses......................... 1,527 1,564
Custodian fees..................................... 88,475 26,354
Registration and filing fees....................... 20,554 24,468
Printing and postage............................... 11,980 26,636
Professional fees.................................. 9,311 7,730
Other.............................................. 4,346 16,061
- -------------------------------------------------------------------------------
Total Expenses..................................... 2,917,007 795,288
Less: Fee credits.................................. (650) (6,169)
Fee waivers ..................................... (349,440) (95,020)
- -------------------------------------------------------------------------------
Net expenses....................................... 2,566,917 694,099
- -------------------------------------------------------------------------------
Net investment income.............................. 13,090,759 3,081,379
- -------------------------------------------------------------------------------
Net realized and unrealized gains or losses on
securities
Net realized gains or losses on securities......... (7,279,567) 386,693
Net change in unrealized gains or losses on
securities........................................ 18,010,882 (9,928,028)
- -------------------------------------------------------------------------------
Net realized and unrealized gains or losses on
securities........................................ 10,731,315 (9,541,335)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations................................... $23,822,074 $(6,459,956)
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Balanced Equity Income
Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................. $ 13,090,759 $ 3,081,379
Net realized gains or losses on securities........ (7,279,567) 386,693
Net change in unrealized gains or losses on
securities....................................... 18,010,882 (9,928,028)
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations................................. 23,822,074 (6,459,956)
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class I........................................... (13,196,003) (3,057,590)
Class IS.......................................... (31,365) (18,160)
Net realized gain on securities
Class I........................................... (7,372,021) (13,379,241)
Class IS.......................................... (32,664) (96,788)
- -------------------------------------------------------------------------------
Total distributions to shareholders.............. (20,632,053) (16,551,779)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold......................... 68,431,217 9,321,116
Payment for shares redeemed....................... (95,720,491) (14,491,650)
Net asset value of shares issued in reinvestment
of distributions................................. 14,817,398 10,676,480
- -------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from capital share transactions................. (12,471,876) 5,505,946
- -------------------------------------------------------------------------------
Total decrease in net assets.................... (9,281,855) (17,505,789)
Net assets
Beginning of period............................... 724,065,088 205,745,201
- -------------------------------------------------------------------------------
End of period..................................... $714,783,233 $188,239,412
- -------------------------------------------------------------------------------
Undistributed net investment income............... $ (60,564) $ 52,281
- -------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
E V E R G R E E N
Select Equity Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended June 30, 1998
<TABLE>
<CAPTION>
Balanced Equity Income
Fund(b) Fund(a)
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................ $ 9,106,347 $ 3,454,381
Net realized gains or losses on securities....... 6,632,946 13,507,208
Net change in unrealized gains or losses on
securities...................................... 40,464,098 (9,422,160)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations...................................... 56,203,391 7,539,429
- -------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income
Class I.......................................... (9,096,812) (3,466,746)
Class IS......................................... (1,320) (9,467)
- -------------------------------------------------------------------------------
Total distributions to shareholders............. (9,098,132) (3,476,213)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold........................ 794,145,003 224,077,449
Payment for shares redeemed...................... (121,943,214) (22,411,624)
Net asset value of shares issued in reinvestment
of distributions................................ 4,758,040 16,160
- -------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions.............................. 676,959,829 201,681,985
- -------------------------------------------------------------------------------
Total increase in net assets.................... 724,065,088 205,745,201
Net assets
Beginning of period.............................. 0 0
- -------------------------------------------------------------------------------
End of period.................................... $724,065,088 $205,745,201
- -------------------------------------------------------------------------------
Undistributed net investment income.............. $ 76,045 $ 46,652
- -------------------------------------------------------------------------------
</TABLE>
(a) For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
(b) For the period from January 22, 1998 (commencement of operations) to June
30, 1998.
See Combined Notes to Financial Statements.
17
<PAGE>
Combined Notes to Financial Statements(Unaudited)
1. ORGANIZATION
The Evergreen Select Balanced Fund ("Balanced Fund") and Evergreen Select Eq-
uity Income Fund ("Equity Income Fund"), are registered under the Investment
Company Act of 1940, as amended, (the "1940 Act"), as diversified, open-end
management investment companies. Each Fund is a separate series of Evergreen
Select Equity Trust, a Delaware business trust organized on September 18, 1997,
and are collectively referred to herein as the "Funds".
The Funds offer an Institutional Class of shares ("Class I") and an Institu-
tional Service Class of shares ("Class IS"). Each Class of shares is sold with-
out a front-end sales charge or contingent deferred sales charge. Class IS
shares pay an ongoing service fee. Class I and Class IS shares are available to
institutional investors through broker dealers, banks and other financial in-
termediaries.
2. CONVERSION INFORMATION
On November 24, 1997, the Equity Income Fund commenced operations of its Class
I shares as a result of a conversion of a common trust fund managed by First
Union National Bank ("FUNB"), a subsidiary of First Union Corporation ("First
Union"). The following summarizes pertinent data related to the Fund on the
date of conversion:
<TABLE>
<S> <C>
Shares issued................... 2,271,990
Net assets...................... $198,356,197
Net asset value per share....... $ 87.31
Unrealized appreciation of
investments.................... $ 41,787,541
</TABLE>
The foregoing amounts are reflected in proceeds from shares sold in the state-
ments of changes in net assets.
3. IN-KIND TRANSACTIONS
On January 21, 1998, The Evergreen Balanced Fund II, Class Y executed a redemp-
tion in-kind transaction of $737,248,788. This transaction resulted in the liq-
uidation of substantially all of the net assets of the Evergreen Balanced Fund
II's Class Y shares. In turn, the assets were transferred to Evergreen Select
Balanced Fund Class I share.
On January 22, 1998, Balanced Fund commenced operations of its Class I share
through in-kind purchases of 58,643,231 shares amounting to $737,248,788. This
amount is reflected in proceeds from shares sold in the statement of changes in
net assets. In exchange for these shares, securities, excluding cash and cash
equivalents, with a cost and market value of $708,705,595 were contributed to
the Balanced Fund. Additionally, Balanced Fund received cash and cash equiva-
lents of $28,543,193 to complete the transaction.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. Valuation of Securities
Securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") are valued at the last reported sales price on
the exchange where primarily traded. Securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the over-the-
counter market are valued at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for
18
<PAGE>
Combined Notes to Financial Statements(Unaudited) (continued)
which market quotations are not readily available, including restricted securi-
ties, are valued at fair value as determined in good faith according to proce-
dures approved by the Board of Trustees.
Short-term investments with remaining maturities of 60 days or less are carried
at amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
C. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes which are accrued as applicable.
D. Federal Taxes
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). Thus, the Funds
will not incur any federal income tax liability since they are expected to dis-
tribute all of their net investment company taxable income and net capital
gains, if any, to their shareholders. The Funds also intend to avoid any excise
tax liability by making the required distributions under the Code. Accordingly,
no provision for federal taxes is required. To the extent that realized capital
gains can be offset by capital loss carryforwards, it is each Fund's policy not
to distribute such gains.
E. Distributions
Distributions from net investment income for the Funds are declared and paid
monthly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles.
Certain distributions paid during previous years have been reclassified to
conform with current year presentation.
F. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for Class IS.
19
<PAGE>
Combined Notes to Financial Statements(Unaudited) (continued)
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Funds are currently
divided into Class I and Class IS. Transactions in shares of the Funds were as
follows:
Balanced Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
------------------------ -------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold............... 4,917,989 $ 63,074,338 62,963,666 $ 793,932,091
Shares redeemed........... (7,234,656) (93,165,482) (9,271,066) (121,943,214)
Shares issued on
reinvestment of
distributions............ 1,125,738 14,753,369 361,713 4,756,721
- --------------------------------------------------------------------------------
Net increase (decrease)... (1,190,929) (15,337,775) 54,054,313 676,745,598
- --------------------------------------------------------------------------------
Class IS
Shares sold............... 406,764 5,356,879 15,938 212,912
Shares redeemed........... (189,400) (2,555,009) 0 0
Shares issued on
reinvestment of
distributions............ 4,800 64,029 100 1,319
- --------------------------------------------------------------------------------
Net increase.............. 222,164 2,865,899 16,038 214,231
- --------------------------------------------------------------------------------
Net increase (decrease) in
net assets resulting from
capital share
transactions............. $(12,471,876) $ 676,959,829
- --------------------------------------------------------------------------------
</TABLE>
Equity Income Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(b)
--------------------- -----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold................... 99,483 $ 8,224,911 2,538,811 $222,155,844
Shares redeemed............... (162,240) (13,411,313) (244,829) (22,042,302)
Shares issued in reinvestment
of distributions............. 135,039 10,585,838 120 10,787
- ------------------------------------------------------------------------------
Net increase.................. 72,282 5,399,436 2,294,102 200,124,329
- ------------------------------------------------------------------------------
Class IS
Shares sold................... 13,295 1,096,205 20,878 1,921,605
Shares redeemed............... (13,169) (1,080,337) (4,122) (369,322)
Shares issued in reinvestment
of distributions............. 1,152 90,642 59 5,373
- ------------------------------------------------------------------------------
Net increase.................. 1,278 106,510 16,815 1,557,656
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share
transactions................. $ 5,505,946 $201,681,985
- ------------------------------------------------------------------------------
</TABLE>
(a) For Balanced Fund, Class I and Class IS, the capital share activity is for
the period from January 22, 1998 and April 9, 1998, respectively, (com-
mencement of each Class' operations) to June 30, 1998.
(b) For Equity Income Fund, Class I and Class IS, the capital share activity is
for the period from November 24, 1997 and March 11, 1998, respectively,
(commencement of each classes operations) to June 30, 1998.
20
<PAGE>
Combined Notes to Financial Statements(Unaudited) (continued)
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities (excluding
short-term investments) were as follows for the six months ended December 31,
1998:
<TABLE>
<CAPTION>
Cost of Purchases Proceeds from Sales
----------------------- -----------------------
Non- Non-
Government Government Government Government
<S> <C> <C> <C> <C>
-----------------------------------------------
Balanced Fund... $62,644,541 $73,920,055 $70,664,402 $87,679,180
Equity Income
Fund........... 0 73,341,223 5,524,295 73,025,810
</TABLE>
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds. Each Fund
has adopted a Distribution Plan for Class IS shares, as allowed by Rule 12b-1
of the 1940 Act. Distribution plans permit a fund to reimburse its principal
underwriter for costs related to selling shares of the fund and for various
other services. These costs, which consist primarily of commissions and service
fees to broker-dealers who sell shares of the fund, are paid by the fund
through expenses called "Distribution Plan expenses". Class IS, currently pays
a service fee equal to 0.25% of the average daily net asset of the class. Dis-
tribution Plan expenses are calculated daily and paid quarterly.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
Class IS.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Evergreen Investment Management ("EIM"), formerly the Capital Markets Group, a
division of FUNB is the investment advisor to each Fund. Each Fund pays EIM a
fee for its services as set forth below. The annual advisory fees are calcu-
lated daily and paid monthly and are based on a percentage of average daily net
assets of each Fund.
<TABLE>
<CAPTION>
Annual
Advisory fee
------------
<S> <C>
Balanced Fund................... 0.60%
Equity Income Fund.............. 0.70%
</TABLE>
EIM has voluntarily agreed to reduce the investment advisory fee on each Fund
by 0.10% and to reimburse a portion of each Fund's annual operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary expenses).
For the six months ended December 31, 1998, EIM voluntarily reduced its fees by
$349,440 and $95,020 on Balanced Fund and Equity Income Fund, respectively.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and BISYS is sub-administrator to the Funds. As administrator, EIS
provides the Funds with facilities, equipment and personnel. As sub-administra-
tor to the Funds, BISYS provides the officers of the Funds. The administrator
and sub-administrator for each Fund are entitled to an annual fee based on the
average daily net assets of the funds administered by EIS for which First Union
or its investment advisory subsidiaries are also the investment advisors. The
administration fee is calculated by applying percentage rates, which start at
0.05% and decline to 0.01% per annum as net assets increase, to the average
daily net asset value of the Fund. The sub-administration fee is calculated by
applying percentage rates, which start at 0.01% and decline to .004% per annum
as net assets increase, to the average daily net asset value of the Fund. For
the six months ended December 31, 1998, EIS and BISYS received the following
amounts for providing services to the Funds:
<TABLE>
<CAPTION>
EIS BISYS
<S> <C> <C>
---------------
Balanced Fund............... $74,322 $19,319
Equity Income Fund.......... 20,215 5,252
</TABLE>
21
<PAGE>
Combined Notes to Financial Statements(Unaudited) (continued)
Evergreen Service Company ("ESC"), an indirect, wholly owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC re-
lating to certain cash balances held at First Union for the benefit of the Ev-
ergreen Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
11. FINANCING AGREEMENTS
Certain Evergreen Funds and State Street Bank and Trust Company ("SSB") and a
group of banks (collectively, the "Banks") entered into a financing agreement
dated December 22, 1997, as amended on November 20, 1998. Under this agreement,
the Banks provide an unsecured credit facility in the aggregate amount of $400
million ($275 million committed and $125 million uncommitted). The credit fa-
cility is allocated, under the terms of the financing agreement, among the
Banks. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bore interest at 0.50% per annum above the Fed-
eral Funds rate. A commitment fee of 0.065% per annum was incurred on the un-
used portion of the committed facility, which will be allocated to all funds.
For its assistance in arranging this financing agreement, the Capital Market
Group of First Union was paid a one-time arrangement fee of $27,500. SSB served
as agent for the Banks, and as administrative agent is entitled to a fee of
$20,000 per annum which is allocated to all of the participating Funds.
On December 22, 1998, this financing agreement was amended and renewed among
all Evergreen Funds, SSB and Bank of New York ("BONY"). Under this agreement,
SSB and BONY provide an unsecured credit facility in the aggregate amount of
$150 million ($125 million committed and $25 million uncommitted). The remain-
ing terms and conditions of the agreement were unaffected.
During the six months ended December 31, 1998, the Funds had no borrowings un-
der these agreements.
12. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisor and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisor is taking steps to
address this potential year 2000 problem with respect to the computer systems
that they use and to obtain satisfactory assurances that comparable steps are
being taken by the Funds' other major service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid any ad-
verse impact on the Funds from this problem.
22
<PAGE>
December 31, 1998
[ARTWORK APPEARS HERE]
Evergreen Select Semi Annual Report
Equity Funds
Evergreen Select Balanced Fund
Evergreen Select Equity Income Fund
[LOGO OF EVERGREEN FUNDS(SM) APPEARS HERE]
<PAGE>
December 31, 1998
[ARTWORK APPEARS HERE]
Evergreen Select
Equity Growth Funds
Semiannual Report
[LOGO OF EVERGREEN FUNDS/TM/ APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Letter to Shareholders .................................................. 1
Evergreen Select Core Equity Fund
Fund at a Glance ...................................................... 2
Portfolio Manager Commentary .......................................... 3
Evergreen Select Diversified Value Fund
Fund at a Glance ...................................................... 5
Portfolio Manager Commentary .......................................... 6
Evergreen Select Large Cap Blend Fund
Fund at a Glance ...................................................... 8
Portfolio Manager Commentary .......................................... 9
Evergreen Select Small Cap Growth Fund
Fund at a Glance ...................................................... 11
Portfolio Manager Commentary .......................................... 12
Evergreen Select Small Company Value Fund
Fund at a Glance ...................................................... 15
Portfolio Manager Commentary .......................................... 16
Evergreen Select Social Principles Fund
Fund at a Glance ...................................................... 20
Portfolio Manager Commentary .......................................... 21
Evergreen Select Special Equity Fund
Fund at a Glance ...................................................... 23
Portfolio Manager Commentary .......................................... 24
Evergreen Select Strategic Growth Fund
Fund at a Glance ...................................................... 27
Portfolio Manager Commentary .......................................... 28
Evergreen Select Strategic Value Fund
Fund at a Glance ...................................................... 30
Portfolio Manager Commentary .......................................... 31
Financial Highlights
Evergreen Select Core Equity Fund ..................................... 34
Evergreen Select Diversified Value Fund ............................... 35
Evergreen Select Large Cap Blend Fund ................................. 36
Evergreen Select Small Cap Growth Fund ................................ 38
Evergreen Select Small Company Value Fund ............................. 39
Evergreen Select Social Principles Fund ............................... 40
Evergreen Select Special Equity Fund .................................. 42
Evergreen Select Strategic Growth Fund ................................ 44
Evergreen Select Strategic Value Fund ................................. 45
Schedule of Investments
Evergreen Select Core Equity Fund ..................................... 46
Evergreen Select Diversified Value Fund ............................... 49
Evergreen Select Large Cap Blend Fund ................................. 51
Evergreen Select Small Cap Growth Fund ................................ 53
Evergreen Select Small Company Value Fund ............................. 55
Evergreen Select Social Principles Fund ............................... 58
Evergreen Select Special Equity Fund .................................. 60
Evergreen Select Strategic Growth Fund ................................ 62
Evergreen Select Strategic Value Fund ................................. 64
Statements of Assets and Liabilities .................................... 66
Statements of Operations ................................................ 68
Statements of Changes in Net Assets ..................................... 70
Combined Notes to Financial Statements .................................. 75
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
over $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
February 1999
[PHOTO OF WILLIAM M. ENNIS
APPEARS HERE]
William M. Ennis
[PHOTO OF DAVID C. FRANCIS
APPEARS HERE]
David C. Francis, CFA
Dear Shareholders:
We are pleased to provide you the Evergreen Select Equity Funds semiannual
report covering the six months ended December 31, 1998.
Increased Market Volatility in 1998
During the year, interest rates declined while inflation was low and investors
became concerned about a possible slowdown in economic growth. Despite the
volatility that started in July, the market ended on a positive note, as
indicated by the Dow Jones Industrial Average posting an 18.1% gain and the S&P
500 returning 28.7% for the 12 months ended December 31, 1998. The financial
markets have certainly experienced increased volatility compared to a smoother
ride we saw in the past few years, and we anticipate the volatility will
continue. We encourage you to take this opportunity to talk to your financial
representative and review your investment time horizon to ensure you are on
track with your goals.
Introduction of the Euro
On January 1, 1999 eleven European countries adopted the euro as their currency.
Currently, the wholesale markets and government and financial sectors have
converted to the euro, and new securities will be issued in euro denomination
only. Full conversion to the new currency will not be completed until 2002.
At this point it is still unclear how the euro conversion will affect foreign
exchange rates, interest rates and the value of European securities, but we
believe the potential benefits to globally oriented investors are significant.
They include changes in currency risk, increased competition, and a central
bank. Foreign exchange risk may decrease for the countries participating in the
European Union; however, currency risk associated with rises and declines of the
value of the euro versus the dollar will still exist. Most noticeable for
investors will be the ability to compare the value of companies across the
European Union member countries without having to factor in the effect of
fluctuating currencies. Increased competition resulting from deregulation and
economic unification may produce a wave of merger and acquisition activity,
which could present attractive investment opportunities for those able to
identify the companies most inclined to benefit from restructuring. Finally, the
European Central Bank, comparable to the U.S. Federal Reserve, will provide
European Union countries with a unified monetary policy for the first time.
Year 2000/1/
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. Although Evergreen Funds is striving to identify and
correct every issue under our control related to the Year 2000, it would be
impossible to guarantee a problem-free transition into the next millennium. Our
goal, however, is that our shareholders experience virtually no impact on the
products and services we deliver.
Thank you for your continued investment in Evergreen Select Funds.
Sincerely,
[SIGNATURE APPEARS HERE]
William M. Ennis
Managing Director
Evergreen Funds
/s/ David C. Francis, CFA
David C. Francis, CFA
Managing Director
Chief Investment Officer
First Capital Group
1 The information above constitutes Year 2000 readiness disclosure.
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
Evergreen Select Core Equity Fund utilizes a diversified style of equity
management which capitalizes on opportunities in both value- and growth-oriented
stocks. In serving the investment needs of individual investors, the Fund
remains sensitive to tax implications.
Process
The Fund uses a bottom-up stock selection process, focusing on security
fundamentals rather than broad economic forecasts. The Fund is managed using a
team approach; investment managers locate attractive holdings using a unique
blend of quantitative and traditional fundamental analysis skills.
Benchmark
S&P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
- ------------------------------------------------------------------------
6 months 0.85% 0.73%
- ------------------------------------------------------------------------
1 year 12.97% 12.74%
- ------------------------------------------------------------------------
3 years 21.90% 21.63%
- ------------------------------------------------------------------------
5 years 17.99% 17.72%
- ------------------------------------------------------------------------
10 years 15.23% 14.95%
- ------------------------------------------------------------------------
Since Inception 15.60% 15.32%
- ------------------------------------------------------------------------
6-month income distributions per share $0.45 $0.31
- ------------------------------------------------------------------------
6-month capital gain distributions per share $7.83 $7.83
- ------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Core Equity CPI S & P 500
---- ------------------ --- ---------
12/31/81 1,000,000 1,000,000 1,000,000
12/31/83 1,513,353 1,078,153 1,489,603
12/31/85 2,010,982 1,163,062 2,085,321
12/31/87 2,505,532 1,228,065 2,604,509
12/31/89 3,634,087 1,341,561 3,999,411
12/31/91 4,537,789 1,467,089 5,055,943
12/31/93 5,138,335 1,551,136 5,989,504
12/31/95 6,486,702 1,631,949 8,349,414
12/31/97 10,401,679 1,716,049 13,691,122
12/31/98 11,750,743 1,746,915 17,603,220
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Core Equity Fund Class I, the S&P 500 Index and the Consumer Price Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the fund's predecessor common trust fund for the
periods before the Fund's registration statement became effective on 11/21/97.
Performance for the common trust fund has been adjusted to include the effect of
estimated mutual fund class gross expense ratios at the time the Fund was
converted to a mutual fund. If fee waivers and expense reimbursements had been
calculated into the mutual fund class expense ratio the average annual total
returns would be as follows: Class I--3 years = 21.96%; 5 years = 18.07%; 10
years = 15.32%; and since 12/31/81 = 15.69%. Class IS--3 years = 21.70%; 5 years
= 17.80%; 10 years = 15.05%; and since 12/31/81 = 15.42%. The Class IS share
performance for the period from 11/24/97 through 2/4/98 (class inception date)
is based upon the historical performance of the Class I shares, and therefore,
does not reflect 12b-1 fees. If 12b-1 fees had been included, performance for
the Class IS shares for this period would have been lower. Returns of Class I
and IS, since their respective commencement of class operations, were 13.68% and
10.04%, respectively. The return for Class IS is cumulative. The common trust
fund was not registered under the Investment Company Act of 1940 (the "1940
Act") or subject to certain investment restrictions that are imposed by the 1940
Act. If the common trust fund had been registered under the 1940 Act, its
performance may have been adversely affected. Index returns do not reflect
expenses, which have been deducted from the Fund's return. It is not possible to
invest directly in an index.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
The Fund is managed by Mark C. Sipe and Hanspeter Giger who have over 31 years
of combined investment experience. Their disciplined approach assures
consistency of results and superior service.
[PHOTO OF MARK C. SIPE APPEARS HERE]
Mark C. Sipe
[PHOTO OF HANSPETER GIGER APPEARS HERE]
Hanspeter Giger
A Unique Year
The year just ended was one of increased volatility, particularly during the
second half. From Asian economic conditions and perceived spillover effects on
the domestic economy, to political scandal, U.S. bombings of Iraq, and internet
mania, there was more than enough to keep everyone on his or her toes. Keeping
pace with the market, as represented by the S&P 500, was the real challenge to
investors with diversified portfolios with significant holdings in stocks
outside the largest 50 stocks in the S&P 500.
Portfolio
Characteristics
---------------
Total Net Assets $1,892,837,747
- ------------------------------------------------------
Number of Issues 121
- ------------------------------------------------------
P/E Ratio 30.1x
- ------------------------------------------------------
Beta 1.00
- ------------------------------------------------------
A Narrow Market Advance
As highlighted in earlier Fund reports, the performance of the largest of the
large-capitalization stocks versus all other stocks was a strong theme that
continued in the last six months of 1998. This occurred despite a strong but
rapidly diminishing rally in smaller stocks, as represented by the Russell 2000
Index, which took place starting in early October and peaked just a month later.
For the year, the gap between the dollar-weighted S&P 500 and the equally
weighted index was a 21.4% spread, according to information provided by Salomon
Smith Barney. To further emphasize the performance disparity, the top 10 S&P
stocks by market cap were up over 68% versus the average stock in the index up
just under 13% in 1998. During the latter two quarters of the year, that same
comparison yielded a 23 percentage point disparity in favor of the S&P Top 10
over the average stock in the S&P 500 Index.
The Fund's Performance
The market cap phenomenon clearly affected the Evergreen Select Core Equity
Fund's performance during the first half of its fiscal year, as it delivered a
total return of 0.85% compared to the S&P 500's 9.35%. The Fund's performance
more closely tracked the average diversified equity fund, as measured by Lipper
Analytical Services, although it trailed the yardstick measure of 2.17% for the
fiscal period.
An analysis of the Fund's performance indicates that a significant portion of
its performance deficit relative to other large-cap-oriented funds was directly
attributable to the comparatively lower, dollar-weighted, median market cap of
its holdings. This comparison indicates it was not stock selection per se, but
underweightings in the portfolio's largest capitalization stocks relative to
their weightings in the S&P 500 that accounted for the bulk of the difference in
performance in both periods.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 5 Industry Allocation
-------------------------
(based on 12/31/98 net assets)
Information Services & Technology 17.5%
- -----------------------------------------------------------
Healthcare Products & Services 15.7%
- -----------------------------------------------------------
Food & Beverage Products 8.5%
- -----------------------------------------------------------
Oil/Energy 7.2%
- -----------------------------------------------------------
Finance & Insurance 6.6%
- -----------------------------------------------------------
Sector Activity and Stock Selection
Other factors, namely sector weightings and stock selection, clearly affected
the Fund's performance as well. During 1998, the technology, communications
services, and healthcare sectors led the market, and those same sectors were
also the stars in the Core Equity Fund's fiscal period. These can generally be
classified as the "growth" segments of the market.
Focusing specifically on the last two quarters, the dichotomy in performance can
be demonstrated in the Fund's holdings, where 13 of the top 20 stocks in the
Fund were technology names that were up 54% on average. Further, all but 4 of
the top 20 performing stocks came from the best-performing sectors mentioned
above, and the average market cap for all of the top 20 names was roughly $59
billion. Lastly, stock selection was a positive contributor in Technology and
Communications Services, although not so in Health Care, where the Fund was
under-represented in large-cap pharmaceutical company stocks versus the
benchmark.
Lagging sectors, which were common to the six-month period and the year, were
the generally more mature, or "value" segments, such as basic materials, energy,
transportation, and electric utilities. During the final two quarters of the
year, those sectors were joined by the financial stocks. Of the poorest
performers in the Fund during the same period, 11 of the 20 worst stocks came
from 3 of those 4 sectors, with the average stock in that group down 43%. The
average market capitalization of those same stocks was under $4 billion, and not
much higher for the bottom 20 names at $7 billion. In addition to the poor
showings of the sectors themselves, overweighted positions in basic materials
and energy also affected the performance of the Fund.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
General Electric Co. 3.8%
- -----------------------------------------------------------------
Coca Cola Co. 3.2%
- -----------------------------------------------------------------
International Business Machines Corp. 2.7%
- -----------------------------------------------------------------
Phillip Morris Companies, Inc. 2.4%
- -----------------------------------------------------------------
MCI WorldCom, Inc. 2.4%
- -----------------------------------------------------------------
Intel Corp. 2.3%
- -----------------------------------------------------------------
SmithKline Beecham Plc. A DR 1.9%
- -----------------------------------------------------------------
Du Pont (E.I.) De Nemours & Co. 1.8%
- -----------------------------------------------------------------
Microsoft Corp. 1.8%
- -----------------------------------------------------------------
Compaq Computer Corp. 1.7%
- -----------------------------------------------------------------
Looking ahead to 1999
The outlook for the stock market remains challenged by the issues of the day, in
particular the resilience of the U.S. economy in the face of difficulties
abroad. The direction and relative strength of corporate earnings will remain a
key focus for investors. Domestic economic conditions remain sound for now, with
interest rates and inflation supportive of continued, modest growth. In late
December, we began allocating the Fund's holdings in proportion to their
respective weighting within the market indices. We believe that while not
changing our stock selection criteria or process, this modification will help
overcome the primary factor causing our comparative performance shortfall in the
first half of the fiscal year. Thorough research of each equity investment going
into the Fund, focusing on business fundamentals as well as valuation will
continue to be the focus of our efforts over the long term.
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
The Evergreen Select Diversified Value Fund is a core fund with an emphasis on
traditional value, utilizing fundamental analysis to determine if a stock is
selling at a reasonable valuation level. The Fund seeks to capture the best
opportunities in a value universe by emphasizing securities with perceived
intrinsic value above current market levels due to temporary or anticipated
problems.
Process
Primarily, the Fund invests in undervalued companies using a "bottom-up"
approach that concentrates on analyzing security fundamentals rather than broad
economic forecasts. The Diversified Value team strives to produce a portfolio
that best controls risk and balances a risk/reward relationship.
Benchmark
S&P 500
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
6 months -0.10% -0.25%
- -------------------------------------------------------------------------
1 year 8.69% 7.15%
- -------------------------------------------------------------------------
3 years 17.75% 17.19%
- -------------------------------------------------------------------------
5 years 17.11% 16.78%
- -------------------------------------------------------------------------
Since Inception 16.37% 16.16%
- -------------------------------------------------------------------------
6-month income distributions per share $0.13 $0.08
- -------------------------------------------------------------------------
6-month capital gain distributions per share $0.65 $0.65
- -------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Diversified Value CPI S & P 500
---- ------------------------ --- ---------
1/31/91 1,000,000 1,000,000 1,000,000
12/31/91 1,211,029 1,024,510 1,250,238
12/31/92 1,311,716 1,053,923 1,345,474
12/31/93 1,439,063 1,083,202 1,481,090
12/31/94 1,468,867 1,112,184 1,500,655
12/31/95 1,941,881 1,139,636 2,064,651
12/31/96 2,314,959 1,178,306 2,538,595
12/31/97 2,916,951 1,198,366 3,385,553
12/31/98 3,170,531 1,219,921 4,352,940
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Diversified Value Fund Class I, the S&P 500 Index and the Consumer Price Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I shares' historical
performance, prior to 1/22/98, is that of the original Evergreen Value Fund
Class Y. Class IS shares' historical performance, prior to 1/22/98, is that of
the original Evergreen Value Fund Class Y, and subsequently reflects that of the
original Class I shares and does not reflect 12b-1 fees. If 12b-1 fees had been
included, performance for the Class IS shares for these periods would have been
lower. Returns of Class I and IS, since their respective commencement of class
operations, were 10.61% and -2.43%, respectively. These returns are cumulative.
Index returns do not reflect expenses, which have been deducted from the Fund's
return. It is not possible to invest directly in an index.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
Jack Gray, Steve Hoeft, and Eric Teal, who have a combined 49 years of
investment experience, manage the Evergreen Select Diversified Value Fund. The
team employs rigorous fundamental analysis combined with a disciplined
quantitative approach to seek superior results and adherence to risk/reward
objectives.
[PHOTO OF JACK GRAY APPEARS HERE]
Jack Gray
[PHOTO OF STEVE HOEFT APPEARS HERE]
Steve Hoeft
[PHOTO OF ERIC TEAL APPEARS HERE]
Eric Teal
A Challenging Market Environment
It was extremely difficult for active strategies to outperform passive
strategies in 1998. Market leadership has been narrowing since the profit cycle
peaked in early 1995; in fact, the actual market-cap weighted S&P 500 index
outperformed the equal-weighted index by over 1500 basis points in 1998, the
largest margin since the "Nifty Fifty" period of the early-1970's. Despite
strong performance from the popular market indices, the average stock declined
during the year and the secondary averages were flat or negative.
Moreover, growth funds significantly outperformed value funds during this
period. This phenomenon is rather typical during a profit recession since only a
few growth companies are able to maintain their growth rates and, thus, these
stocks become too expensive for value funds, because by definition value
managers are contrarian and comparison shoppers. The profit cycle has been
decelerating since 1995 and growth has outperformed value during this period.
Portfolio
Characteristics
Total Net Assets $685,878,000
- ---------------------------------------------------------------
Number of Issues 70
- ---------------------------------------------------------------
P/E Ratio 23.6x
- ---------------------------------------------------------------
Beta 0.99
- ---------------------------------------------------------------
Fund Performance
For the six-month period, the Evergreen Diversified Value Fund posted a net
return of -0.1% versus 9.2 % for the S&P 500. The six months were broken into
two distinctly different periods: in the first three months, the Fund declined
- -16.3% versus the -10.3% decline for the S&P 500; and during the final three
months, the Fund returned +19.3% versus +21.3% for the index. The majority of
the underperformance occurred during the market correction in the third calendar
quarter. Lagging performance was due primarily to our defensive portfolio
posture-during a period when higher-risk strategies were rewarded-and
underweighting in the technology sector, rather than poor stock selection or
sector weighting. During the final three months, the Fund equaled or exceeded
the benchmark until the strong technology rally in December.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 5 Industries
----------------
(based on 12/31/98 net assets)
Healthcare Products & Services 13.2%
- ----------------------------------------------------------------
Food & Beverage Products 10.9%
- ----------------------------------------------------------------
Information Services & Technology 10.4%
- ----------------------------------------------------------------
Banks 7.2%
- ----------------------------------------------------------------
Finance & Insurance 7.1%
- ----------------------------------------------------------------
Stock Selection and Sector Weighting
Although the Fund's absolute performance was below the market, we hope the
positive stock selection trends of the fourth quarter carry into 1999.
Ironically, some of the Fund's worst performing stocks during the third quarter
of 1998 were the best performers in the fourth. Fortunately, we stuck with our
discipline and did not capitulate in the troughs; we enjoyed the rise back up
with Chase Manhattan and Bankers Trust, up 66% and 47%, respectively, after
declining 43% and 48% during the third quarter. Similarly, within the technology
area electronics maker Tellabs declined 44% during the third quarter, but
adherence to our discipline and strategy allowed us to view this decline as an
opportunity to increase the position and enjoy a 72% fourth quarter return.
From a sector standpoint, negative impacts to performance came from two major
areas: energy and health care. Positions in offshore oil-drillers negatively
impacted results as crude prices declined to a twelve-year low and oil
exploration and capital spending significantly declined. The Fund's overweight
in health care also penalized results during the quarter as HMOs around the
nation face Congressional cutbacks in Medicare reimbursements enacted last
summer. The Fund's technology positions in Nokia and Sun Microsystems, however,
appreciated significantly during the six months, up 65% and 97%, respectively.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
General Electric Co. 3.9%
- -----------------------------------------------------------------------
Pfizer, Inc. 3.7%
- -----------------------------------------------------------------------
Microsoft Corp. 3.4%
- -----------------------------------------------------------------------
International Business Machines Corp. 3.4%
- -----------------------------------------------------------------------
Tyco International Ltd. 3.3%
- -----------------------------------------------------------------------
GTE Corp. 3.3%
- -----------------------------------------------------------------------
Bestfoods 2.8%
- -----------------------------------------------------------------------
Cisco Systems, Inc. 2.7%
- -----------------------------------------------------------------------
Procter & Gamble Co. 2.7%
- -----------------------------------------------------------------------
Houston Industries, Inc. 2.6%
- -----------------------------------------------------------------------
Outlook
The robust performance of the S&P 500 was concentrated in the largest-cap growth
companies; thus, value managers suffered. This trend should reverse when the
profit cycle begins to accelerate and growth becomes plentiful; then value
should begin to outperform. The Fund, although diversified, with over 70 stocks,
has over 32% invested in the top 10 picks. Currently, the Fund does own some of
the largest growth technology companies like Microsoft and Cisco, as well as the
tried-and-true blue chips like General Electric and IBM. Past performance will
be a frail guide to future performance, and the Fund is now well positioned to
capture the return from both the value and growth sectors. Overall, the Fund
maintains its tilt toward value and continues to maintain defensive
characteristics with a below market beta and an overweighting in the more
defensive industries such as utilities and consumer staples. We believe the Fund
should perform well in most market environments.
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
Evergreen Select Large Cap Blend Fund invests in large and mid-sized U.S.
companies, blending those that display both value- and growth-oriented
characteristics. This philosophy holds that value and growth stocks tend to be
countercyclical, outperforming the broad market at different times.
Diversification between the two approaches tends to provide less volatile
investment results over time.
Process
Research and stock selection focus on companies of sound financial quality which
have strong management teams and maintain competitive leadership positions
within their respective industries. These companies are identified using a
fundamental, bottom-up stock selection process which is research-intensive.
Benchmark
S&P 500 Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS Class IC
Average Annual Returns
- --------------------------------------------------------------------------------
6 months 1.05% 0.93% 1.05%
- --------------------------------------------------------------------------------
1 year 11.83% 11.60% 11.83%
- --------------------------------------------------------------------------------
3 years 24.39% 24.14% 24.39%
- --------------------------------------------------------------------------------
5 years 20.55% 20.28% 20.55%
- --------------------------------------------------------------------------------
Since Inception 20.55% 20.28% 20.55%
- --------------------------------------------------------------------------------
6-month income distributions per share $0.22 $0.17 $0.22
- --------------------------------------------------------------------------------
6-month capital gain distributions per share $5.18 $5.18 $5.18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date Select Large Cap Blend CPI S & P 500
---- ---------------------- --- ---------
12/31/93 1,000,000 1,000,000 1,000,000
12/31/94 947,696 1,026,756 1,013,210
12/31/95 1,322,476 1,052,099 1,394,008
12/31/96 1,746,010 1,087,799 1,714,004
12/31/97 2,276,496 1,106,318 2,285,852
12/31/98 2,545,662 1,126,217 2,939,011
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Large Cap Fund Class IC, the S&P 500 Index and the Consumer Price Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Classes I, IC and IS performance
information includes the performance of the Fund's predecessor common trust fund
for the periods before the Fund's registration statement became effective on
11/21/97. Performance for the common trust fund has been adjusted to include the
effect of estimated mutual fund class gross expense ratios at the time the Fund
was converted to a mutual fund. If fee waivers and expense reimbursements had
been calculated into the mutual fund class expense ratio, the total returns
would be as follows: Class I--3 years = 24.46%; 5 years = 20.64%; and since
12/31/93 = 20.64%. Class IC--3 years = 24.47%; 5 years = 20.64%; and since
12/31/93 = 20.64%. Class IS--3 years = 24.21%; 5 years = 20.37%; and since
12/31/93 = 20.37%. The Class I share performance for the period from 11/24/97
through 12/19/98 (class inception date) is based upon the historical performance
of the Class IC shares. The Class IS share performance for the period from
11/24/97 through 3/11/98 (class inception date) is based upon the historical
performance of the Class IC shares and therefore does not reflect 12b-1 fees. If
12b-1 fees had been included, performance for the Class IS shares for this
period would have been lower. Returns of Class I, IC and IS, since their
respective commencement of class operations, were 14.39%, 12.97% and 3.12%,
respectively. The return for Class IS is cumulative. The common trust fund was
not registered under the Investment Company Act of 1940 (the "1940 Act") or
subject to certain investment restrictions that are imposed by the 1940 Act. If
the common trust fund had been registered under the 1940 Act, its performance
may have been adversely affected. Index returns do not reflect expenses, which
have been deducted from the Fund's return. It is not possible to invest directly
in an index.
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
The Evergreen Select Large Cap Blend Fund is managed by a team of 4 portfolio
managers with over 90 years of combined investment experience. The team-oriented
approach incorporates multiple perspectives to identify the most attractive
opportunities in the market and ensures adherence to the style-specific
objectives.
[PHOTO OF ERIC WIEGAND APPEARS HERE]
[PHOTO OF DARRYL BROWN APPEARS HERE]
[PHOTO OF STEVE HOEFT APPEARS HERE]
[PHOTO OF DEAN HAWES APPEARS HERE]
Performance
For the six months ended December 31, 1998, the Evergreen Select Large Cap Blend
Fund Class I shares' 1.05% total return trailed the 9.35% return for the S&P 500
Index. Underlying the six-month returns were two distinctly different periods.
The Fund fell sharply, -15.3%, during the first three months before rebounding
sharply, up 19.3%, during the final three months.
The stock market's overwhelming growth bias combined with our reluctance as
managers to emphasize highly valued, growth-oriented companies was primarily
responsible for lagging performance during the six months, as high-expectation,
mega-cap, and typically expensive growth stocks, continued to dominate the
market.
Portfolio
Characteristics
---------------
Total Net Assets $511,226,714
- ------------------------------------------------------
Number of Issues 53
- ------------------------------------------------------
P/E Ratios 26x
- ------------------------------------------------------
Beta 1.03
- ------------------------------------------------------
Portfolio Adjustments
Within the portfolio's healthcare weighting, which increased modestly during the
six months, we sold SmithKline Beecham and purchased Warner Lambert, a
diversified and somewhat more recession-proof pharmaceutical company whose
product line-up includes Lipitor, Sudafed, Listerine and Rolaids. We sold mutual
fund firm T. Rowe Price after a solid run-up in price and used the proceeds to
purchase Fannie Mae, a financially strong, high-growth opportunity selling at an
attractive valuation.
From a sector standpoint, we have continued to de-emphasize energy and basic
material stocks. Both of these industries are experiencing tough times as energy
companies have been hurt by plummeting oil prices while basic material stocks,
we feel, may continue to struggle amid the global economic slowdown.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 5 Industry Allocation
- -----------------------------------------------------------
(based on 12/31/98 net assets)
Healthcare Products & Services 15.9%
- -----------------------------------------------------------
Information Services & Technology 12.5%
- -----------------------------------------------------------
Banks 10.2%
- -----------------------------------------------------------
Finance & Insurance 7.8%
- -----------------------------------------------------------
Communications Systems & Services 6.6%
- -----------------------------------------------------------
Sector Activity
The Fund's exposure to communication services stocks had a positive impact on
performance during the period, as Century Telephone and MCI Worldcom posted six-
month returns of 47% and 48%, respectively. Finance companies were especially
affected by international turmoil in the opening months before rebounding
markedly in the final three months. The Fund's exposure to the financial
industry includes companies such as Mellon Bank, Fleet Financial and Merrill
Lynch.
The portfolio's strong technology weighting reflects our favorable long-term
outlook for this industry. As companies turn to technological solutions to
increase productivity (and profits), technology has emerged as the prominent
high-growth sector, a trend that we expect to continue. Within this area, we
purchased IBM--the quintessential mega-cap, highly visible technology company--
at roughly $124 in early October and watched it soar past $180 by year-end.
Other strong technology performers during the fiscal period include Cisco
Systems and Intel, which posted total returns of 51% and 60%, respectively.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Microsoft Corp. 3.7%
- --------------------------------------------------------------------------
General Electric Co. 3.5%
- --------------------------------------------------------------------------
Compaq Computer Corp. 3.4%
- --------------------------------------------------------------------------
Cisco Systems, Inc. 3.4%
- --------------------------------------------------------------------------
Bristol-Myers Squibb Co. 3.3%
- --------------------------------------------------------------------------
MCI WorldCom, Inc. 3.2%
- --------------------------------------------------------------------------
Tyco International Ltd. 2.9%
- --------------------------------------------------------------------------
Johnson & Johnson 2.8%
- --------------------------------------------------------------------------
Pfizer, Inc. 2.7%
- --------------------------------------------------------------------------
GTE Corp. 2.6%
- --------------------------------------------------------------------------
Looking Ahead to 1999
Going forward, we anticipate a volatile investing environment as the effects of
the global economic crisis continue to filter back to U.S. financial markets. We
feel the portfolio is well positioned, however, for the current economic
climate. Adjustments made over the past several months have created a portfolio
with a growth rate substantially higher than the S&P 500, while simultaneously
enjoying attractive valuation levels--the Fund's price-to-earnings ratio is in
line with the index, while the portfolio's price-to-book ratio is at a
meaningful discount.
The portfolio will continue to emphasize industries that we believe are poised
for growth due to favorable underlying economic themes: sectors such as
healthcare and technology. Consistent with our long-term, bottom-up investment
strategy, the Fund will emphasize well-managed, industry-dominant companies with
reasonable valuation levels that demonstrate the ability to meet-and
exceed-earnings expectations.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
The Fund seeks to provide shareholders with long-term growth of capital by
investing in small company stocks. We believe that the risk associated with
smaller company stocks can be managed effectively by diversification and careful
attention to valuation.
Process
The Fund manager uses a fundamental, bottom-up stock selection process which is
research-intensive. The Fund generally invests in stocks of companies which have
market capitalization of $1 billion or less and above average long-term growth
rates. Our research process identifies buying opportunities in small company
stocks of high-quality companies that have a competitive advantage, are
growth-oriented, and are reasonably valued.
Benchmark
Russell 2000 Growth Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I
Performance Inception Date 12/30/95
- -----------------------------------------------------------------------
Average Annual Returns
- -----------------------------------------------------------------------
6 months -4.03%
- -----------------------------------------------------------------------
1 year 2.21%
- -----------------------------------------------------------------------
3 years 9.85%
- -----------------------------------------------------------------------
Since Inception 9.82%
6-month capital gain distributions per share $0.02
- -----------------------------------------------------------------------
LONG TERM GROWTH
- -----------------------------------------------------------------------
Date Select Small Cap Growth CPI Russell 2000
---- ----------------------- --- ------------
12/31/95 1,000,000 1,000,000 1,000,000
6/30/96 1,148,000 1,021,174 1,103,599
12/31/96 1,204,471 1,033,932 1,164,945
6/30/97 1,231,868 1,045,015 1,283,778
12/31/97 1,296,802 1,051,534 1,425,436
6/30/98 1,381,010 1,062,616 1,495,657
12/31/98 1,325,415 1,070,448 1,389,114
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Small Cap Growth Fund, Class I, the Russell 2000 Index and the Consumer Price
Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The Russell 2000 Growth Index is an
unmanaged index and does not include transaction costs associated with buying
and selling securities or any management fees.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management
The Evergreen Select Small Cap Growth Fund is managed by Thomas L. Holman. Mr.
Holman is a member of the Small Cap Growth Team at Evergreen Investment
Management Co., where he manages the Fund and separately managed, small-cap
growth accounts. His research responsibilities are focused on telecommunication
service companies. Prior to joining Evergreen in 1997, Mr. Holman was a
portfolio manager and securities analyst at Invista Capital Management. He
developed quantitative models and had co-management responsibility for several
small- and mid-cap portfolios. As an analyst, he was a generalist, covering a
wide variety of industries, including technology, telecommunications equipment,
media services, basic industry, consumer staples and retail. Mr. Holman received
both his B.S. and M.B.A degrees from Iowa State University.
[PHOTO OF TOM HOLMAN APPEARS HERE]
Performance
The Evergreen Select Small Company Growth Fund had a total return of -4.03%
during the six-month period that ended on December 31, 1998. This was consistent
with the performance of the Russell 2000 Growth Index, a commonly used benchmark
for small company growth stock performance, which had a return of -4.01% during
the same six-month period.
Portfolio
Characteristics
---------------
Total Net Assets $66,641,069
- -------------------------------------------------------------
Number of Issues 66
- -------------------------------------------------------------
P/E Ratios 38.3x
- -------------------------------------------------------------
Beta 1.35
- -------------------------------------------------------------
Environment
The six months were composed of two, distinct and sharply contrasting periods
for small company stocks: uncertainty and falling prices in the first three
months; and renewed confidence and a strong rally during the second three
months.
The July-September period was characterized by concerns that the problems in
Asia, Russia and Latin America could send the global economy into a tailspin.
These worries caused the U.S. small company stock market to suffer its worst
price loss in 20 years. The Russell 2000 Growth Index lost 22.4% of its value in
the three-month period of July through September.
The October-December period marked a reversal, and the small company stock
market surged, propelled principally by the Federal Reserve's three successive
cuts in short-term interest rates, followed by similar actions by European
monetary authorities. These actions calmed the fears that a global recession
could occur and set the stage for the dramatic rebound in stock prices,
including small company stock prices. The Russell 2000 Growth Index rebounded
with a 23.64% return during the three months, and the Fund did even better, with
a 25.29% return.
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Strategy
In the summer and through most of the fall, we focused on investments in
domestic companies, particularly in defensive industries that were least likely
to be affected by the problems that began in Asia. We invested in education
companies, advertising firms, and health care companies. Within the broad
technology sector, we avoided any company with an Asian exposure. As values were
created by the market correction in the third quarter, we built the Fund's
technology position back up, first investing in companies that were not affected
by Asia. Among the technology companies in which we invested during this period
was PMC Sierra, a communications semi-conductor manufacturer. Its total return
during the fourth quarter was 98%. In addition, we invested in two
semi-conductor equipment companies. PRI Automation had a 108% return for the
Fund in the fourth quarter, and Asyt Technology had a 191% return during the
same three months. When the market started to turn positive, it appeared that
semi-conductor-related companies were especially attractive. While their stock
prices had been pummeled as a result of fears about Asia, the prospects for the
industry were turning very positive because of low inventories and strong
demand.
Top 5 Industries
----------------
(based on 12/31/98 net assets)
Information Services & Technology 20.2%
- ---------------------------------------------------------------
Electrical Equipment & Services 8.1%
- ---------------------------------------------------------------
Education 8.0%
- ---------------------------------------------------------------
Healthcare Products & Services 7.3%
- ---------------------------------------------------------------
Telecommunication Services & Equipment 6.8%
- ---------------------------------------------------------------
We also maintained investments in European fiber companies that were benefiting
from the expansion in the telecommunications industry on the Continent. One
investment, Esprit, which we discussed in the June 30 Annual Report, was
purchased at prices ranging from $14 to $17 per share. On December 31, its stock
was trading at $47 per share as a result of its pending acquisition by Global
Telesystems Group.
When discussing technology, it is hard to avoid mentioning the Internet stocks,
which have dominated headlines in the popular press because of the explosive,
short-term performance of several stocks. While the huge returns generated by
these highfliers can be seductive, these returns come with significant risk. We
believe the Internet is a viable means of doing business and will have a
significant effect on consumer and business behavior; however, we also believe
the stock prices of some companies are extreme. In managing this Fund, we have
focused on companies that facilitate web-based activities in general, rather
than companies relying on the popularity of one web site. Two investments
illustrate this focus. Exodus Communications creates and operates websites for
other businesses to use. During the fourth quarter, this stock rose 163%.
Another example is Broadvision. This company produces the software that allows
other companies to conduct financial transactions over the Internet in a safe
environment. This company's stock rose 203% during the fourth quarter. We like
both these companies because they have clear business plans and provide products
and services that add discernible value to their clients.
In the defensive industries such as education and healthcare, we have tried to
find companies with strong positions in their market niches and demonstrated
earnings growth. Strayer Education, which operates colleges granting associates
and bachelors degrees in the Washington, D.C., area, is a good example. This is
a very profitable business with long-term revenue and profit outlooks that are
easy to
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
forecast. Another example is Xomed, in the medical equipment field. This company
produces devices used in ear, nose and throat surgery. It is dominant in its
field and continues to demonstrate good growth.
The Fund had very strong performance from three companies in particular in the
healthcare field. They were Chatten, which provides over-the-counter
pharmaceuticals and personal care products; Barr Labs, a generic drug
manufacturer; and MiniMed, which provides diabetes management products.
Outlook
We see very strong potential in the small company stock market, even as we are
aware of the risks both from emerging markets and from optimism about domestic
stocks in general.
During the fourth quarter of 1998, small company stocks and large company stocks
performed very closely to each other. As a result, the valuation discrepancies
that existed at the end of the third quarter are still in effect. On a
price/earnings basis, small company stocks are as low as they have been for the
past 20 years in relation to large company stock prices. At the same time, many
small companies are sustaining their earnings growth. In contrast, larger
companies are more likely to face the prospect of a slowdown in earnings growth.
These larger companies are more likely to be affected by a slowing of global
economic growth, and they may be less likely to wring earnings improvements from
the productivity enhancements that have helped them in the last several years.
As investors seek out growth, we think the prices of small company stocks may
prove to be very attractive.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Electronics for Imaging, Inc. 2.8%
- --------------------------------------------------------------------------------
Chattem, Inc. 2.7%
- --------------------------------------------------------------------------------
SIS Bancorp, Inc. 2.4%
- --------------------------------------------------------------------------------
Career Education Corp. 2.4%
- --------------------------------------------------------------------------------
Sipex Corp. 2.3%
- --------------------------------------------------------------------------------
Delphi Financial Group, Inc. 2.3%
- --------------------------------------------------------------------------------
Choicepoint, Inc. 2.3%
- --------------------------------------------------------------------------------
Scotts Co. (The) 2.2%
- --------------------------------------------------------------------------------
Maximus, Inc. 2.2%
- --------------------------------------------------------------------------------
Astec Industries, Inc. 2.1%
- --------------------------------------------------------------------------------
Small capitalization investing typically carries additional risks since small
companies generally have a higher risk failure. Although it may offer the
potential for greater long term results, it may also result in greater price
volatility.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
The Evergreen Select Small Company Value Fund seeks capital appreciation by
investing in little-known and relatively small companies. This requires a
significant commitment to independent research by Evergreen's team of 18
analysts, who have an average 16 years' professional experience. The management
team seeks to identify small companies that are favorably priced and have both
entrepreneurial managements and catalysts for growth. The investment discipline
pays special attention to valuations and diversification by industry and company
to reduce the volatility associated with small cap stocks.
Process
The Fund's management team uses an intensive research process to assemble a
diversified stock portfolio of small companies that:
. Are potential merger and acquisition candidates;
. Have promising new products that can cause a dramatic change in earnings;
. Are "value-timing" candidates because, while their stock may be temporarily
out of favor, they offer the potential of good, long-term appreciation;
. Can benefit from re-structuring programs of management.
Benchmark
Russell 2000
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I
Average Annual Returns
- --------------------------------------------------------------------------------
6 months -12.24%
- --------------------------------------------------------------------------------
1 year -13.21%
- --------------------------------------------------------------------------------
Since Inception -10.87%
- --------------------------------------------------------------------------------
6-month income distribution per share $0.02
- --------------------------------------------------------------------------------
6-month capital gain distributions per share $0.03
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Small Co Value CPI Russell 2000 Value
---- --------------------- --- ------------------
12/31/97 1,000,000 1,000,000 1,000,000
2/28/98 1,025,174 1,003,700 1,041,300
4/30/98 1,074,818 1,007,400 1,088,900
6/30/98 989,078 1,010,500 1,044,400
8/31/98 752,604 1,013,000 811,800
10/31/98 806,675 1,015,500 883,100
12/31/98 867,941 1,018,000 935,500
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Small Company Value Fund Class I, the Russell 2000 Value Index and the Consumer
Price Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. The Russell 2000 Index is an unmanaged
index and does not include transaction costs associated with buying and selling
securities, or any management fees.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
Nola Maddox Falcone heads the management team of the Evergreen Select Small
Company Value Team, which also includes Constance Unger (not pictured) and Peter
J. Kovalski. Nola M. Falcone is President and Co-Chief Executive Officer of
Lieber & Co. and Evergreen Asset Management Corp., with more than 30 years'
experience. Constance Unger joined Lieber and Co. as an analyst in 1998, with a
total of 12 years' experience in value investing. Previously, she served at
Segall Bryant & Hamill Investment Counselors, Society Asset Management and
Bankers Trust Co. Peter J. Kovalski, CFA, joined Lieber & Co as an analyst in
1992. Previously, he was an analyst with International Assets Advisory Corp.,
Williams Securities Group, Inc., Ryan Beck & Co., and Ayco/American Express.
[PHOTO OF NOLA MADDOX APPEARS HERE]
Nola Maddox
Falcone, CFA
[PHOTO OF PETER J. KOVALSKI APPEARS HERE]
Peter J. Kovalski, CFA
Performance
The Evergreen Select Small Company Value Fund had a total return of -12.24%
during the six-month period that ended on December 31, 1998. For the same
six-month period, the Russell 2000 Value Index, an index of small company value
stocks, had a return of -10.45%.
We attribute this underperformance to our small cap bias relative to the Russell
2000 Value Index; our overweighted position in the weak energy sector, which we
continued to reduce to an equal weighting by December 31, 1998; and a slight
overweight in the banks and financial services sector which performed below
average.
These returns were realized during a period in which large-company growth stocks
rose to high valuations in terms of price/earnings ratios while small company
value stocks tended to be ignored by many investors. We believe, however, that
this period created the conditions that play to the strength of Evergreen Asset
Management: finding value in overlooked securities. As we shall discuss in the
"Outlook" section, we believe we have had a great opportunity to acquire some
highly attractive, well managed companies with good earnings whose stocks were
overlooked because of the popularity of large company stocks.
Portfolio
Characteristics
---------------
Total Net Assets $98,112,412
- ----------------------------------------------------------------
Number of Holdings 147
- ----------------------------------------------------------------
P/E Ratio 14.2x
- ----------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Structure
During the six-month period, the Fund's managers saw extremely attractive values
in the technology sector. We were able to acquire a number of attractive
technology companies at relatively low prices. These values were created by a
business slowdown and a worldwide financial crisis, which caused a sharp
correction in technology stocks in general, especially among companies in
semi-conductor-related and personal computer-related areas. These values were
especially evident in the third and fourth quarters of 1998, when the Fund
increased its emphasis on technology. Among the strong performers were:
. Altron, which provides electronic contract manufacturing services to other
companies. Sanmina, a larger contract manufacturer, acquired Altron in
December, producing a 75.1% return for the Fund during the six-month period.
. Orbital Sciences, which makes satellite-launching and satellite-tracking
systems. The Fund invested in this company in September, and by December 31,
the investment had produced a 123.3% gain for the Fund.
Top 5 Industries
----------------
(based on 12/31/98 net assets)
Finance & Insurance 10.0%
- -------------------------------------------------------------------
Building, Construction & Furnishings 9.6%
- -------------------------------------------------------------------
Banks 9.3%
- -------------------------------------------------------------------
Consumer Products & Services 9.2%
- -------------------------------------------------------------------
Retailing & Wholesale 7.6%
- -------------------------------------------------------------------
The housing industry, which we highlighted in our last annual report for the
Fund, continued to provide opportunities, especially for the growing retirement
and first-time homeowner markets. Among the varied housing-related investments
that have already produced strong returns for the Fund are:
. Monaco Coach, manufacturer of recreational vehicles, which posted a return
for the fund of 36% during the six-month period.
. D.R. Horton, a manufacturer of single-family homes especially for first-time
buyers, returned 10% during the six months.
. CMAC, a mortgage insurance company, which was added to the Fund in September,
provided a 17.1% return by year's end.
The Fund also maintained an emphasis on the financial sector, although this
sector lagged the market for the six-month period. We believe the
under-performance of the sector during the six months will turn out to be a
temporary situation, as recession fears abate and merger-and-acquisition
activity resumes. Among the newer investments in the financial sector were:
. Pacific Century Financial Corp. In August, the Fund purchased this company,
formerly known as the Bancorp Hawaii, taking advantage of a very attractive
value created by investor concerns about the effects of the Asian crisis on
Hawaii. By December, the investment had produced a return of 56.2% for the
Fund.
. Waddell and Reed Financial, a smaller mutual fund and money management
company, added to the portfolio in August. By December 31, the investment had
produced a return of 41%.
. American Bankers Insurance Company, purchased in December. This company,
which has strong management and good growth, returned 8.5% for the Fund
despite being in the portfolio for less than a month.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Healthcare companies also presented appealing opportunities during the six-month
period. Among the companies management added to the portfolio were:
. Visx, which produces laser systems for corrective eye surgery. Added to the
Fund's portfolio in October, this company produced an 81.5% return by
December 31.
. Care Matrix, which operates very high quality, assisted-living centers for
the aging. The Fund invested in Care Matrix on October 28. By December 31,
the investment had produced a return of 46.3%.
. Exactech, which manufactures implant devices and surgical instruments for
orthopedic surgery. This investment produced a 67.4% return for the Fund
during the six months.
In light of the market volatility, the Fund managers made timely investments
during the period in classic defensive industries, including consumer goods and
utilities. Among those investments were:
. Performance Food Group, a distributor of high-quality packaged food products
to such institutions as restaurants, cafeterias and hotels, had a return of
34.4% during the six-month period.
. J.M. Smuckers, Co., manufacturer of jams and jellies, had a return of 15.3%
since being added to the Fund's portfolio on October 28.
. Central Hudson Gas & Electric Company, based in New York State, had a return
of 10.6% since being added to the portfolio on November 27.
Other investments that positively contributed during the six months included:
. Sonic Automotive, Inc., which consolidates automobile dealerships. Based in
Charlotte, N.C., this company produced a return of 102.5% for the Fund during
the six months.
. Prime Hospitality, which owns and operates lodging chains for extended stay.
This stock had been hurt by fears of a possible recession. The investment
returned 21.4% for the Fund since being added to the portfolio on November
30.
. CompX International, which produces ergonomic devices for offices, had a
return of 21.5% for the six months.
During the six-month period, seven companies in the Fund were acquired by other
companies, and three other companies were the subjects of merger-and-acquisition
announcements. Depuy Inc. was acquired by Johnson & Johnson; Cliffs Drilling Co.
was acquired by R&B Falcon; and Sanmina Corp. purchased Altron Inc. In addition,
Camco International was acquired by Schlumberger; Dime Financial Corp. was
acquired by Hubco Inc.; Beverly Bancorporation was acquired by St. Paul Bancorp
Inc.; and Maryland Federal Bancorp Inc. was acquired by BB&T. Pending were:
P.N.B. Financial, which is to be acquired by Western Bank Corporation;
Interstate Johnson Lane Inc., a regional brokerage firm based in Charlotte,
N.C., which is to be acquired by Wachovia Bank; and St. John Knits, a high-end
women's apparel manufacturer, which has a pending offer to be taken private.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Sanmina Corp. 2.1%
- --------------------------------------------------------------------------
Fair Isaac & Co. Inc. 1.9%
- --------------------------------------------------------------------------
SMART Modular Technologies, Inc. 1.8%
- --------------------------------------------------------------------------
Sonic Automotive, Inc. 1.8%
- --------------------------------------------------------------------------
Arvin Industries, Inc. 1.7%
- --------------------------------------------------------------------------
Morgan Keegan, Inc. 1.6%
- --------------------------------------------------------------------------
American Bankers Insurance Group, Inc. 1.5%
- --------------------------------------------------------------------------
Lancaster Colony Corp. 1.5%
- --------------------------------------------------------------------------
Genlyte Group, Inc. 1.4%
- --------------------------------------------------------------------------
Visx, Inc. 1.4%
- --------------------------------------------------------------------------
Outlook
The second half of 1998 continued to be a struggle generally for performance in
small company stocks, especially value issues. The Fund managers believe,
however, that the portfolio contains healthy companies, many with double-digit
earnings growth records, that have been purchased at attractive prices. The
economic conditions and relative values of small company stocks are as favorable
as they were prior to the rallies in 1967-68, 1975-76 and 1991-92, when small
companies led the equity markets. We believe we may be at a point in which the
small company stock market is poised to rally again because of a confluence of
positive factors, including:
. The easing of the money supply following three successive cuts in short-term
interest rates by the Federal Reserve;
. The superior earnings growth of small companies over large companies for the
last six calendar quarters;
. Extremely low valuations of small company stocks in relation to large-company
stocks--the lowest relative values in 20 years.
. The ability of large companies to improve their earnings growth by buying
fast-growing smaller companies at attractive prices.
While no one can predict the future direction of markets with any certainty, we
think the potential for superior small cap performance is strong.
Small capitalization investing typically carries additional risks since small
companies generally have a higher risk failure. Although it may offer the
potential for greater long term results, it may also result in greater price
volatility.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
Evergreen Select Social Principles Fund invests in the stocks of mid-sized U.S.
companies, with an average market capitalization of $3 billion. The Fund
emphasizes companies that generally respect human rights, play a role in local
communities, and produce useful products in an environmentally sound way. This
philosophy holds that socially conscious investing promotes responsible values
without impairing long-term performance.
Process
The Fund utilizes a fundamental, bottom-up stock selection process which is
research-intensive. In addition, the Fund utilizes an external Advisory Board
whose role is to develop and continually review guiding policies and principles
of social investing. All holdings are periodically reviewed to assure adherence
to the Advisory Board Standards.
Benchmark
S&P 400 Mid Cap Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS Class IC
Average Annual Returns
- --------------------------------------------------------------------------------
6 months -0.42% -0.58% -0.42%
- --------------------------------------------------------------------------------
1 year 8.48% 8.24% 8.47%
- --------------------------------------------------------------------------------
3 years 15.89% 15.64% 15.88%
- --------------------------------------------------------------------------------
5 years 16.24% 15.97% 16.23%
- --------------------------------------------------------------------------------
10 years 14.85% 14.58% 14.85%
- --------------------------------------------------------------------------------
Since Inception 14.45% 14.18% 14.45%
- --------------------------------------------------------------------------------
6-month income distributions per share $0.10 $0.06 $0.10
- --------------------------------------------------------------------------------
6-month capital gain distributions $2.10 $2.10 $2.10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Social Principles CPI S & P 400 Midcap
---- ------------------------ --- ----------------
5/31/88 1,000,000 1,000,000 1,000,000
12/31/88 1,044,389 1,025,532 1,086,697
12/31/90 1,136,419 1,138,715 1,397,571
12/31/92 1,794,717 1,207,302 2,347,665
12/31/94 1,947,506 1,274,043 2,579,204
12/31/96 3,122,080 1,349,787 4,020,373
12/31/98 4,172,389 1,397,458 6,317,227
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Social Principles Fund Class IC, the S&P 400 Midcap Index and the Consumer Price
Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Classes I, IC and IS performance
information includes the performance of the Fund's predecessor common trust fund
for the periods before the Fund's registration statement became effective on
11/21/97. Performance for the common trust fund has been adjusted to include the
effect of estimated mutual fund class gross expense ratios at the time the Fund
was converted to a mutual fund. If fee waivers and expense reimbursements had
been calculated into the mutual fund class expense ratio the average annual
total returns would be as follows: Class I--3 years = 16.00%; 5 years = 16.35%;
and since 05/31/88 = 14.55%. Class IC--3 years = 15.97%; 5 years = 16.33%; and
since 05/31/88 = 4.55%. Class IS--3 years = 15.71%; 5 years = 16.06%; and since
05/31/88 = 14.40%. The Class IS share performance for the period from 11/24/97
through 03/12/98 (class inception date) is based upon the historical performance
of the Class IC shares and therefore does not reflect 12b-1 fees. If 12b-1 fees
had been included, performance for the Class IS shares for this period would
have been lower. Returns of Class I, IC and IS, since their respective
commencement of class operations, were 5.39%, 5.36% and .76%, respectively. The
return for Class IS is cumulative. The common trust fund was not registered
under the Investment Company Act of 1940 (the "1940 Act") or subject to certain
investment restrictions that are imposed by the 1940 Act. If the common trust
fund had been registered under the 1940 Act, its performance may have been
adversely affected. Index returns do not reflect expenses, which have been
deducted from the Fund's return. It is not possible to invest directly in an
index.
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
The Evergreen Select Social Principles Fund is managed by Eric M. Wiegand and
assistant manager, A. Jay Zelko, who have over 22 years of combined investment
experience. The team-oriented approach identifies the most attractive
opportunities in the market and ensures adherence to the style specific
objectives.
[PHOTO OF ERIC M. WIEGAND APPEARS HERE]
Eric M. Wiegand
[PHOTO OF A. JAY ZELKO APPEARS HERE]
A. Jay Zelko
Performance
For the six months ended December 31, 1998, the Evergreen Select Social
Principle Fund Class I shares' -0.42% total return trailed the 8.86% return for
the S&P Midcap 400 Index.
Portfolio
Characteristics
---------------
Total Net Assets $167,106,416
- -----------------------------------------------------------------
Number of Issues 62
- -----------------------------------------------------------------
P/E Ratio 22.7x
- -----------------------------------------------------------------
Beta 1.13
- -----------------------------------------------------------------
Market Environment
The last six months within the U.S. stock market consisted of two distinctly
different periods. Stocks suffered significant losses during the first half of
the fiscal period before rebounding sharply in the final three months. The
equity markets' initial decline stemmed from volatile international economies,
while the second half comeback was spurred by resilient U.S. economic growth,
emerging market stability and support by the Federal Reserve Board--in the form
of three interest rate cuts.
The S&P 500 Index and the S&P Midcap 400 Index posted six-month total returns of
9.35% and 8.86%, respectively. It is worth noting that the positive returns by
the S&P 400 Index were fueled by an exceptional performance of one of its
holdings: America Online. This single company soared over 550% for the entire
year, driving the performance of the S&P 400 Midcap Index. Consequently,
managers who did not hold a market-weighting of this stock were at a distinct
disadvantage.
Top 5 Industry Allocation
-------------------------
(based on 12/31/98 net assets)
Information Services & Technology 15.6%
- ----------------------------------------------------------------
Healthcare Products & Services 15.4%
- ----------------------------------------------------------------
Finance & Insurance 9.9%
- ----------------------------------------------------------------
Retailing & Wholesale 5.9%
- ----------------------------------------------------------------
Utilities - Electric 5.4%
- ----------------------------------------------------------------
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Areas of Preference
The Fund's technology exposure was a major contributor to performance due to an
overweighted position as well as strong stock selection. As of December 31,
three of the Fund's top six holdings--and over 25% of the entire portfolio--were
represented by the technology sector. EMC Corp--the industry leader in data
storage--was one of our best performers, as evidenced by its nearly 90%
six-month return.
The healthcare sector represents the Fund's largest overweight relative to the
benchmark: 15% versus 10%, as of December 31. We believe the healthcare industry
will continue to benefit from advances in technology to aid the aging industrial
world population. In addition, we believe the healthcare industry offers
investors more stable and superior earnings growth than most industries. Our
largest healthcare holding, Biochem Pharma, a Canadian biotech company with very
strong financials, is uniquely positioned to capitalize on the advances in
biotechnology in bringing to market remedies to help fight some of the world's
critical diseases.
Strategic Sector Underweightings
In 1998, corporations began to be impacted by something they have not
experienced for a very long time: deflation. Deflation particularly affects
commodity producers, such as companies within the basic materials sector. The
Fund was fortunate to have completely avoided the basic material sector, which
was the second-poorest-performing industry behind energy. Energy, by far, was
the worst-performing industry in the index, declining over 45% for the year. We
were underweighted in energy for the entire year and our security selection
fared better than the index, but the companies were nevertheless impacted by
falling commodity prices and exploration budget cuts.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
EMC Corp. 4.7%
...........................................................................
Network Associates, Inc. 4.3%
...........................................................................
Century Telephone Enterprises, Inc. 3.3%
...........................................................................
Biochem Pharmaceuticals, Inc. 3.3%
...........................................................................
Allied Waste Industries, Inc. 3.0%
...........................................................................
Compuware Corp. 2.7%
...........................................................................
Elan Corp. Plc, ADR 2.6%
...........................................................................
Pediatrix Medical Group, Inc. 2.5%
...........................................................................
AFLAC, Inc. 2.3%
...........................................................................
Partnerre Ltd. 2.3%
...........................................................................
A Bright Outlook for Midcap Stocks
As we enter 1999, we continue to be optimistic about the prospects for mid-cap
equities. After four consecutive years of 20%-plus returns for the S&P 500, the
valuation gap between large-cap and mid-cap equities is at unprecedented levels,
and suggests a strong run by mid-cap stocks in the coming years.
Currently, the 1999 forecasted earnings growth for the S&P 500 is expected to
slow from its double-digit pace to 4%; and on the 1999 estimate, the
price-to-earnings multiple is 26.8, which is 6.7 times the growth rate.
Conversely, the S&P Midcap 400 Index has forecasted 1999 earnings growth at 19%
and its price-to-earnings multiple is 19.0, or 1.1 times its growth rate. To put
it another way, large-cap investors are paying over six times more for earnings
growth than mid-cap investors.
We believe this valuation disparity and the forecasted slower earnings growth
for the S&P 500, not to mention the mid-cap's own strong fundamentals, will
attract investors to mid-cap equities. We enthusiastically look forward to the
next few years.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
PORTFOLIO PROFILE
Philosophy
Evergreen Select Special Equity Fund aggressively seeks the highest possible
return by investing in companies with small market capitalizations.
Process
The Fund employs a "bottom-up" approach to investing, selecting stocks that have
passed a rigorous screening process which employs both qualitative and
quantitative analysis. To qualify for investment, a stock must meet high
expectations for return potential based on growth, value and momentum factors.
Benchmark
Russell 2000 Index
Performance and Returns
Class I Class IS
Average Annual Returns
................................................................................
6 months 0.02% -0.16%
................................................................................
1 year 5.65% 5.31%
................................................................................
3 years 16.81% 16.46%
................................................................................
Since Inception 14.73% 14.52%
................................................................................
6-month capital gain distributions per share $1.18 $1.18
................................................................................
LONG TERM GROWTH
Date Select Special Equity CPI Russell 2000
---- --------------------- --- ------------
3/31/94 1,000,000 1,000,000 1,000,000
12/31/94 973,184 1,016,984 1,008,548
12/31/95 1,308,487 1,042,086 1,295,342
12/31/96 1,651,991 1,077,446 1,509,003
12/31/97 1,973,744 1,095,788 1,846,428
12/31/98 2,085,183 1,115,498 1,799,378
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Special Equity Fund Class I, the Russell 2000 Index and the Consumer Price
Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Historical performance prior to
7/27/98 is that of their predecessor funds, CoreFund Special Equity Fund Class Y
for Class I; and Corefund Special Equity Fund Class A for Class IS. Returns of
Class I and IS, since their respective commencement of class operations, were
21.28% and 14.52%, respectively. Index returns do not reflect expenses, which
have been deducted from the Fund's return. It is not possible to invest directly
in an index.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management
The Evergreen Select Special Equity Fund is managed by Joseph E. Stocke, CFA.
Mr. Stocke joined Meridian Investment Company in 1983 as an assistant investment
officer and since 1990 has been a senior investment manager of equities.
[PHOTO APPEARS HERE]
Joseph E. Stocke CFA
Performance
Evergreen Select Special Equity Fund Class I produced a total return of 0.02%
for the six months ended December 31, 1998, outpacing its benchmark, the Russell
2000 Index which generated a total return of -7.12%. The Fund's performance was
particularly strong relative to its benchmark in the second half of the fiscal
period. During that time, Evergreen Select Special Equity Fund returned 28.15%
versus 16.31% for the Russell 2000 Index, with over 80% of the Fund's sectors
outperforming those in the Index.
Portfolio
Characteristics
---------------
Total Net Assets $75,090,287
.............................................................
Number of Holdings 106
.............................................................
P/E Ratio 21.0x
.............................................................
Beta 1.25
.............................................................
Environment
Small-to-mid-capitalization investors endured significant price volatility over
the past six months before stocks staged a dramatic turnaround in the fourth
quarter of 1998. Equities ended the year on a strong note, however, with
remarkable fourth quarter performance.
The third quarter of 1998 marked the worst quarterly decline for the stock
market in nearly a decade, with August representing the largest single monthly
decline since the October 1987 crash. Smaller capitalization stocks bore the
brunt of the correction, as investors sought the perceived relative safety of
larger companies. The market's retreat resulted from a combination of both
national and international factors, including historically high stock
valuations, anticipated higher inflation from strong employment growth,
increasing global political and financial instability, and equity mutual fund
withdrawals.
The stock market regained stability in the fourth quarter, however, and went on
to reach new highs. A combination of factors restored investor confidence. The
Federal Reserve Board lowered interest rates three times to keep U.S. economic
growth strong enough to re-stimulate foreign economies, with numerous foreign
central banks following suit. Stock prices strengthened further on reports of
resilient, domestic economic activity and steadier emerging market economies.
Additionally, the low level of inflation has continued to provide support for
stock valuations.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 5 Industries
----------------
(based on 12/31/98 net assets)
Healthcare Products & Services 15.6%
............................................................................
Information Services & Technology 14.6%
............................................................................
Retailing & Wholesale 12.5%
............................................................................
Telecommunication Services & Equipment 9.4%
............................................................................
Building, Construction & Furnishings 6.5%
............................................................................
Investment Strategy
We continued to employ a "bottom-up" investment strategy, building the portfolio
one stock at a time. Over the past six months, the Fund dramatically
outperformed the Russell 2000 Index in several industries, contributing greatly
to the Fund's performance. These included Technology, Consumer Cyclicals and
Communications. Led by internet-related companies, the Fund's Technology
holdings significantly outperformed its Russell 2000 counterparts in both the
third and fourth quarters. Beyond.com Corp and VeriSign Corp. produced triple
digit returns in the fourth quarter. We expect to continue to emphasize many
Internet-related companies, particularly in light of the rapid adoption of many
Internet-related services.
After a weak performance in the third quarter on concerns that a global economic
slowdown would dampen U.S. economic growth, Consumer Cyclicals rebounded
admirably in the fourth quarter. Ticketmaster Online Citysearch--whose price
rose 300% in the fourth quarter--led the returns in the Fund's Consumer
Cyclicals holdings. The sector also benefited from strong sales in computer
games and an increasing interest in sophisticated home entertainment centers.
Competitive local exchange carriers (CLECs) drove performance in the Fund's
Communications sector. The capital-intensive CLECs underperformed in the third
quarter when market volatility in both the equity and high yield bond markets
impeded their ability to raise capital. CLECs snapped back in the fourth quarter
when global economies and financial markets stabilized, easing investors'
concerns.
The Fund underperformed the Russell 2000 Index in several areas, including
Capital Goods, Energy and Financial Services. We believe their impact on total
performance was minimal, however.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Metronet Communications Corp. 3.6%
............................................................................
Pacific Sunwear of California 3.4%
............................................................................
Abercrombie & Fitch Co. 2.6%
............................................................................
Brookdale Living Communities, Inc. 2.4%
............................................................................
Scios, Inc. 2.4%
............................................................................
Williams Sonoma, Inc. 2.4%
............................................................................
MIPS Technologies, Inc. 2.1%
............................................................................
Gildan Activewear, Inc. 2.1%
............................................................................
Chirex, Inc. 1.9%
............................................................................
Verio, Inc. 1.9%
............................................................................
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Outlook
We anticipate challenges in the months ahead, but believe small-to-mid-
capitalization stocks can offer significant opportunity. Investors' strong
demand for large capitalization stocks has created a dramatic divergence in the
performance between large and small-to-mid-capitalization companies. This has
created a disparity in their valuations, making the stocks of many small-to-mid-
capitalization companies extremely attractive on a relative basis.
With equities having completed their first-ever four-year string of 20%+
returns, we are especially conscious of the obstacles to achieving higher stock
prices. We believe the flat earnings growth in 1998 will not satisfy investors
in 1999. We will continue to closely monitor the factors affecting earnings
growth, focusing on higher volumes, restructuring and lower spending. We expect
consumer spending to remain brisk in the first quarter of 1999, although overall
economic growth could slow later in the year as companies cut back on capital
expenditures as they focus on the "Year 2000" issue. Further, in our opinion,
the global situation has not been fully resolved. Longer term, a slowdown in
international economic growth could dampen the U.S. economy. Despite these
challenges, we recognize the positive factors that propelled the stock market to
the level it has reached and expect them to remain solid influences in 1999.
These include low interest rates and negligible inflation, relatively high
consumer confidence, low unemployment and solid consumer and housing sectors.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
PORTFOLIO PROFILE
Philosophy
Evergreen Select Strategic Growth Fund is a growth-style equity product that
emphasizes large- and mid-sized U.S. companies. We believe that superior
long-term returns can be achieved through a disciplined approach of investing in
stocks with excellent historical and future earnings growth.
Process
The Fund is managed by two investment professionals who utilize a unique blend
of quantitative and qualitative fundamental analysis. This bottom-up stock
selection process is research-intensive and identifies companies that exhibit
strong current fundamentals, histories of superior earnings/dividend growth and
rising earnings expectations.
Benchmark
Russell 1000 Growth Index
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
- --------------------------------------------------------------------------------
6 months 6.45% 6.27%
- --------------------------------------------------------------------------------
1 year 24.41% 23.99%
- --------------------------------------------------------------------------------
3 years 26.32% 25.92%
- --------------------------------------------------------------------------------
Since Inception 29.18% 28.79%
- --------------------------------------------------------------------------------
6-month income dividends per share $0.06 $0.02
- --------------------------------------------------------------------------------
6-month capital gain distributions per share $3.26 $3.26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
Date Select Strat Growth CPI Russell 1000 Growth
---- ------------------- --- -------------------
12/31/94 1,000,000 1,000,000 1,000,000
12/31/95 1,381,697 1,024,683 1,371,851
12/31/96 1,713,288 1,059,452 1,689,055
12/31/97 2,238,685 1,077,488 2,203,996
12/31/98 2,785,622 1,096,869 3,057,038
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Strategic Growth Fund Class I, the Russell 1000 Index and the Consumer Price
Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Classes I and IS performance
information includes the performance of the Fund's predecessor common trust fund
for the periods before the Fund's registration statement became effective on
11/21/97. Performance for the common trust fund has been adjusted to include the
effect of estimated mutual fund class gross expense ratios at the time the Fund
was converted to a mutual fund. If fee waivers and expense reimbursements had
been calculated into the mutual fund class expense ratio the total returns would
be as follows: Class I--3 years = 26.37%; and since 12/31/94 = 29.24%. Class
IS--3 years = 26.00%; and since 12/31/94 = 28.88%. The Class IS share
performance for the period from 11/24/97 through 2/27/98 (class inception date)
is based upon the historical performance of the Class I shares and therefore
does not reflect 12b-1 fees. If 12b-1 fees had been included, performance for
the Class IS shares for this period would have been lower. Returns of Class I
and IS, since their respective commencement of class operations, were 23.45% and
13.44%, respectively. The return for Class IS is cumulative. The common trust
fund was not registered under the Investment Company Act of 1940 (the "1940
Act") or subject to certain investment restrictions that are imposed by the 1940
Act. If the common trust fund had been registered under the 1940 Act, its
performance may have been adversely affected. Index returns do not reflect
expenses, which have been deducted from the Fund's return. It is not possible to
invest directly in an index.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
David M. Chow, Timothy M. Stevenson and W. Shannon Reid manage the Evergreen
Select Strategic Growth Fund. They have over 29 years' combined investment
experience and boast a unique blend of quantitative and traditional fundamental
analysis skills. Their disciplined approach assures consistency of results and
superior service.
[PHOTO APPEARS HERE]
David M. Chow
[PHOTO APPEARS HERE]
Timothy M. Stevenson
[PHOTO APPEARS HERE]
W. Shannon Reid
Performance
For the six months ended December 31, the Evergreen Select Strategic Growth Fund
Class I shares had a 6.45% total return compared to 15.22% return for the
Russell 1000 Growth Index, and 9.35% return for the S&P 500 Index. Underlying
the indices' strong returns was a narrow advance in which a select few stocks
surged ahead while the majority of issues lagged.
Portfolio
Characteristics
---------------
Total Net Assets $540,624,265
- ------------------------------------------------------------------
Number of Issues 65
- ------------------------------------------------------------------
P/E Ratio 33.1x
- ------------------------------------------------------------------
Beta 1.06
- ------------------------------------------------------------------
Strategies which worked during the period included a focus on mega-
capitialization stocks, concentration of holdings in a limited number of stocks,
and sector bets. While these strategies have the potential for high rewards,
they also have high risk. The philosophy under which the Fund operates is to
hold a diversified portfolio of approximately sixty companies across the entire
sector spectrum. We believe over time this approach will produce higher returns
with lower risk than the more aggressive strategies mentioned above.
The past six months were divided into two distinctly different periods: a sharp
decline in the first half stemming from international turmoil was followed by an
exceptional recovery during the final three months. Resilient domestic economic
growth, emerging market stability and support by the Federal Reserve Board--in
the form of three interest rate cuts--renewed investor confidence and fueled the
market's rally in the final months of 1998. In fact, the last three months of
1998 witnessed the strongest quarterly advance of the past twenty years. The
rally was led by large capitalization technology and internet related issues as
evidenced by the NASDAQ Composite's nearly 30% return.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 5 Industry Allocation
-------------------------
(based on 12/31/98 net assets)
Healthcare Products & Services 22.1%
- --------------------------------------------------------------------------
Information Services & Technology 20.5%
- --------------------------------------------------------------------------
Retailing & Wholesale 6.5%
- --------------------------------------------------------------------------
Communication Systems & Services 6.3%
- --------------------------------------------------------------------------
Building, Construction & Furnishings 6.1%
- --------------------------------------------------------------------------
Investment Strategy
As a policy, we do not make large sector bets. Generally, portfolio positions
are limited to 80% to 120% of the sector weightings for the benchmark Russell
1000 Growth Index.
As of December 31, 1998, one of the largest sector weightings was technology.
Four of the Fund's top 10 holdings, Microsoft (5.0%), America Online (4.3%),
Cisco systems (3.7%) and Intel (3.6%) fall in this sector. We continue to expect
robust earnings growth from the leading companies in this sector.
The consumer non-cyclicals sector accounts for 31.9% of the Fund versus 35.5% of
the benchmark. While we maintain a healthy 15.5% position in the pharmaceuticals
subsector, such as Pfizer (4.0%), Merck & Co. (3.7%), and Bristol Myers Squibb
(3.4%), we continue to be underweighted in the food and beverage and home
products industries.
The consumer cyclicals sector, at 16.5% of the Fund, is overweighted versus the
benchmark's 14.6% weight. We believe selected companies in this category will be
beneficiaries of a strong domestic economy and lack of overseas exposure.
Examples include Home Depot, Costco, and Centex.
In the financials sector, the Fund is currently underweighted compared to the
benchmark, 4.7% versus 10.7%. We are currently looking for opportunities in this
area, however.
The sectors mentioned above-technology, consumer non-cyclicals, consumer
cyclicals, and financials-account for 89.9% of the Fund's holdings and 92.4% of
our benchmark, the Russell 1000 Growth Index. In the remaining sectors, we have
a slight overweight in utilities (3.2% versus 2.4%) due to ownership of AT&T and
SBC Communications. We believe that the management of these telecommunication
utilities will be able to take advantage of the opportunities that deregulation
and new technologies offer. We are underweighted in basic materials (1.1% versus
2.0%) and the industrials (2.0% versus 2.6%), due to their exposure to a weak
worldwide economy and the general lack of growth characteristics within those
industries.
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Microsoft Corp. 5.0%
- --------------------------------------------------------------------------.
General Electric Co. 4.7%
- --------------------------------------------------------------------------.
America Online, Inc. 4.3%
- --------------------------------------------------------------------------.
Pfizer, Inc. 4.0%
- --------------------------------------------------------------------------.
Cisco Systems, Inc. 3.7%
- --------------------------------------------------------------------------.
Merck & Co. 3.7%
- --------------------------------------------------------------------------.
Intel Corp. 3.6%
- --------------------------------------------------------------------------.
Bristol-Myers Squibb Co. 3.4%
- --------------------------------------------------------------------------.
Shering-Plough Corp. 3.2%
- --------------------------------------------------------------------------.
Procter & Gamble Co. (The) 2.5%
- --------------------------------------------------------------------------.
Outlook
Looking ahead, we anticipate a challenging equity environment as a sluggish
worldwide economy leads to slowing revenue growth and reduced pricing power. We
believe the narrow market leadership is symptomatic of investors' concerns
toward these weakening fundamentals. Consequently, we will maintain an emphasis
on market-leading companies with histories of stable, predictable earnings
growth.
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of December 31, 1998
- --------------------------------------------------------------------------------
PORTFOLIO PROFILE
- --------------------------------------------------------------------------------
Philosophy
Evergreen Select Strategic Value Fund is a value-style equity product which
emphasizes large- and mid-capitalization U.S. companies. This philosophy holds
that stocks, over time, can become mispriced relative to their true value and
that attractive opportunities can be identified through a combination of
quantitative analysis and rigorous fundamental research.
Process
Following the initial screen by our proprietary model, which determines that a
stock is selling at a reasonable valuation level, the Strategic Value team
employs a labor intensive research effort in order to dig deep for clues to
uncover value. Qualitative factors which are analyzed include industry
leadership, quality of management, the company's current competitive position
and future earnings prospects.
Benchmark
Russell 1000 Value Index
- --------------------------------------------------------------------------------
Performance and Returns
- --------------------------------------------------------------------------------
Class I Class IS
Average Annual Returns
- --------------------------------------------------------------------------------
6 months -2.06% -2.17%
- --------------------------------------------------------------------------------
1 year 6.32% 6.12%
- --------------------------------------------------------------------------------
3 years 20.87% 20.62%
- --------------------------------------------------------------------------------
5 years 19.05% 18.79%
- --------------------------------------------------------------------------------
10 years 15.53% 15.26%
- --------------------------------------------------------------------------------
Since Inception 17.24% 16.96%
- --------------------------------------------------------------------------------
6-month income dividends per share $1.62 $1.34
- --------------------------------------------------------------------------------
6-month capital gain distributions per share $4.89 $4.89
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Strat Value Russell 1000 Value CPI
---- ------------------ ------------------ ---
12/31/81 1,000,000 1,000,000 1,000,000
12/31/83 1,668,457 1,540,001 1,078,153
12/31/85 2,258,314 2,229,813 1,163,062
12/31/87 2,893,528 2,688,654 1,228,065
12/31/89 4,352,496 4,145,349 1,341,561
12/31/91 4,617,231 4,747,790 1,467,089
12/31/93 6,243,909 6,382,794 1,551,136
12/31/95 8,457,795 8,654,954 1,631,949
12/31/97 14,050,659 14,233,243 1,716,049
12/31/98 14,937,975 16,457,931 1,746,915
Comparison of change in value of a $1,000,000 investment in Evergreen Select
Strategic Value Fund Class I, the Russell 1000 Value Index and the Consumer
Price Index.
Past performance is no guarantee of future results. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Class I and IS performance information
includes the performance of the Fund's predecessor common trust fund for the
periods before the Fund's registration statement became effective on 11/21/97.
Performance for the common trust fund has been adjusted to include the effect of
estimated mutual fund class gross expense ratios at the time the Fund was
converted to a mutual fund. If fee waivers and expense reimbursements had been
calculated into the mutual fund class expense ratio the total returns would be
as follows: Class I - 3 years = 20.95%; 5 years = 19.15%; 10 years = 15.64%; and
since 12/31/81 = 17.35%. Class IS - 3 years = 20.68%; 5 years = 18.87%; 10 years
= 15.36%; and since 12/31/81 = 17.06%. The Class IS share performance for the
period from 11/24/97 through 3/11/98 (class inception date) is based upon the
historical performance of the Class I shares and therefore does not reflect
12b-1 fees. If 12b-1 fees had been included, performance for the Class IS shares
for this period would have been lower. Returns of Class I and IS, since their
respective commencement of class operations, were 10.54% and -0.54%,
respectively. The return for Class IS is cumulative. The common trust fund was
not registered under the Investment Company Act of 1940 (the "1940 Act") or
subject to certain investment restrictions that are imposed by the 1940 Act. If
the common trust fund had been registered under the 1940 Act, its performance
may have been adversely affected. Index returns do not reflect expenses, which
have been deducted from the Fund's return. It is not possible to invest directly
in an index.
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Portfolio Management Team
The Evergreen Select Strategic Value Fund is managed by a team of 3 portfolio
managers with over 61 years of combined investment experience and expertise in
value equity analysis and management. The team-oriented approach incorporates
multiple perspectives to identify the most attractive opportunities in the
market and ensures adherence to the style specific objectives.
[PHOTO OF ELIZABETH SMITH APPEARS HERE]
Elizabeth Smith
[PHOTO OF JACK GRAY APPEARS HERE]
Jack Gray
[PHOTO OF TIM O'GRADY APPEARS HERE]
Tim O'Grady
Portfolio
Characteristics
---------------
Total Net Assets $349,788,510
- --------------------------------------------------------------
Number of Issues 52
- --------------------------------------------------------------
P/E Ratio 17.2x
- --------------------------------------------------------------
Beta 0.87
- --------------------------------------------------------------
Performance
For the six months ended December 31, 1998, the Evergreen Select Strategic Value
Fund's -2.1% total return trailed the 3.10% return for the Russell 1000 Value
Index. The Fund struggled during the first half of the period before rebounding
sharply during the final three months. In fact, the Fund's 16.9% total return
during the final three months outpaced the 16.6% return of the Russell 1000
Value Index.
Market Environment
The past six months were divided into two distinctly different periods: stocks
posted negative returns during the first three months before rebounding sharply
in the final half of the period. Although the market's fundamentals haven't
changed materially during the six months, the headlines have and so has investor
sentiment in what has turned out to be a remarkable pendulum swing from a
bearish to a bullish outlook. One reason for this shift was the Federal Reserve
Board, which strongly conveyed in late September the message of a more
accommodative Federal Reserve policy, as evidenced by three interest rate cuts
in the last four months.
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
A Tough Ride For Value Stocks
Underlying the market's advance, growth stocks continue to far outpace
value-oriented issues, a trend that has been evident for some time as we have
described in previous reports. In part, this trend is attributable to consistent
and reliable earnings growth, a characteristic generally associated with larger
capitalization growth companies.
Areas of Strength
The Fund's performance edge in the last three months can be found in two
sectors: technology and financial services. Regarding technology, our decision
to overweight this group proved correct, as did security selection. In fact, two
of the portfolio's top six holdings, Sun Microsystems and Intel, posted
six-month returns of 97% and 60%, respectively. We have been consistently
positive versus the benchmark's sector weighting, carrying a specific or point
range of 150% to the index. For the most part, our portfolio exposures are
limited to industry leaders.
Despite a bumpy ride for financial services stocks during the initial part of
the period, this sector rebounded to make a solid contribution to performance in
the final three months, as evidenced by Fleet Financial and PNC Bank which
posted total returns of 22% and 21%, respectively. During the latest bank
correction we provided an analysis of the key investment variables impacting the
group and suggested investors may have been overreacting.
Top 5 Industries
----------------
(based on 12/31/98 net assets)
Banks 15.3%
- ------------------------------------------------------------------------
Finance & Insurance 14.4%
- ------------------------------------------------------------------------
Oil/Energy 11.3%
- ------------------------------------------------------------------------
Information Services & Technology 10.4%
- ------------------------------------------------------------------------
Utilities - Electric 8.3%
- ------------------------------------------------------------------------
Portfolio Adjustments
Consequently, we looked at the current depressed bank valuation environment as
an opportunity to reposition our holdings. A "relief rally" in selected
holdings, whose business models are more vulnerable to the economy, presented us
an opportunity to remove them as positions within the portfolio. For example,
Bankers Trust and Lehman Brothers were, in our estimation, vulnerable to further
sharp earnings estimate reductions, as their mix of business was vulnerable to
prevailing economic conditions. On the other hand our willingness to remove both
Union Planters and the "new" Bank of America is founded in the belief both
companies will be challenged by very difficult integration endeavors related to
recent acquisitions.
Action was taken in the fourth quarter to increase our exposure in the utility
sector, currently at 15%. Based on the market's current valuation, we believe
the era of higher beta, lower yielding securities that have dominated the past
eight quarters may be coming to an end, and utility companies are poised to
rebound.
Within the technology sector, we added Motorola. Here, we believe to have
identified a company in the midst of a turnaround in its three major businesses:
cellular handsets, pagers and semiconductors. We partially funded the purchase
of Motorola through the sale proceeds of Nokia, as we elected to trim back our
position in the company based on an outsized position due to price appreciation.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Portfolio Manager Commentary
Top 10 Holdings
---------------
(based on 12/31/98 net assets)
Bristol-Myers Squibb Co. 3.6%
- -------------------------------------------------------------------------
Sun Microsystems, Inc. 3.6%
- -------------------------------------------------------------------------
Philip Morris Companies, Inc. 3.6%
- -------------------------------------------------------------------------
Mobil Corp. 3.5%
- -------------------------------------------------------------------------
International Business Machines Corp. 3.4%
- -------------------------------------------------------------------------
Intel Corp. 3.4%
- -------------------------------------------------------------------------
Century Telephone Enterprises, Inc. 3.4%
- -------------------------------------------------------------------------
Fleet Financial Group, Inc. 3.3%
- -------------------------------------------------------------------------
Citigroup, Inc. 3.3%
- -------------------------------------------------------------------------
Chase Manhattan Corp. 3.3%
- -------------------------------------------------------------------------
Going Forward
As we enter 1999, consensus belief is the United States economy will move toward
a moderately lower plane of economic activity with current levels of inflation
and a neutral-to-downward bias in both short- and long-term interest rates.
January is traditionally the strongest month of the year and we see no reason to
take exception to the rule this year. Beyond January, however, the going may get
difficult from several perspectives.
Both the year and decade (so far) were extremely favorable for equity returns.
Year returns approached three times their historical annual rate and the current
decade has now surpassed the "Fabulous Fifties." Our sense is that 1999 may be
the initial year of a more balanced or "average" period for equity prices.
Average, however, is not insignificant given a 10.5% long-term return for
equities, especially in the current inflation environment.
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 92.59 $82.97
---------- ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.44 0.51
.........................................................................
Net realized and unrealized gains or losses
on securities 0.25 9.62
---------- ------
.........................................................................
Total from investment operations 0.69 10.13
---------- ------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.45) (0.51)
.........................................................................
Net realized gains on securities (7.83) 0
---------- ------
.........................................................................
Total distributions (8.28) (0.51)
---------- ------
.........................................................................
Net asset value end of period $ 85.00 $92.59
---------- ------
.........................................................................
Total return 0.85% 12.23%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $1,868,254 $1,952
.........................................................................
Ratios to average net assets:
Expenses 0.67%+ 0.70%+
.........................................................................
Expenses, excluding fee credits 0.67%+ 0.70%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.77%+ 0.82%+
.........................................................................
Net investment income 1.04%+ 0.96%+
.........................................................................
Portfolio turnover rate 27% 22%
.........................................................................
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (b)
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 87.33 $80.21
------- ------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.32 0.27
.........................................................................
Net realized and unrealized gains or losses
on securities 0.22 7.16
------- ------
.........................................................................
Total from investment operations 0.54 7.43
------- ------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.31) (0.31)
.........................................................................
Net realized gains on securities (7.83) 0
------- ------
.........................................................................
Total distributions (8.14) (0.31)
------- ------
.........................................................................
Net asset value end of period $ 79.73 $87.33
------- ------
.........................................................................
Total return 0.73% 9.27%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $24,584 $ 18
.........................................................................
Ratios to average net assets:
Expenses 0.92%+ 0.95%+
.........................................................................
Expenses, excluding fee credits 0.92%+ 0.95%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.02%+ 1.12%+
.........................................................................
Net investment income 0.82%+ 0.60%+
.........................................................................
Portfolio turnover rate 27% 22%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from February 4, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 26.22 $ 23.81
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.12 0.14
.........................................................................
Net realized and unrealized gains or
losses on securities (0.16) 2.41
-------- --------
.........................................................................
Total from investment operations (0.04) 2.55
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.13) (0.14)
.........................................................................
Net realized gains on securities (0.65) 0
-------- --------
.........................................................................
Total distributions (0.78) (0.14)
-------- --------
.........................................................................
Net asset value end of period $ 25.40 $ 26.22
-------- --------
.........................................................................
Total return (0.10%) 10.72%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $684,509 $797,352
.........................................................................
Ratios to average net assets:
Expenses 0.63%+ 0.68%+
.........................................................................
Expenses, excluding fee credits 0.63%+ 0.68%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.73%+ 0.78%+
.........................................................................
Net investment income 1.00%+ 1.24%+
.........................................................................
Portfolio turnover rate 28% 56%
.........................................................................
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (b)
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 25.93 $ 26.56
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.06 0.06
.........................................................................
Net realized and unrealized gains or
losses on securities (0.14) (0.64)
-------- --------
.........................................................................
Total from investment operations (0.08) (0.58)
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.08) (0.05)
.........................................................................
Net realized gains on securities (0.65) 0
-------- --------
.........................................................................
Total distributions (0.73) (0.05)
-------- --------
.........................................................................
Net asset value end of period $ 25.12 $ 25.93
-------- --------
.........................................................................
Total return (0.25%) (2.19%)
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 1,369 $ 210
.........................................................................
Ratios to average net assets:
Expenses 0.88%+ 0.93%+
.........................................................................
Expenses, excluding fee credits 0.88%+ 0.93%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.98%+ 1.03%+
.........................................................................
Net investment income 0.79%+ 0.80%+
.........................................................................
Portfolio turnover rate 28% 56%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from January 22, 1998 (commencement of class operations) to
June 30, 1998.
(b) For the period from March 31, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 50.74 $ 44.59
------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.25 0.19
.........................................................................
Net realized and unrealized gains or
losses on securities 0.22 6.18
------- --------
.........................................................................
Total from investment operations 0.47 6.37
------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.22) (0.22)
.........................................................................
Net realized gains on securities (5.18) 0
------- --------
.........................................................................
Total distributions (5.40) (0.22)
------- --------
.........................................................................
Net asset value end of period $ 45.81 $ 50.74
------- --------
.........................................................................
Total return 1.05% 14.31%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $18,541 $723,850
.........................................................................
Ratios to average net assets:
Expenses 0.69%+ 0.71%+
.........................................................................
Expenses, excluding fee credits 0.69%+ 0.71%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.79%+ 0.83%+
.........................................................................
Net investment income 0.93%+ 0.78%+
.........................................................................
Portfolio turnover rate 17% 42%
.........................................................................
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (b)
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 50.74 $ 49.75
------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.18 0.08
.........................................................................
Net realized and unrealized gains or
losses on securities 0.24 1.00
------- --------
.........................................................................
Total from investment operations 0.42 1.08
------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.17) (0.09)
.........................................................................
Net realized gains on securities (5.18) 0
------- --------
.........................................................................
Total distributions (5.35) (0.09)
------- --------
.........................................................................
Net asset value end of period $ 45.81 $ 50.74
------- --------
.........................................................................
Total return 0.93% 2.17%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 313 $ 301
.........................................................................
Ratios to average net assets:
Expenses 0.94%+ 0.96%+
.........................................................................
Expenses, excluding fee credits 0.94%+ 0.96%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.04%+ 1.08%+
.........................................................................
Net investment income 0.68%+ 0.57%+
.........................................................................
Portfolio turnover rate 17% 42%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from December 19, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS IC
Net asset value beginning of period $ 50.74 $ 45.05
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.25 0.23
.........................................................................
Net realized and unrealized gains or
losses on securities 0.22 5.70
-------- --------
.........................................................................
Total from investment operations 0.47 5.93
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.22) (0.24)
.........................................................................
Net realized gains on securities (5.18) 0
-------- --------
.........................................................................
Total distributions (5.40) (0.24)
-------- --------
.........................................................................
Net asset value end of period $ 45.81 $ 50.74
-------- --------
.........................................................................
Total return 1.05% 13.18%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $492,372 $497,534
.........................................................................
Ratios to average net assets:
Expenses 0.69%+ 0.71%+
.........................................................................
Expenses, excluding fee credits 0.69%+ 0.71%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.79%+ 0.83%+
.........................................................................
Net investment income 0.92%+ 0.80%+
.........................................................................
Portfolio turnover rate 17% 42%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
Six Months Ended February 28,
December 31, 1998 Period Ended -------------------- Period ended
(Unaudited) # June 30, 1998 (c) 1998 # 1997 (b) # June 30, 1996 (a)
<S> <C> <C> <C> <C> <C>
CLASS I
Net asset value
beginning of period $ 13.12 $ 13.23 $ 11.28 $11.65 $10.00
------- ------- ------- ------ ------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income (0.04) (0.03) (0.06) (0.04) (0.03)
.........................................................................
Net realized and
unrealized gains or
losses on securities (0.49) (0.08) 2.48 (0.16) 1.68
------- ------- ------- ------ ------
.........................................................................
Total from investment
operations (0.53) (0.11) 2.42 (0.20) 1.65
------- ------- ------- ------ ------
.........................................................................
Less distributions from
Net realized gains on
securities (0.02) 0 (0.47) (0.17) 0
------- ------- ------- ------ ------
.........................................................................
Net asset value end of
period $ 12.57 $ 13.12 $ 13.23 $11.28 $11.65
------- ------- ------- ------ ------
.........................................................................
.........................................................................
Total return (4.03%) (0.83%) 21.67% (1.75%) 16.50%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period
(thousands) $66,641 $69,283 $47,524 $2,888 $2,446
.........................................................................
Ratios to average net
assets:
Expenses 1.07%+ 1.01%+ 0.92% 1.00%+ 1.00%+
.........................................................................
Expenses, excluding fee
credits 1.07%+ 1.01%+ N/A N/A N/A
.........................................................................
Expenses, excluding fee
credits, waivers and
reimbursements N/A N/A 0.95% 2.53%+ 2.81%+
.........................................................................
Net investment income (0.69%)+ (0.62%)+ (0.48%) (0.57%)+ (0.45%)+
.........................................................................
Portfolio turnover rate 75% 54% 166% 123% 57%
.........................................................................
</TABLE>
+ Annualized.
# Net investment income (loss) based on average shares outstanding during the
period.
(a) For the period from December 28, 1995 (commencement of class operations) to
June 30, 1996.
(b) For the eight-month period ended February 28, 1997. The fund changed its
fiscal year end from June 30 to February 28, effective February 28, 1997.
(c) For the four-month period ended June 30, 1998. The fund changed its fiscal
year end from February 28 to June 30, effective June 30, 1998.
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 10.09 $ 10.00
------- -------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.01 0.04
.........................................................................
Net realized and unrealized gains or
losses on securities (1.25) 0.09
------- -------
.........................................................................
Total from investment operations (1.24) 0.13
------- -------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.02) 0
.........................................................................
Net realized gains on securities (0.03) (0.04)
------- -------
.........................................................................
Total distributions (0.05) (0.04)
------- -------
.........................................................................
Net asset value end of period $ 8.80 $ 10.09
------- -------
.........................................................................
Total return (12.24%) 1.28%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $98,112 $77,647
.........................................................................
Ratios to average net assets:
Expenses 0.99%+ 1.01%+
.........................................................................
Expenses, excluding fee credits 0.98%+ 1.00%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.09%+ 1.26%+
.........................................................................
Net investment income 0.18%+ 0.68%+
.........................................................................
Portfolio turnover rate 13% 23%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from December 23, 1997 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 38.96 $ 36.65
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.08 0.03
.........................................................................
Net realized and unrealized gains or
losses on securities (0.37) 2.32
-------- --------
.........................................................................
Total from investment operations (0.29) 2.35
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.10) (0.04)
.........................................................................
Net realized gain on securities (2.10) 0
-------- --------
.........................................................................
Total distributions (2.20) (0.04)
-------- --------
.........................................................................
Net asset value end of period $ 36.47 $ 38.96
-------- --------
.........................................................................
Total return (0.42%) 6.41%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 3,006 $ 2,405
.........................................................................
Ratios to average net assets:
Expenses 0.83%+ 0.86%+
.........................................................................
Expenses, excluding fee credits 0.83%+ 0.86%+
.........................................................................
Expenses, excluding fee credits,
waivers and reimbursements 0.93%+ 0.99%+
.........................................................................
Net investment income 0.47%+ 0.19%+
.........................................................................
Portfolio turnover rate 4% 24%
.........................................................................
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended*
(Unaudited) June 30, 1998
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 38.94 $ 38.44
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.03 (0.01)
.........................................................................
Net realized and unrealized gains or
losses on securities (0.37) 0.52
-------- --------
.........................................................................
Total from investment operations (0.34) 0.51
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.06) (0.01)
.........................................................................
Net realized gain on securities (2.10) 0
-------- --------
.........................................................................
Total distributions (2.16) (0.01)
-------- --------
.........................................................................
Net asset value end of period $ 36.44 $ 38.94
-------- --------
.........................................................................
Total return (0.58%) 1.32%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 118 $ 205
.........................................................................
Ratios to average net assets:
Expenses 1.08%+ 1.11%+
.........................................................................
Expenses, excluding fee credits 1.08%+ 1.11%+
.........................................................................
Expenses, excluding fee credits,
waivers and reimbursements 1.18%+ 1.24%+
.........................................................................
Net investment income 0.17%+ (0.12%)+
.........................................................................
Portfolio turnover rate 4% 24%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from March 12, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS IC
Net asset value beginning of period $ 38.95 $ 36.65
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.08 0.03
.........................................................................
Net realized and unrealized gains or
losses on securities (0.37) 2.31
-------- --------
.........................................................................
Total from investment operations (0.29) 2.34
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.10) (0.04)
.........................................................................
Net realized gain on securities (2.10) 0
-------- --------
.........................................................................
Total distributions (2.20) (0.04)
-------- --------
.........................................................................
Net asset value end of period $ 36.46 $ 38.95
-------- --------
.........................................................................
Total return (0.42%) 6.38%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $163,982 $177,187
.........................................................................
Ratios to average net assets:
Expenses 0.83%+ 0.86%+
.........................................................................
Expenses, excluding fee credits 0.83%+ 0.86%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.93%+ 0.99%+
.........................................................................
Net investment income 0.47%+ 0.12%+
.........................................................................
Portfolio turnover rate 4% 24%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Years ended June 30, Period ended October 31,
Six Months Ended -------------------------------- -------------------------------
December 31, 1998 1998 1997 Institutional Class Prior Class
(Unaudited) (e)# (e) (e) 1996 (c)(d)(e) 1995 (b)(e) 1994 (a)(e)
<S> <C> <C> <C> <C> <C> <C>
CLASS I
Net asset value
beginning of period $ 11.25 $ 11.27 $ 11.86 $ 11.42 $ 9.37 $ 10.00
------- ------- ------- ------- ------- -------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income (0.01) (0.05) 0.02 0.07 0.12 0.06
.........................................................................
Net realized and
unrealized gains or
losses on securities (0.06) 1.52 1.81 2.13 2.12 (0.63)
------- ------- ------- ------- ------- -------
.........................................................................
Total from investment
operations (0.07) 1.47 1.83 2.20 2.24 (0.57)
------- ------- ------- ------- ------- -------
.........................................................................
Less distributions from
.........................................................................
Net investment income 0 0 (0.03) (0.07) (0.12) (0.06)
Net realized gains on
securities (1.18) (1.49) (2.39) (1.69) (0.07) 0
------- ------- ------- ------- ------- -------
.........................................................................
Total distributions (1.18) (1.49) (2.42) (1.76) (0.19) (0.06)
------- ------- ------- ------- ------- -------
.........................................................................
Net asset value end of
period $ 10.00 $ 11.25 $ 11.27 $ 11.86 $ 11.42 $ 9.37
------- ------- ------- ------- ------- -------
.........................................................................
.........................................................................
Total return 0.02% 14.23% 17.94% 22.27% 24.44% (5.72%)
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period
(thousands) $72,254 $73,981 $71,980 $63,680 $57,396 $10,069
.........................................................................
Ratios to average net
assets:
Expenses 1.05%+ 1.10% 0.84% 0.34%+ 0.32% 0.15%+
.........................................................................
Expenses, excluding fee
credits 1.05%+ N/A N/A N/A N/A N/A
.........................................................................
Expenses, excluding fee
credits, waivers and
reimbursements 1.84%+ 1.86% 1.82% 1.79%+ 1.97% 2.10%+
.........................................................................
Net investment income (0.18%)+ (0.48) 0.19% 0.94%+ 1.14% 1.06%+
.........................................................................
Portfolio turnover rate 48% 62% 74% 72% 129% 39%
.........................................................................
</TABLE>
+ Annualized.
# Net investment income based on average shares outstanding during the period.
(a) For the period from March 15, 1994 (commencement of class operations) to
October 31, 1994.
(b) On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment in-
come, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of Febru-
ary 21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. For the year ended October 31, 1995, the Finan-
cial Highlights' ratio of expenses, net investment income, total return,
and the per share investment activities and distributions reflect this al-
location. Also, on April 15, 1996, the Conestoga Equity Fund was acquired
by CoreFunds, Inc. At that time the Institutional Class Shares of the Fund
were exchanged for Class Y Shares and the Retail Class of Shares of the
Fund were exchanged for Class A Shares.
(c) The per share amount for the Fund for the year ended June 30, 1996 repre-
sents the period from November 1, 1995 to June 30, 1996. All prior years
are for the periods November 1 to October 31.
(d) On April 15, 1996, the Conestoga Special Equity Fund was acquired by
CoreFunds, Inc. At that time the Retail Class Shares of the Fund were ex-
changed for Class A shares.
(e) On July 24, 1998, the assets and certain liabilities of CoreFund Special
Equity Fund ("CoreFund") were acquired by Evergreen Select Special Equity
Fund ("Special Equity Fund"). Shareholders of CoreFund, Class Y became own-
ers of that number of shares of Special Equity Fund, Class I having an ag-
gregate net asset value equal to the aggregate net asset value of their
shares of CoreFund immediately prior to the close of business on July 24,
1998. CoreFund is the accounting survivor, its basis of accounting for as-
sets and liabilities and its operating results for the periods prior to
July 24, 1998 have been carried forward in these financial statements.
See Combined Notes to Financial Statements.
42
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Years ended June 30, Period ended October 31,
Six Months Ended --------------------------------- -------------------------------
December 31, 1998 Institutional Class Prior Class
(Unaudited) (e)# 1998 (e) 1997 (e) 1996 (c)(d)(e) 1995 (b)(e) 1994 (a)(e)
<S> <C> <C> <C> <C> <C> <C>
CLASS IS
Net asset value
beginning of period $11.18 $11.25 $11.85 $11.42 $ 9.37 $ 10.00
------ ------ ------ ------ ------- -------
.........................................................................
Income from investment
operations
.........................................................................
Net investment income (0.02) (0.10) 0 0.08 0.12 0.06
.........................................................................
Net realized and
unrealized gains or
losses on securities (0.07) 1.52 1.81 2.11 2.12 (0.63)
------ ------ ------ ------ ------- -------
.........................................................................
Total from investment
operations (0.09) 1.42 1.81 2.19 2.24 (0.57)
------ ------ ------ ------ ------- -------
.........................................................................
Less distributions from
.........................................................................
Net investment income 0 0 (0.02) (0.07) (0.12) (0.06)
Net realized gains on
securities (1.18) (1.49) (2.39) (1.69) (0.07) 0
------ ------ ------ ------ ------- -------
.........................................................................
Total distributions (1.18) (1.49) (2.41) (1.76) (0.19) (0.06)
------ ------ ------ ------ ------- -------
.........................................................................
Net asset value end of
period $ 9.91 $11.18 $11.25 $11.85 $ 11.42 $ 9.37
------ ------ ------ ------ ------- -------
.........................................................................
.........................................................................
Total return (0.16%) 13.78% 17.73% 22.14% 24.44% (5.72%)
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period
(thousands) $2,837 $2,981 $2,347 $1,144 $57,396 $10,069
.........................................................................
Ratios to average net
assets:
Expenses 1.30%+ 1.35% 1.14% 0.37%+ 0.32% 0.15%+
.........................................................................
Expenses, excluding fee
credits 1.30%+ N/A N/A N/A N/A N/A
.........................................................................
Expenses, excluding fee
credits, waivers and
reimbursements 2.09%+ 2.11% 2.07% 1.82%+ 1.97% 2.10%+
.........................................................................
Net investment income (0.48%)+ (0.73) (0.12%) 0.91%+ 1.14% 1.06%+
.........................................................................
Portfolio turnover rate 48% 62% 74% 72% 129% 39%
.........................................................................
</TABLE>
+ Annualized.
# Net investment income based on average shares outstanding during the period.
(a) For the period from March 15, 1994 (commencement of class operations) to
October 31, 1994.
(b) On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment in-
come, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of Febru-
ary 21, 1995. The results were combined with the results of operations and
distributions for each applicable class for the period February 21, 1995
through October 31, 1995. For the year ended October 31, 1995, the Finan-
cial Highlights' ratio of expenses, net investment income, total return,
and the per share investment activities and distributions reflect this al-
location. Also, on April 15, 1996, the Conestoga Equity Fund was acquired
by CoreFunds, Inc. At that time the Institutional Class Shares of the Fund
were exchanged for Class Y Shares and the Retail Class of Shares of the
Fund were exchanged for Class A Shares.
(c) The per share amount for the Fund for the year ended June 30, 1996 repre-
sents the period from November 1, 1995 to June 30, 1996. All prior years
are for the periods November 1 to October 31.
(d) On April 15, 1996, the Conestoga Special Equity Fund was acquired by
CoreFunds, Inc. At that time the Retail Class Shares of the Fund were ex-
changed for Class A shares.
(e) On July 24, 1998, the assets and certain liabilities of CoreFund Special
Equity Fund ("CoreFund") were acquired by Evergreen Select Special Equity
Fund ("Special Equity Fund"). Shareholders of CoreFund, Class A and Class B
became owners of that number of shares of Special Equity Fund, Class IS
having an aggregate net asset value equal to the aggregate net asset value
of their shares of CoreFund immediately prior to the close of business on
July 24, 1998. CoreFund is the accounting survivor, its basis of accounting
for assets and liabilities and its operating results for the periods prior
to July 24, 1998 have been carried forward in these financial statements.
See Combined Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 38.41 $ 32.45
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.05 0.04
.........................................................................
Net realized and unrealized gains or
losses on securities 2.35 5.96
-------- --------
.........................................................................
Total from investment operations 2.40 6.00
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.06) (0.04)
.........................................................................
Net realized gains on securities (3.26) 0
-------- --------
.........................................................................
Total distributions (3.32) (0.04)
-------- --------
.........................................................................
Net asset value end of period $ 37.49 $ 38.41
-------- --------
.........................................................................
Total return 6.45% 18.53%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $528,827 $321,532
.........................................................................
Ratios to average net assets:
Expenses 0.71%+ 0.72%+
.........................................................................
Expenses, excluding fee credits 0.71%+ 0.72%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.82%+ 0.84%+
.........................................................................
Net investment income 0.31%+ 0.19%+
.........................................................................
Portfolio turnover rate 59% 80%
.........................................................................
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) # June 30, 1998 (b)
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 38.36 $ 36.10
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 0.01 (0.08)
.........................................................................
Net realized and unrealized gains or
losses on securities 2.32 2.34
-------- --------
.........................................................................
Total from investment operations 2.33 2.26
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (0.02) 0
.........................................................................
Net realized gains on securities (3.26) 0
-------- --------
.........................................................................
Total distributions (3.28) 0
-------- --------
.........................................................................
Net asset value end of period $ 37.41 $ 38.36
-------- --------
.........................................................................
Total return 6.27% 6.29%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 11,797 $ 2,373
.........................................................................
Ratios to average net assets:
Expenses 0.96%+ 0.97%+
.........................................................................
Expenses, excluding fee credits 0.96%+ 0.97%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.08%+ 1.09%+
.........................................................................
Net investment income 0.06%+ (0.27%)+
.........................................................................
Portfolio turnover rate 59% 80%
.........................................................................
</TABLE>
+ Annualized.
# Net investment income based on average shares outstanding during the period.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from February 27, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
44
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (a)
<S> <C> <C>
CLASS I
Net asset value beginning of period $ 226.02 $ 203.35
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 1.54 1.60
.........................................................................
Net realized and unrealized gains or
losses on securities (6.36) 22.67
-------- --------
.........................................................................
Total from investment operations (4.82) 24.27
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (1.62) (1.60)
.........................................................................
Net realized gains on securities (4.89) 0
-------- --------
.........................................................................
Total distributions (6.51) (1.60)
-------- --------
.........................................................................
Net asset value end of period $ 214.69 $ 226.02
-------- --------
.........................................................................
Total return (2.06%) 11.95%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $348,059 $287,194
.........................................................................
Ratios to average net assets:
Expenses 0.71%+ 0.75%+
.........................................................................
Expenses, excluding fee credits 0.71%+ 0.75%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 0.81%+ 0.85%+
.........................................................................
Net investment income 1.46%+ 1.26%+
.........................................................................
Portfolio turnover rate 13% 12%
.........................................................................
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998 (b)
<S> <C> <C>
CLASS IS
Net asset value beginning of period $ 226.04 $ 223.08
-------- --------
.........................................................................
Income from investment operations
.........................................................................
Net investment income 1.15 0.61
.........................................................................
Net realized and unrealized gains or
losses on securities (6.21) 3.13
-------- --------
.........................................................................
Total from investment operations (5.06) 3.74
-------- --------
.........................................................................
Less distributions from
.........................................................................
Net investment income (1.34) (0.78)
.........................................................................
In excess of net investment income (4.89) 0
-------- --------
.........................................................................
Total distributions (6.23) (0.78)
-------- --------
.........................................................................
Net asset value end of period $ 214.75 $ 226.04
-------- --------
.........................................................................
Total return (2.17%) 1.68%
.........................................................................
Ratios/supplemental data
.........................................................................
Net assets end of period (thousands) $ 1,730 $ 1,327
.........................................................................
Ratios to average net assets:
Expenses 0.96%+ 1.00%+
.........................................................................
Expenses, excluding fee credits 0.96%+ 1.00%+
.........................................................................
Expenses, excluding fee credits, waivers
and reimbursements 1.06%+ 1.10%+
.........................................................................
Net investment income 1.21%+ 0.93%+
.........................................................................
Portfolio turnover rate 13% 12%
.........................................................................
</TABLE>
+ Annualized.
(a) For the period from November 24, 1997 (commencement of class operations) to
June 30, 1998.
(b) For the period from March 11, 1998 (commencement of class operations) to
June 30, 1998.
See Combined Notes to Financial Statements.
45
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 98.4%
Automotive Equipment & Manufacturing - 1.6%
235,000 Arvin Industries, Inc. ........................... $ 9,796,563
360,000 Ford Motor Co. ................................... 21,127,500
--------------
30,924,063
--------------
Banks - 5.8%
425,000 Bank One Corp. ................................... 21,701,562
525,000 Bankamerica Corp. ................................ 31,565,625
225,000 BankBoston Corp. ................................. 8,760,938
55,000 Bankers Trust Corp. .............................. 4,699,063
335,000 Chase Manhattan Corp. ............................ 22,800,937
225,000 Fleet Financial Group, Inc. ...................... 10,054,687
300,000 KeyCorp .......................................... 9,600,000
--------------
109,182,812
--------------
Building, Construction &
Furnishings - 0.2%
150,000 Masco Corp. ...................................... 4,312,500
--------------
Business Equipment &
Services - 1.2%
115,000 *Compuware Corp. ................................. 8,984,375
1,100,000 *Office Max, Inc. ................................ 13,475,000
--------------
22,459,375
--------------
Capital Goods - 0.9%
158,600 Case Corp. ....................................... 3,459,463
135,000 Deere & Co. ...................................... 4,471,875
285,000 LucasVarity Plc, ADR.............................. 9,547,500
--------------
17,478,838
--------------
Chemical & Agricultural
Products - 2.1%
300,000 *Cytec Industries, Inc. .......................... 6,375,000
645,000 Du Pont (E. I.) De Nemours & Co. ................. 34,225,312
--------------
40,600,312
--------------
Communication Systems &
Services - 5.0%
340,000 *Cisco Systems, Inc. ............................. 31,556,250
625,000 *MCI WorldCom, Inc. .............................. 44,843,750
270,000 *Tellabs, Inc. ................................... 18,511,875
--------------
94,911,875
--------------
Consumer Products &
Services - 2.6%
225,000 *Fruit Of The Loom, Inc. Cl. A.................... 3,107,812
200,000 Gillette Co. ..................................... 9,662,500
375,000 Premark International, Inc. ...................... 12,984,375
355,000 Stanley Works..................................... 9,851,250
250,000 Whirlpool Corp. .................................. 13,843,750
--------------
49,449,687
--------------
Diversified Companies - 1.3%
335,000 Tyco International Ltd. .......................... 25,271,563
--------------
Electrical Equipment &
Services - 3.8%
700,000 General Electric Co. ............................. 71,443,750
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Environmental Services - 1.9%
610,000 *Allied Waste Industries, Inc. ................... $ 14,411,250
460,000 Waste Management, Inc. ........................... 21,447,500
--------------
35,858,750
--------------
Finance & Insurance - 6.6%
215,000 Allmerica Financial Corp. ........................ 12,443,125
475,000 Allstate Corp. ................................... 18,346,875
125,000 American International Group, Inc. ............... 12,078,125
235,000 *Amerin Corp. .................................... 5,551,875
200,000 Citigroup, Inc. .................................. 9,900,000
218,000 Franklin Resources, Inc. ......................... 6,976,000
150,000 Loews Corp. ...................................... 14,737,500
265,000 MGIC Investment Corp. ............................ 10,550,312
250,000 Morgan Stanley, Dean Witter, Discover & Co. ...... 17,750,000
155,000 PMI Group, Inc. .................................. 7,653,125
120,000 Providian Financial Corp. ........................ 9,000,000
--------------
124,986,937
--------------
Food & Beverage
Products - 8.5%
165,000 Bestfoods......................................... 8,786,250
900,000 Coca Cola Co. .................................... 60,187,500
150,000 Conagra, Inc. .................................... 4,725,000
280,000 Fortune Brands, Inc. ............................. 8,855,000
850,000 Philip Morris Companies, Inc. .................... 45,475,000
520,000 RJR Nabisco Holdings Corp. ....................... 15,437,500
200,000 *Safeway, Inc. ................................... 12,187,500
170,000 Sara Lee Corp. ................................... 4,791,875
--------------
160,445,625
--------------
Healthcare Products &
Services - 15.8%
450,000 Abbott Laboratories............................... 22,050,000
305,000 *Amgen, Inc. ..................................... 31,891,562
600,000 *Boston Scientific Corp. ......................... 16,087,500
75,000 Bristol-Myers Squibb Co. ......................... 10,035,938
270,000 *Covance, Inc. ................................... 7,863,750
300,000 HBO & Co. ........................................ 8,606,250
305,000 *Health Management Associates,
Inc. Cl. A....................................... 6,595,625
320,000 *HEALTHSOUTH Corp. ............................... 4,940,000
250,000 Johnson & Johnson................................. 20,968,750
260,000 *Lincare Holdings, Inc. .......................... 10,546,250
125,000 Merck & Co., Inc. ................................ 18,460,937
215,000 Mylan Laboratories, Inc. ......................... 6,772,500
175,000 Pfizer, Inc. ..................................... 21,951,562
430,000 Schering-Plough Corp. ............................ 23,757,500
525,000 SmithKline Beecham Plc, ADR....................... 36,487,500
540,000 *Tenet Healthcare Corp. .......................... 14,175,000
265,000 Teva Pharmaceutical Industries
Ltd., ADR........................................ 10,782,188
350,000 Warner-Lambert Co. ............................... 26,315,625
--------------
298,288,437
--------------
</TABLE>
46
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Industrial Specialty Products &
Services - 0.3%
152,500 Trinity Industries, Inc. ..................... $ 5,871,250
--------------
Information Services &
Technology - 17.5%
375,000 *Adaptec, Inc. ............................... 6,585,938
270,000 *Altera Corp. ................................ 16,436,250
425,000 *Applied Materials, Inc. ..................... 18,142,188
400,000 *Cadence Design Systems, Inc. ................ 11,900,000
765,000 Compaq Computer Corp. ........................ 32,082,187
260,000 Computer Associates
International, Inc. ......................... 11,082,500
135,000 *Comverse Technology, Inc. ................... 9,585,000
320,000 *Dell Computer Corp. ......................... 23,420,000
360,000 Intel Corp. .................................. 42,682,500
280,000 International Business Machines Corp. ........ 51,730,000
245,000 *Microsoft Corp. ............................. 33,978,437
250,000 *Network Associates, Inc. .................... 16,562,500
470,000 *Oracle Systems Corp. ........................ 20,268,750
390,000 *Quantum Corp. ............................... 8,287,500
200,000 *SCI Systems, Inc. ........................... 11,550,000
200,000 *Synopsys, Inc. .............................. 10,850,000
175,000 Varian Associates, Inc. ...................... 6,628,125
--------------
331,771,875
--------------
Metal Products &
Services - 0.8%
65,000 Aluminum Co. of America....................... 4,846,563
195,000 Crown Cork & Seal Co., Inc. .................. 6,008,437
425,000 Titanium Metals Corp. ........................ 3,612,500
--------------
14,467,500
--------------
Oil/Energy - 7.2%
280,000 Anadarko Petroleum Corp. ..................... 8,645,000
395,000 Elf Aquitaine, ADR............................ 22,366,875
465,000 Enron Corp. .................................. 26,534,062
100,000 Mobil Corp. .................................. 8,712,500
725,000 *Newpark Resources, Inc. ..................... 4,939,063
210,000 Phillips Petroleum Co. ....................... 8,951,250
325,000 Texaco, Inc. ................................. 17,184,375
460,000 Tosco Corp. .................................. 11,902,500
460,000 Ultramar Diamond Shamrock Corp. .............. 11,155,000
590,000 YPF SA, ADR................................... 16,483,125
--------------
136,873,750
--------------
Oil Field Services - 1.0%
380,000 Diamond Offshore Drilling, Inc. .............. 9,001,250
488,000 *R & B Falcon Corp. .......................... 3,721,000
335,000 *Weatherford International, Inc. ............. 6,490,625
--------------
19,212,875
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Paper & Packaging - 1.1%
255,000 Bowater, Inc. .................................... $ 10,566,562
185,000 *Sealed Air Corp. ................................ 9,446,563
--------------
20,013,125
--------------
Real Estate - 1.3%
460,000 FelCor Lodging Trust Inc. REIT.................... 10,608,750
500,000 Simon Property Group Inc. REIT.................... 14,250,000
--------------
24,858,750
--------------
Retailing & Wholesale - 5.0%
300,000 Dayton Hudson Corp. .............................. 16,275,000
890,000 Family Dollar Stores, Inc. ....................... 19,580,000
235,000 *Federated Department Stores, Inc. ............... 10,237,187
300,000 Liz Claiborne, Inc. .............................. 9,468,750
260,000 Lowe's Companies, Inc. ........................... 13,308,750
450,000 *Reebok International Ltd. ....................... 6,693,750
215,000 Sears, Roebuck & Co. ............................. 9,137,500
560,000 *Toys R Us, Inc. ................................. 9,450,000
--------------
94,150,937
--------------
Telecommunication Services &
Equipment - 1.1%
175,000 Nokia Corp. ADR................................... 21,076,563
--------------
Transportation - 0.9%
300,000 Burlington Northern Santa Fe Corp. ............... 10,125,000
125,000 Kansas City Southern Industries, Inc. ............ 6,148,438
--------------
16,273,438
--------------
Utilities - Electric - 2.7%
510,000 Cinergy Corp. .................................... 17,531,250
290,000 CMS Energy Corp. ................................. 14,046,875
430,000 GPU, Inc. ........................................ 19,000,625
--------------
50,578,750
--------------
Utilities - Telephone - 1.9%
82,500 Century Telephone Enterprises, Inc. .............. 5,568,750
475,000 GTE Corp. ........................................ 30,875,000
--------------
36,443,750
--------------
Utilities - 0.3%
325,000 MCN Corp. ........................................ 6,195,313
--------------
Total Common Stocks
(cost $1,332,770,480)............................ 1,863,402,400
--------------
</TABLE>
See Combined Notes to Financial Statements.
47
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Core Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.2%
Repurchase Agreement - 2.2%
$40,867,256 Dresdner Bank AG 4.25%,
dated 12/31/98, due 1/4/99,
maturity value $40,886,554
(cost $40,867,256) (a)..... $ 40,867,256
--------------
U.S. Government Agency
Obligations - 0.1%
U.S. Treasury Bills
1,500,000 3.80%, 1/28/99.............. 1,495,725
100,000 3.85%, 1/21/99.............. 99,785
--------------
1,595,510
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
Money Market Shares - 1.9%
36,666,002 Valiant General Fund
(cost, $36,666,002)........... 36,666,002
--------------
Total Short-Term Investments
(cost $79,128,768)............ 79,128,768
--------------
Total Investments
(cost $1,411,899,248).. 102.6% 1,942,531,168
Other Assets and
Liabilities - net...... (2.6) (49,693,421)
------ --------------
Net Assets.............. 100.0% $1,892,837,747
====== ==============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$37,135,000 U.S. Treasury Inflation Index Notes, 3.625%, 4/15/28;
value including accrued interest - $36,475,561 and $10,790,000 U.S.
Treasury STRIP, 8/5/12; value including accrued interest -
$5,213,728.
Summary of Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
STRIP Separate Trading of Registered Interest and Principle of Securities
48
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 96.8%
Aerospace & Defense - 1.1%
140,000 Raytheon Co. Cl. A............................... $ 7,236,250
------------
Automotive Equipment
& Manufacturing - 0.9%
125,000 Goodyear Tire & Rubber Co. ...................... 6,304,688
------------
Banks - 7.2%
219,996 Bank One Corp. .................................. 11,233,546
200,000 Bankamerica Corp. ............................... 12,025,000
70,000 BankBoston Corp. ................................ 2,725,625
75,000 Chase Manhattan Corp. ........................... 5,104,687
98,400 Fleet Financial Group, Inc. ..................... 4,397,250
250,000 PNC Bank Corp. .................................. 13,531,250
------------
49,017,358
------------
Building, Construction &
Furnishings - 0.7%
170,000 Masco Corp. ..................................... 4,887,500
------------
Business Equipment &
Services - 0.7%
60,000 *Compuware Corp. ................................ 4,687,500
------------
Chemical & Agricultural
Products - 1.6%
205,400 Du Pont (E. I.) De Nemours & Co. ................ 10,899,038
------------
Communication Systems &
Services - 6.2%
200,000 *Cisco Systems, Inc. ............................ 18,562,500
200,000 *MCI WorldCom, Inc. ............................. 14,350,000
140,000 *Tellabs, Inc. .................................. 9,598,750
------------
42,511,250
------------
Consumer Products &
Services - 3.7%
200,000 Procter & Gamble Co. ............................ 18,262,500
132,600 Whirlpool Corp. ................................. 7,342,725
------------
25,605,225
------------
Diversified Companies - 3.3%
300,000 Tyco International Ltd. ......................... 22,631,250
------------
Electrical Equipment &
Services - 5.2%
259,900 General Electric Co. ............................ 26,526,044
150,000 Motorola, Inc. .................................. 9,159,375
------------
35,685,419
------------
Environmental Services - 0.5%
80,000 Waste Management, Inc. .......................... 3,730,000
------------
Finance & Insurance - 7.1%
420,600 Allstate Corp. .................................. 16,245,675
170,000 Citigroup, Inc. ................................. 8,415,000
215,000 Countrywide Credit Industries, Inc. ............. 10,790,312
65,000 Loews Corp. ..................................... 6,386,250
65,000 Merrill Lynch & Co., Inc. ....................... 4,338,750
80,000 Price (T.) Rowe & Associates, Inc. .............. 2,740,000
------------
48,915,987
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Food & Beverage Products - 10.9%
363,300 Bestfoods............................................ $ 19,345,725
224,800 Coca Cola Co. ....................................... 15,033,500
266,700 Fortune Brands, Inc. ................................ 8,434,387
265,000 Philip Morris Companies, Inc. ....................... 14,177,500
200,000 *Safeway, Inc. ...................................... 12,187,500
200,000 Sara Lee Corp. ...................................... 5,637,500
------------
74,816,112
------------
Healthcare Products &
Services - 13.2%
100,000 Bristol-Myers Squibb Co. ............................ 13,381,250
145,000 Johnson & Johnson.................................... 12,161,875
250,000 *Lincare Holdings, Inc. ............................. 10,140,625
203,500 Pfizer, Inc. ........................................ 25,526,531
170,000 SmithKline Beecham Plc, ADR.......................... 11,815,000
180,000 *Tenet Healthcare Corp. ............................. 4,725,000
170,000 Warner-Lambert Co. .................................. 12,781,875
------------
90,532,156
------------
Information Services &
Technology - 10.4%
200,000 Compaq Computer Corp. ............................... 8,387,500
100,000 Intel Corp. ......................................... 11,856,250
124,900 International Business Machines Corp. ............... 23,075,275
170,000 *Microsoft Corp. .................................... 23,576,875
50,000 *Sun Microsystems, Inc. ............................. 4,281,250
------------
71,177,150
------------
Manufacturing - Distributing - 0.5%
50,000 Philips Electronics NV............................... 3,384,375
------------
Metal Products & Services - 1.5%
40,955 Aluminum Co. of America.............................. 3,053,707
328,000 USX United States Steel Group........................ 7,544,000
------------
10,597,707
------------
Natural Gas - 0.5%
100,000 El Paso Energy Corp. Delaware........................ 3,481,250
------------
Oil/Energy - 6.4%
90,000 Atlantic Richfield Co. .............................. 5,872,500
170,000 Cabot Corp. ......................................... 4,749,375
170,000 Mobil Corp. ......................................... 14,811,250
130,000 Tosco Corp. ......................................... 3,363,750
100,000 Ultramar Diamond Shamrock Corp. ..................... 2,425,000
225,000 Williams Companies, Inc. ............................ 7,017,188
200,000 YPF SA, ADR.......................................... 5,587,500
------------
43,826,563
------------
Oil Field Services - 0.5%
71,500 Diamond Offshore Drilling, Inc. ..................... 1,693,656
225,000 *R & B Falcon Corp. ................................. 1,715,625
------------
3,409,281
------------
Paper & Packaging - 1.1%
180,000 Bowater, Inc. ....................................... 7,458,750
------------
</TABLE>
49
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Diversified Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - 2.4%
99,000 Dayton Hudson Corp. ................................. $ 5,370,750
110,000 Family Dollar Stores, Inc. .......................... 2,420,000
200,000 *Federated Department Stores, Inc. .................. 8,712,500
------------
16,503,250
------------
Telecommunication Services &
Equipment - 1.0%
57,900 Nokia Corp. ADR...................................... 6,973,331
------------
Textile & Apparel - 0.9%
129,300 V. F. Corp. ......................................... 6,060,938
------------
Transportation - 1.5%
300,000 Burlington Northern Santa Fe Corp. .................. 10,125,000
------------
Utilities - Electric - 3.3%
554,300 Houston Industries, Inc. ............................ 17,806,887
125,000 PacifiCorp........................................... 2,632,813
50,000 Pinnacle West Capital Corp. ......................... 2,118,750
------------
22,558,450
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Telephone - 4.5%
120,000 Century Telephone Enterprises, Inc. ................. $ 8,100,000
346,000 GTE Corp. ........................................... 22,490,000
------------
30,590,000
------------
Total Common Stocks
(cost $581,758,909)................................. 663,605,778
------------
PREFERRED STOCKS - 1.8%
Printing, Publishing, Broadcasting &
Entertainment - 1.8%
510,200 News Corp. Ltd. ADR
(cost $11,451,485).................................. $ 12,595,563
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<C> <S> <C> <C>
SHORT-TERM INVESTMENT - 1.4%
Repurchase Agreement - 1.4%
$9,834,588 Dresdner Bank AG
4.25%, dated 12/31/98, due 1/4/99, maturity value
$9,839,232 (cost $9,834,588)(a)..................... 9,834,588
------------
Total Investments
(cost $603,044,982)......................... 100.0% 686,035,929
Other Assets and
Liabilities - net........................... 0.0 (157,459)
------ ------------
Net Assets................................... 100.0% $685,878,470
====== ============
</TABLE>
* Non-income producing securities.
(a) At December 31,1998, the repurchase agreement was collateralized by:
$9,975,000 U.S. Treasury Inflation Index Notes, 3.625%, 1/15/08;
value including accrued interest - $10,033,783.
Summary of Abbreviations:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
50
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 96.6%
Automotive Equipment &
Manufacturing - 1.1%
108,000 Goodyear Tire & Rubber Co. ......................... $ 5,447,250
------------
Banks - 10.2%
236,780 Bank One Corp. ..................................... 12,090,579
190,000 Bankamerica Corp. .................................. 11,423,750
248,400 BankBoston Corp. ................................... 9,672,075
60,070 Bankers Trust Corp. ................................ 5,132,231
164,000 Fleet Financial Group, Inc. ........................ 7,328,750
96,775 Mellon Bank Corp. .................................. 6,653,281
------------
52,300,666
------------
Building, Construction &
Furnishings - 2.0%
361,000 Masco Corp. ........................................ 10,378,750
------------
Business Equipment &
Services - 1.7%
112,800 *Compuware Corp. ................................... 8,812,500
------------
Chemical & Agricultural
Products - 1.0%
95,000 Du Pont (E. I.) De Nemours & Co. ................... 5,040,938
------------
Communication Systems &
Services - 6.6%
187,050 *Cisco Systems, Inc. ............................... 17,360,578
231,000 *MCI WorldCom, Inc. ................................ 16,574,250
------------
33,934,828
------------
Consumer Products &
Services - 3.7%
145,900 Procter & Gamble Co. ............................... 13,322,494
97,600 Whirlpool Corp. .................................... 5,404,600
------------
18,727,094
------------
Diversified Companies - 2.9%
196,000 Tyco International Ltd. ............................ 14,785,750
------------
Electrical Equipment &
Services - 3.4%
172,560 General Electric Co. ............................... 17,611,905
------------
Environmental Services - 2.4%
262,500 Waste Management, Inc. ............................. 12,239,062
------------
Finance & Insurance - 7.8%
279,600 Allstate Corp. ..................................... 10,799,550
224,500 Citigroup, Inc. .................................... 11,112,750
180,250 Federal National Mortgage Association............... 13,338,500
68,500 Merrill Lynch & Co., Inc. .......................... 4,572,375
------------
39,823,175
------------
Food & Beverage Products - 6.5%
113,500 Bestfoods........................................... 6,043,875
162,850 Coca Cola Co. ...................................... 10,890,594
106,200 Philip Morris Companies, Inc. ...................... 5,681,700
173,600 *Safeway, Inc. ..................................... 10,578,750
------------
33,194,919
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 15.9%
124,000 Bristol-Myers Squibb Co. ...................... $ 16,592,750
330,400 HBO & Co. ..................................... 9,478,350
515,000 *HEALTHSOUTH Corp. ............................ 7,950,312
172,885 Johnson & Johnson.............................. 14,500,729
142,180 *Lincare Holdings, Inc. ....................... 5,767,176
110,870 Pfizer, Inc. .................................. 13,907,256
131,000 *Quintiles Transnational Corp. ................ 6,992,125
82,600 Warner-Lambert Co. ............................ 6,210,488
------------
81,399,186
------------
Information Services &
Technology - 12.4%
417,800 Compaq Computer Corp. ......................... 17,521,487
64,200 Intel Corp. ................................... 7,611,713
45,500 International Business Machines Corp. ......... 8,406,125
138,000 *Microsoft Corp. .............................. 19,138,875
121,000 *Network Associates, Inc. ..................... 8,016,250
138,000 *Quantum Corp. ................................ 2,932,500
------------
63,626,950
------------
Metal Products &
Services - 1.0%
71,000 Aluminum Co. of America........................ 5,293,937
------------
Oil / Energy - 4.4%
78,000 Mobil Corp. ................................... 6,795,750
197,400 Texaco, Inc. .................................. 10,437,525
183,700 YPF SA, ADR.................................... 5,132,119
------------
22,365,394
------------
Paper & Packaging - 1.1%
134,600 Bowater, Inc. ................................. 5,577,487
------------
Printing, Publishing, Broadcasting &
Entertainment - 1.8%
247,200 News Corp, Ltd. ............................... 6,535,350
41,700 Omnicom Group, Inc. ........................... 2,418,600
------------
8,953,950
------------
Real Estate - 0.7%
153,800 FelCor Lodging Trust Inc. REIT................. 3,547,013
------------
Retailing & Wholesale - 2.4%
157,200 Dayton Hudson Corp. ........................... 8,528,100
164,400 Family Dollar Stores, Inc. .................... 3,616,800
------------
12,144,900
------------
Transportation - 1.3%
189,000 Burlington Northern Santa Fe Corp. ............ 6,378,750
------------
Utilities - Electric - 2.2%
323,700 Cinergy Corp. ................................. 11,127,187
------------
</TABLE>
51
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Large Cap Blend Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Telephone - 4.1%
112,500 Century Telephone Enterprises, Inc. ................ $ 7,593,750
207,700 GTE Corp. .......................................... 13,500,500
------------
21,094,250
------------
Total Common Stocks
(cost $367,996,341)................................ 493,805,841
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 3.4%
Repurchase Agreement - 3.4%
$17,500,209 Dresdner Bank AG
4.25%, dated 12/31/98, due 1/4/99, maturity
value $17,508,473 (cost $17,500,209) (a)..... 17,500,209
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C> <C>
Money Market Shares - 0.0%
1,661 Valiant General Fund
(cost $1,661)..................................... 1,661
------------
Total Investments
(cost $385,498,211)........................ 100.0% $511,307,711
Other Assets and
Liabilities - net.......................... 0.0 (80,997)
----- ------------
Net Assets................................. 100.0% $511,226,714
===== ============
</TABLE>
* Non-income producing securities
(a) At December 31,1998, the repurchase agreement was collateralized by:
$7,730,000 U.S. Treasury Notes, 5.875%, 7/31/99; value including
accrued interest-$7,971,996, $9,524,000 U.S. Treasury Notes, 6.00%,
8/15/99; value including accrued interest - $9,815,720, and $65,000
U.S. Treasury Notes, 5.625%, 11/30/99; value including accrued
interest - $65,880.
Summary of Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
52
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 99.6%
Advertising & Related Services - 2.0%
51,100 * ADVO, Inc. ............................................ $ 1,347,763
-----------
Aerospace & Defense - 1.6%
12,900 Alliant Techsystems, Inc. ............................... 1,063,444
-----------
Automotive Equipment &
Manufacturing - 1.2%
25,200 Midas, Inc. ............................................. 784,350
-----------
Banks - 2.4%
34,300 SIS Bancorp, Inc. ....................................... 1,574,584
-----------
Building, Construction &
Furnishings - 2.2%
22,100 * CompX International, Inc. Cl. A........................ 582,888
31,300 * Wackenhut Corrections Corp. ........................... 895,962
-----------
1,478,850
-----------
Business Equipment & Services - 4.7%
27,400 Abacus Direct Corp. ..................................... 1,254,406
30,200 * Hagler Bailly, Inc. ................................... 620,988
49,400 * Market Facts, Inc. .................................... 1,241,175
-----------
3,116,569
-----------
Chemical & Agricultural Products - 1.8%
33,800 OM Group, Inc. .......................................... 1,233,700
-----------
Communication Systems &
Services - 1.0%
10,400 * Exodus Communications, Inc. ........................... 671,450
-----------
Consumer Products & Services - 4.9%
37,300 * Chattem, Inc. ......................................... 1,778,743
38,500 * Scotts Co. (The) Cl. A................................. 1,479,844
-----------
3,258,587
-----------
Education - 8.0%
43,646 * Bright Horizons Family Solutions, Inc. ................ 1,183,898
52,400 * Career Education Corp. ................................ 1,572,000
69,100 * CBT Group Public Ltd. ................................. 1,032,181
76,500 * Computer Learning Centers, Inc. ....................... 509,203
29,000 Strayer Education, Inc. ................................. 1,019,531
-----------
5,316,813
-----------
Electrical Equipment & Services - 8.1%
43,300 * Artisan Components, Inc. .............................. 228,678
39,500 * Asyst Technologies, Inc. .............................. 807,281
49,800 * Atmel Corp. ........................................... 761,006
55,200 * DII Group, Inc. ....................................... 1,266,150
29,800 * Pri Automation, Inc. .................................. 769,213
43,600 * Sipex Corp. ........................................... 1,546,438
-----------
5,378,766
-----------
Finance & Insurance - 4.9%
33,200 Annuity & Life Re, Ltd. ................................. 888,100
29,467 * Delphi Financial Group, Inc. .......................... 1,545,176
25,000 * Telebanc Financial Corp. .............................. 854,687
-----------
3,287,963
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Finance - 1.9%
20,900 Investors Financial Services Corp. ..................... $ 1,247,469
-----------
Healthcare Products &
Services - 7.3%
35,200 Ballard Medical Products................................ 855,800
24,100 * Barr Labs Inc. ....................................... 1,156,800
7,300 * Minimed Inc. ......................................... 765,587
37,750 * Renal Care Group, Inc. ............................... 1,094,750
30,150 * Xomed Surgical Products, Inc. ........................ 964,800
-----------
4,837,737
-----------
Industrial Specialty Products &
Services - 5.1%
31,500 Kaydon Corp. ........................................... 1,261,969
37,200 Roper Industries, Inc. ................................. 757,950
28,900 Superior Telecom, Inc. ................................. 1,365,525
-----------
3,385,444
-----------
Information Services &
Technology - 20.1%
19,000 * Applied Micro Circuits Corp. ......................... 646,000
18,100 * Broadvision, Inc. .................................... 585,422
23,300 * Choicepoint, Inc. .................................... 1,502,850
52,900 * DA Consulting Group, Inc. ............................ 1,127,431
47,300 * Electronics for Imaging, Inc. ........................ 1,890,522
51,000 * FileNet Corp. ........................................ 584,906
32,100 * Forrester Research, Inc. ............................. 1,405,378
22,800 * Kronos Inc. .......................................... 1,013,887
39,500 * Maximus, Inc. ........................................ 1,461,500
13,700 * Mercury Interactive Corp. ............................ 865,669
13,200 * PMC Sierra, Inc. ..................................... 832,013
22,900 * Progress Software Corp. .............................. 774,306
12,600 * Usweb Corp. .......................................... 331,538
18,400 * Verio, Inc. .......................................... 409,400
-----------
13,430,822
-----------
Leisure & Tourism - 2.1%
43,300 * Steiner Leisure Ltd. ................................. 1,384,247
-----------
Machinery - Diversified - 3.6%
25,300 Astec Industries, Inc. ................................. 1,407,313
64,000 * Rental Service Corp. ................................. 1,004,000
-----------
2,411,313
-----------
Manufacturing - Distributing - 2.0%
52,000 * National R. V. Holdings, Inc. ........................ 1,339,000
-----------
Oil/Energy - 1.3%
30,500 * Newfield Exploration Co. ............................. 636,688
32,400 * Seven Seas Petroleum, Inc. ........................... 216,675
-----------
853,363
-----------
Oil Field Services - 1.0%
34,800 * Core Laboratories NV ................................. 665,550
-----------
Printing, Publishing, Broadcasting & Entertainment -
3.4%
42,900 * Big Flower Holdings, Inc. ............................ 946,481
40,700 * Hearst-Argyle Television, Inc. ....................... 1,343,100
-----------
2,289,581
-----------
</TABLE>
53
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Cap Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Retailing & Wholesale - 1.1%
18,300 * Ann Taylor Stores Corp. ................................ $ 721,706
----------
Telecommunication Services &
Equipment - 6.8%
57,100 *Antec Corp............................................... 1,152,706
72,800 *Boston Communications Group.............................. 928,200
15,800 *Esprit Telecom Group, Plc, ADR........................... 745,562
40,200 *ITC Deltacom............................................. 610,538
48,700 *Viatel, Inc. ............................................ 1,118,578
----------
4,555,584
----------
Transportation - 1.1%
41,600 *Covenant Transport, Inc. Cl. A .......................... 743,600
----------
Total Common Stocks
(cost $56,609,307)....................................... 66,378,255
----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS - 1.1%
Repurchase Agreement - 1.1%
$714,000 EIMC Joint Repurchase Agreement Investments in
repurchase agreements, in a joint trading account,
dated 12/31/98, 5.02%, due 1/4/99, maturity value
$714,398 (cost $714,000) (a)......................... $ 714,000
-----------
Total Investments
(cost $57,323,307).......................... 100.7% 67,092,255
Other Assets and
Liabilities - net........................... (0.7) (451,186)
------- -----------
Net Assets................................... 100.0% $66,641,069
======= ===========
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by the U.S.
government and/or agency obligations based on market prices plus
accrued interest at December 31, 1998.
Summary of Abbreviations:
ADR American Depository Receipt
See Combined Notes to Financial Statements.
54
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 97.4%
Automotive Equipment &
Manufacturing - 2.9%
40,000 Arvin Industries, Inc. .............................. $ 1,667,500
60,000 Wabash National Corp. ............................... 1,218,750
------------
2,886,250
------------
Banks - 9.4%
10,000 ABC Bancorp.......................................... 126,250
9,500 Bank of Commerce..................................... 159,125
19,500 Britton & Koontz Capital Corp. ...................... 386,344
27,500 BSB Bancorp, Inc. ................................... 904,062
67,400 *Civic Bancorp....................................... 893,050
56,910 Commercial Bankshares, Inc. ......................... 1,308,930
50,000 Cowlitz Bancorp...................................... 393,750
15,000 First Liberty Financial Corp. ....................... 315,000
20,000 First State Bancorp.................................. 415,000
30,000 Granite State Bankshares, Inc. ...................... 705,000
14,000 Hancock Holding Co. ................................. 637,000
10,815 Hubco, Inc. ......................................... 325,802
50,000 Independent Bankshares, Inc. ........................ 575,000
10,000 Pacific Century Financial Corp. ..................... 243,750
7,000 *PNB Financial Group................................. 200,375
75,000 *Pointe Financial Corp. ............................. 773,438
29,800 Seacoast Banking Corp. of Florida Cl. A.............. 845,575
------------
9,207,451
------------
Building, Construction &
Furnishings - 9.7%
6,700 *Beazer Homes USA, Inc. ............................. 167,500
47,000 *CompX International, Inc. Cl. A..................... 1,239,625
20,000 *Crossmann Communities, Inc. ........................ 552,500
20,000 D.R. Horton, Inc. ................................... 460,000
60,000 *Gehl Co. ........................................... 922,500
75,000 *Genlyte Group, Inc. ................................ 1,406,250
17,000 *Knoll, Inc. ........................................ 503,625
25,000 *Koala Corp. ........................................ 434,375
50,000 La-Z-Boy Chair Co. .................................. 890,625
22,500 *Monaco Coach Corp. ................................. 596,250
75,000 Shelby Williams Industries, Inc. .................... 900,000
40,100 *Stanley Furniture Co., Inc. ........................ 731,825
30,000 *Toll Brothers, Inc. ................................ 676,875
------------
9,481,950
------------
Business Equipment &
Services - 0.3%
9,000 *Zebra Technologies Corp. Cl. A...................... 258,750
------------
Communication Systems &
Services - 0.9%
20,000 *Orbital Sciences Corp. ............................. 885,000
------------
Consumer Products &
Services - 9.3%
40,000 CPI Corp. ........................................... 1,060,000
20,000 Harman International Industries, Inc. ............... 762,500
45,000 Lancaster Colony Corp. .............................. 1,445,625
50,000 *LoJack Corp. ....................................... 593,750
35,000 Matthews International Corp. Cl. A................... 1,102,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Consumer Products &
Services - continued
45,000 *Maxwell Shoe, Inc. Cl. A............................ $ 492,187
60,000 *North Face, Inc. ................................... 780,000
66,000 *Rock Of Ages Corp. Cl. A............................ 940,500
20,000 Russ Berrie & Co., Inc. ............................. 470,000
30,000 St. John Knits, Inc. ................................ 780,000
70,000 York Group, Inc. .................................... 665,000
------------
9,092,062
------------
Electronic Equipment &
Services - 6.9%
40,000 Boston Acoustics, Inc. .............................. 1,060,000
5,000 *Electro Scientific Industries, Inc. ................ 226,562
27,800 *Hadco Corp. ........................................ 973,000
33,632 *Sanmina Corp. ...................................... 2,102,000
65,000 *SMART Modular Technologies, Inc. ................... 1,803,750
85,000 *Vicon Industries, Inc. ............................. 626,875
------------
6,792,187
------------
Electrical Equipment &
Services - 0.1%
15,000 *Ortel Corp. ........................................ 131,250
------------
Finance & Insurance - 10.0%
30,000 American Bankers Insurance Group, Inc. .............. 1,451,250
20,000 CMAC Investment Corp. ............................... 918,750
2,500 Dain Rauscher Corp. ................................. 73,750
17,000 *Farm Family Holdings, Inc. ......................... 578,000
11,000 Fidelity National Financial, Inc. ................... 335,500
32,000 Frontier Insurance Group, Inc. ...................... 412,000
38,500 Grand Premier Financial, Inc. ....................... 471,625
36,400 Interstate/Johnson Lane, Inc. ....................... 1,139,775
10,000 LandAmerica Financial Group, Inc. ................... 558,125
32,300 Meadowbrook Insurance Group, Inc. ................... 530,931
85,500 Morgan Keegan, Inc. ................................. 1,608,469
17,200 Raymond James Financial, Inc. ....................... 363,350
60,000 State Auto Financial Corp. .......................... 742,500
27,700 Waddell & Reed Financial, Inc. Cl. A................. 656,144
------------
9,840,169
------------
Food & Beverage Products - 1.6%
30,000 *Performance Food Group Co. ......................... 843,750
25,700 Smucker (J. M.) Co. ................................. 568,613
5,000 Smucker (J. M.) Co. Cl. A............................ 123,750
------------
1,536,113
------------
Healthcare Products &
Services - 7.6%
20,000 *Acuson Corp. ....................................... 297,500
40,000 *ADAC Laboratories................................... 798,750
95,000 *Air Methods Corp. .................................. 255,312
10,000 *Alcide Corp. ....................................... 151,250
41,000 *Carematrix Corporation.............................. 1,255,625
40,000 *Empi, Inc. ......................................... 1,000,000
140,000 *Encore Medical Corp. ............................... 393,750
100,000 *Exactech, Inc. ..................................... 1,300,000
</TABLE>
55
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - continued
40,000 *Hologic, Inc. ..................................... $ 485,000
3,500 *Maxxim Medical, Inc. .............................. 104,125
16,000 *Visx, Inc. ........................................ 1,399,000
------------
7,440,312
------------
Industrial Specialty Products &
Services - 2.3%
15,000 Donaldson, Inc. .................................... 311,250
25,000 Graco, Inc. ........................................ 737,500
4,500 Hach Co. Cl. A...................................... 46,125
55,000 Met-Pro Corp. ...................................... 687,500
20,000 Robbins & Myers, Inc. .............................. 442,500
------------
2,224,875
------------
Information Services &
Technology - 4.6%
20,000 *Axent Technologies, Inc. .......................... 611,250
20,000 *Etec Systems, Inc. ................................ 800,000
40,000 Fair Issac & Co., Inc. ............................. 1,847,500
33,200 *Micros Systems, Inc. .............................. 1,091,450
10,000 *Tecnomatix Technologies Ltd. ...................... 175,000
------------
4,525,200
------------
Machinery - Diversified - 0.8%
41,250 Hardinge, Inc. ..................................... 760,547
------------
Oil/Energy - 2.0%
20,000 *Barrett Resources Corp. ........................... 480,000
30,000 Berry Petroleum Co. Cl. A........................... 425,625
32,000 Cabot Oil & Gas Corp. Cl. A......................... 480,000
50,000 *COHO Energy, Inc. ................................. 140,625
28,000 *Nuevo Energy Co. .................................. 322,000
20,000 Southwestern Energy Co. ............................ 150,000
------------
1,998,250
------------
Oil Field Services - 1.9%
13,000 *Atwood Oceanics, Inc. ............................. 221,000
10,300 Lufkin Industries, Inc. ............................ 190,550
20,000 *Oceaneering International, Inc. ................... 300,000
20,000 *Offshore Logistics, Inc. .......................... 237,500
27,200 *R & B Falcon Corp. ................................ 207,400
10,000 *SEACOR SMIT, Inc. ................................. 494,375
30,000 *Tuboscope, Inc. ................................... 243,750
------------
1,894,575
------------
Printing, Publishing, Broadcasting & Entertainment -
1.8%
43,900 Banta Corp. ........................................ 1,201,762
1,900 Bowne & Co., Inc. .................................. 33,963
20,000 *Infinity Broadcasting Corp. ....................... 547,500
------------
1,783,225
------------
Real Estate - 1.0%
15,000 Eastgroup Properties, Inc. REIT..................... 276,562
20,000 *Lodgian, Inc. ..................................... 97,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Real Estate - continued
50,000 *Prime Hospitality Corp. ........................... $ 528,125
4,100 Sunstone Hotel Investors, Inc. REIT................. 38,694
------------
940,881
------------
Retailing & Wholesale - 7.6%
22,000 *Cole National Corp. Cl. A.......................... 376,750
65,000 *Duckwall-ALCO Stores, Inc. ........................ 853,125
50,000 *Finish Line, Inc. Cl. A............................ 400,000
25,000 *Footstar, Inc. .................................... 625,000
71,000 Freds Inc. ......................................... 1,065,000
63,500 *Lithia Motors, Inc. ............................... 1,047,750
100,000 *S & K Famous Brands, Inc. ......................... 928,125
30,000 Seaway Food Town, Inc. ............................. 495,000
50,000 *Sonic Automotive, Inc. ............................ 1,721,875
------------
7,512,625
------------
Telecommunication Services & Equipment - 3.0%
69,300 *Antec Corp. ....................................... 1,394,663
60,000 *Aspect Telecommunications Corp. ................... 1,035,000
50,000 *Comdial Corp. ..................................... 440,625
4,000 Hickory Tech Corp. ................................. 52,000
------------
2,922,288
------------
Textile & Apparel - 1.7%
70,000 *Gerber Childrenswear, Inc. ........................ 608,125
30,000 Oxford Industries, Inc. ............................ 847,500
18,100 Superior Uniform Group, Inc. ....................... 262,450
------------
1,718,075
------------
Thrift Institutions - 4.8%
18,000 Highland Bancorp, Inc. ............................. 567,000
75,400 Horizon Financial Corp. ............................ 951,925
14,200 Mech Financial, Inc. ............................... 394,050
25,000 Monterey Bay Bancorp, Inc. ......................... 357,813
42,500 *Quaker City Bancorp, Inc. ......................... 680,000
48,371 St. Paul Bancorp, Inc. ............................. 1,316,598
29,000 Teche Holding Co. .................................. 445,875
------------
4,713,261
------------
Transportation - 1.7%
13,000 *Airnet Systems, Inc. .............................. 186,875
35,000 ASA Holdings, Inc. ................................. 1,067,500
25,700 *Heartland Express, Inc. ........................... 449,750
------------
1,704,125
------------
Utilities - Electric - 1.3%
10,000 Central Hudson Gas & Electric Corp. . 447,500
10,000 Madison Gas & Electric Co. ......................... 227,500
22,500 MDU Resources Group, Inc. .......................... 592,031
------------
1,267,031
------------
Utilities - Gas - 4.2%
10,000 Eastern Enterprises................................. 437,500
25,000 Indiana Energy, Inc. ............................... 615,625
26,600 Northwest Natural Gas Co. .......................... 688,275
20,000 NUI Corp. .......................................... 536,250
</TABLE>
56
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Small Company Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Gas - continued
10,000 Providence Energy Corp. ............................. $ 210,000
30,000 South Jersey Industries, Inc. ....................... 785,625
35,000 UGI Corp. ........................................... 831,250
------------
4,104,525
------------
Total Common Stocks
(cost $103,150,841)................................. 95,620,977
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 4.8%
Commercial Paper - 3.2%
$1,645,000 Exxon Imperial US, Inc. 4.83%, 1/25/99.............. $ 1,639,703
1,470,000 Island Finance Puerto Rico, Inc. 5.55%, 1/22/99,
(LOC: NorwestCorp.)................................ 1,465,241
------------
3,104,944
------------
U.S. Government Agency
Obligations - 1.6%
175,000 Federal Home Loan Bank Discount Notes 5.05%,
1/13/99............................................ 174,705
1,410,000 Federal National Mortgage Association Discount Notes
5.07%, 1/19/99..................................... 1,406,426
------------
1,581,131
------------
Total Short-Term Investments
(cost $4,686,075).................................. 4,686,075
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments
(cost $107,836,916).......................... 102.2% 100,307,052
Other Assets and
Liabilities - net............................ (2.2) (2,194,640)
------ ------------
Net Assets ................................... 100.0% $ 98,112,412
====== ============
</TABLE>
* Non-Income Producing Securities.
Summary of Abbreviations:
REIT Real Estate Investment Trust
LOC Letter of Credit
See Combined Notes to Financial Statements.
57
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 99.6%
Advertising & Related Services - 2.0%
88,000 *Ha Lo Industries Inc. ................................ $ 3,311,000
------------
Aerospace & Defense - 1.1%
87,500 *BE Aerospace, Inc. ................................... 1,837,500
------------
Banks - 4.8%
44,000 BankBoston Corp. ...................................... 1,713,250
30,000 Mellon Bank Corp. ..................................... 2,062,500
81,000 SouthTrust Corp. ...................................... 2,991,938
27,500 Summit Bancorp......................................... 1,201,406
------------
7,969,094
------------
Building, Construction & Furnishings - 4.9%
90,000 Masco Corp. ........................................... 2,587,500
110,000 *NCI Building Systems, Inc. ........................... 3,093,750
42,000 Southdown, Inc. ....................................... 2,485,875
------------
8,167,125
------------
Business Equipment & Services - 4.3%
56,700 *Compuware Corp. ...................................... 4,429,687
40,000 *Consolidated Graphics, Inc. .......................... 2,702,500
------------
7,132,187
------------
Communication Systems & Services - 0.9%
23,000 *Tellabs, Inc. ........................................ 1,576,938
------------
Consumer Products & Services - 1.0%
29,100 Whirlpool Corp. ....................................... 1,611,413
------------
Education - 1.0%
52,000 *Apollo Group, Inc. ................................... 1,761,500
------------
Electronic Equipment & Services - 2.1%
55,000 *Sanmina Corp. ........................................ 3,437,500
------------
Environmental Services - 3.0%
215,000 *Allied Waste Industries, Inc. ........................ 5,079,375
------------
Finance & Insurance - 9.9%
89,000 AFLAC, Inc. ........................................... 3,916,000
50,000 Annuity & Life Re, Ltd. ............................... 1,343,750
112,500 Conseco, Inc. ......................................... 3,438,281
32,100 Countrywide Credit Industries, Inc. ................... 1,611,019
85,000 Partnerre Ltd. ........................................ 3,888,750
50,000 ReliaStar Financial Corp. ............................. 2,306,250
------------
16,504,050
------------
Food & Beverage Products - 2.5%
54,000 Dean Foods Co. ........................................ 2,203,875
95,000 Richfood Holdings, Inc. ............................... 1,971,250
------------
4,175,125
------------
Healthcare Products & Services - 15.4%
88,000 *Boston Scientific Corp. .............................. 2,359,500
63,000 *Elan Corp Plc, ADR.................................... 4,382,437
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products & Services - continued
20,000 HBO & Co. ............................................. $ 573,750
230,000 *HEALTHSOUTH Corp. .................................... 3,550,625
29,000 *Lincare Holdings, Inc. ............................... 1,176,313
120,000 *Orthodontic Centers America, Inc. .................... 2,332,500
70,000 *Pediatrix Medical Group, Inc. ........................ 4,195,625
67,000 *Quintiles Transnational Corp. ........................ 3,576,125
83,000 *Safeskin Corp. ....................................... 2,002,375
32,000 *Universal Health Services, Inc. Cl. B................. 1,660,000
------------
25,809,250
------------
Industrial Specialty Products & Services - 2.4%
38,000 Magna International, Inc. Cl. A........................ 2,356,000
78,500 Roper Industries, Inc. ................................ 1,599,437
------------
3,955,437
------------
Information Services & Technology - 15.6%
113,000 *Adaptec, Inc. ........................................ 1,984,563
33,000 *Edwards (J.D.) & Co. ................................. 936,375
93,000 *EMC Corp. ............................................ 7,905,000
108,000 *Network Associates, Inc. ............................. 7,155,000
43,500 *PMC-Sierra, Inc. ..................................... 2,745,937
104,000 *Quantum Corp. ........................................ 2,210,000
27,000 *Uniphase Corp. ....................................... 1,873,125
22,000 Veritas Software Corp. ................................ 1,318,625
------------
26,128,625
------------
Manufacturing - Distributing - 0.9%
37,000 *Teradyne, Inc. ....................................... 1,567,875
------------
Oil/Energy - 3.5%
310,000 *Newpark Resources, Inc. .............................. 2,111,875
56,000 Sonat, Inc. ........................................... 1,515,500
95,000 Ultramar Diamond Shamrock Corp. ....................... 2,303,750
------------
5,931,125
------------
Paper & Packaging - 1.1%
106,000 Rock Tennessee Co. Cl. A............................... 1,795,375
------------
Pharmaceuticals - 3.3%
190,000 *BioChem Pharma, Inc. ................................. 5,438,750
------------
Printing, Publishing, Broadcasting &
Entertainment - 0.5%
15,700 Omnicom Group, Inc. ................................... 910,600
------------
Real Estate - 1.0%
75,000 FelCor Lodging Trust Inc. REIT......................... 1,729,688
------------
Retailing & Wholesale - 5.9%
57,600 Dollar General Corp. .................................. 1,360,800
156,000 Family Dollar Stores, Inc. ............................ 3,432,000
102,000 *General Nutrition Companies, Inc. .................... 1,657,500
60,000 *Starbucks Corp. ...................................... 3,367,500
------------
9,817,800
------------
</TABLE>
58
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Social Principles Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Telecommunication Services & Equipment - 1.8%
60,000 *Qwest Communications
International, Inc. .................................. $ 3,000,000
------------
Transportation - 2.0%
100,000 Comair Holdings, Inc. ................................. 3,375,000
------------
Utilities - Electric - 5.4%
95,000 Cinergy Corp. ......................................... 3,265,625
68,000 Sierra Pacific Resources............................... 2,584,000
85,000 UtiliCorp United, Inc. ................................ 3,118,437
------------
8,968,062
------------
Utilities - Telephone - 3.3%
81,000 Century Telephone Enterprises, Inc. ................... 5,467,500
------------
Total Common Stocks
(cost $118,325,220)................................... 166,457,894
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 0.4%
Repurchase Agreement - 0.4%
$605,242 Dresdner Bank AG 4.25%, dated 12/31/98, due 1/4/99,
maturity value $605,313 (cost $605,242)(a).......... $ 605,242
------------
<CAPTION>
Shares
<C> <S> <C>
Money Market Shares - 0.0%
62,842 Valiant General Fund (Cost $62,842).................. 62,842
------------
Total Short-Term Investments
(cost $668,084)..................................... 668,084
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments
(cost $118,993,304)........................... 100.0% 167,125,978
Other Assets and
Liabilities - net............................. 0.0 (19,562)
------ ------------
Net Assets..................................... 100.0% $167,106,416
====== ============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$1,280,000 U.S. Treasury STRIPS, 8/15/12; value including accrued
interest - $618,867
Summary of Abbreviations:
ADR American Depository Receipts
REIT Real Estate Investment Trust
STRIP Separate Trading of Registered Interest and Principle of Securities
See Combined Notes to Financial Statements.
59
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 91.1%
Advertising & Related
Services - 0.5%
11,400 *Young & Rubicam, Inc................................. $ 369,075
-----------
Building, Construction &
Furnishings - 6.4%
45,000 *Comfort Systems USA, Inc............................. 804,375
50,000 *Group Maintenance America Corp....................... 606,250
25,000 Oakwood Homes Corp.................................... 379,687
27,500 *Royal Group Technologies Ltd......................... 613,594
35,000 *Shaw Group, Inc...................................... 280,000
70,000 *Standard Pacific Corp................................ 988,750
44,180 *Winsloew Furniture, Inc.............................. 1,170,770
-----------
4,843,426
-----------
Business Equipment &
Services - 1.6%
67,500 *Imagemax, Inc........................................ 135,000
32,500 *Metamor Worldwide, Inc............................... 812,500
46,500 *Vision Twenty One, Inc............................... 244,125
-----------
1,191,625
-----------
Capital Goods - 0.3%
10,000 *Case Corp............................................ 218,125
-----------
Communication Systems &
Services - 2.8%
28,000 *Mac Gray Corp........................................ 318,500
22,000 *Metromedia Fiber Network, Inc........................ 737,000
115,100 *VDI Media............................................ 1,093,450
-----------
2,148,950
-----------
Consumer Products &
Services - 0.4%
129,200 *Acme United Corp..................................... 290,700
-----------
Diversified Companies - 1.0%
20,000 National Service Industries, Inc...................... 760,000
-----------
Electronic Equipment &
Services - 0.3%
30,000 *Vicon Industries, Inc................................ 221,250
-----------
Electrical Equipment &
Services - 1.0%
65,000 *Magnetek, Inc........................................ 751,563
-----------
Finance & Insurance - 2.5%
46,500 Aames Financial Corp.................................. 148,219
11,160 *Affiliated Managers Group, Inc. ..................... 333,405
34,700 *Delta Financial Corp................................. 206,031
18,200 Everest Reinsurance Holdings, Inc..................... 708,662
83,000 *WFS Financial, Inc................................... 518,750
-----------
1,915,067
-----------
Food & Beverage Products - 1.9%
70,000 Chiquita Brands International, Inc. .................. 669,375
30,000 *Fresh Del Monte Produce.............................. 650,625
9,300 *Omega Protein Corp................................... 94,163
-----------
1,414,163
-----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 15.6%
45,000 *American Retirement Corp............................. $ 705,937
94,000 *Brookdale Living Communities, Inc.................... 1,833,000
46,500 *Cellegy Pharmaceuticals, Inc......................... 162,750
37,500 *Centennial Healthcare Corp........................... 581,250
68,000 *Chirex, Inc.......................................... 1,453,500
46,300 *Collagenex Pharmaceuticals, Inc...................... 445,637
80,000 *Computer Motion, Inc................................. 1,000,000
40,500 *Guilford Pharmaceuticals, Inc........................ 577,125
27,300 *Isis Pharmaceuticals, Inc............................ 353,194
45,000 *MedPartners, Inc..................................... 236,250
41,850 *Megabios Corp........................................ 214,481
105,000 *Pharmaceutical Resources, Inc........................ 498,750
75,000 *Progenics Pharmaceuticals, Inc....................... 928,125
47,400 *Resound Corp......................................... 177,750
12,500 *Roberts Pharmaceutical Corp.......................... 271,875
175,800 *Scios, Inc........................................... 1,823,925
85,000 *Titan Pharmaceuticals, Inc........................... 324,063
26,500 *Urologix, Inc........................................ 111,797
-----------
11,699,409
-----------
Industrial Specialty Products &
Services - 2.3%
55,800 *Building One Services Corp........................... 1,164,825
25,500 *United States Filter Corp............................ 583,313
-----------
1,748,138
-----------
Information Services &
Technology - 14.6%
46,400 *Abovenet Communications, Inc......................... 974,400
28,500 *Beyond Common Corp................................... 591,375
27,900 *Box Hill Systems Corp................................ 149,963
48,500 *Ciber, Inc........................................... 1,354,969
20,500 *Excite, Inc.......................................... 862,281
62,000 *Mecon, Inc........................................... 651,000
22,500 *Microage, Inc........................................ 345,938
100,700 *Mikohn Gaming Corp................................... 390,212
50,000 *MIPS Technologies, Inc............................... 1,600,000
75,000 *Mylex Corp........................................... 900,000
37,000 *Real Networks, Inc................................... 1,327,375
7,000 *Ticketmaster Online Citysearch....................... 392,000
63,500 *Verio, Inc........................................... 1,420,812
-----------
10,960,325
-----------
Metal Products & Services - 1.4%
25,000 Freeport McMoran Copper & Gold, Inc., Cl. B........... 260,938
37,890 Ispat International NV................................ 293,647
35,000 *RTI International Metals Inc......................... 490,000
-----------
1,044,585
-----------
Oil/Energy - 0.4%
42,500 *Newpark Resources, Inc............................... 289,531
-----------
</TABLE>
60
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Special Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Oil Field Services - 2.4%
65,300 *Bayard Drilling Tech, Inc........................... $ 326,500
9,000 *Callon Petroleum Co................................. 104,625
50,000 *Horizon Offshore, Inc............................... 275,000
65,000 *IRI International Corp.............................. 260,000
37,000 *Lone Star Technologies, Inc......................... 374,625
68,256 *Meridian Resource Corp.............................. 217,566
10,000 Tidewater, Inc....................................... 231,875
-----------
1,790,191
-----------
Printing, Publishing, Broadcasting &
Entertainment - 1.1%
75,000 *Big City Radio, Inc................................. 318,750
20,400 *SBS Broadcasting SA................................. 550,800
-----------
869,550
-----------
Real Estate - 3.4%
53,600 AMB Property Corp. REIT.............................. 1,179,200
27,500 Franchise Finance Corp. America REIT................. 660,000
41,800 Imperial Credit Commercial Mortgage Investment Corp.
REIT................................................ 391,875
31,500 *Prime Hospitality Corp.............................. 332,719
-----------
2,563,794
-----------
Retailing & Wholesale - 12.5%
27,500 *Abercrombie & Fitch Co. ............................ 1,945,625
46,300 *Bon Ton Stores, Inc................................. 353,038
9,300 *CDnow, Inc. ........................................ 167,400
92,100 *Drug Emporium, Inc.................................. 472,012
18,600 *Electronics Boutique Holdings Corp.................. 378,975
33,000 *General Nutrition Companies, Inc.................... 536,250
155,000 *Pacific Sunwear Of California....................... 2,538,125
60,000 *Paul Harris Stores, Inc............................. 487,500
23,000 *Tweeter Home Entertainment Group, Inc. ............. 661,250
45,200 *Williams Sonoma, Inc. .............................. 1,822,125
-----------
9,362,300
-----------
Telecommunication Services & Equipment - 9.4%
102,300 *Amnex, Inc.......................................... 38,363
70,000 *Clearnet Communications, Inc........................ 568,750
44,600 *Hybrid Networks, Inc................................ 27,875
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Telecommunication Services & Equipment - continued
50,000 *Hyperion Telecommunications, Inc., Cl. A............. $ 756,250
14,800 *Intermedia Communications, Inc....................... 255,300
81,500 *Metronet Communications Corp......................... 2,730,250
45,000 *MGC Communications, Inc.............................. 315,000
32,500 *NEXTLINK Communications, Inc., Cl. A................. 922,187
31,000 Scientific Atlanta, Inc............................... 707,187
50,000 *US LEC Corp. Cl. A................................... 740,625
-----------
7,061,787
-----------
Textile & Apparel - 2.1%
186,600 *Gildan Activewear, Inc............................... 1,562,775
-----------
Transportation - 5.7%
17,000 *Alaska Air Group, Inc................................ 752,250
30,000 *Amtran, Inc. ........................................ 813,750
105,000 *Arkansas Best Corp................................... 613,594
27,400 *Coach USA, Inc. ..................................... 950,437
45,000 *Genesee & Wyoming, Inc. ............................. 573,750
46,500 *Midway Airlines Corp. ............................... 558,000
-----------
4,261,781
-----------
Utilities - Telephone - 1.5%
10,000 *McLeod USA, Inc., Cl. A.............................. 312,500
65,000 *Star Telecommunications, Inc. ....................... 792,188
-----------
1,104,688
-----------
Total Common Stocks
(cost $71,859,538)................................... 68,442,798
-----------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS - 9.6%
Repurchase Agreement - 9.6%
$7,186,801 Dresdner Bank AG 4.25%, dated 12/31/98, due
1/4/99, maturity value $7,187,649 (cost
$7,186,801)(a).................................... 7,186,801
-----------
Total Investments
(cost $79,046,339)........................ 100.7% 75,629,599
Other Assets and
Liabilities - net......................... (0.7) (539,313)
------ -----------
Net Assets................................. 100.0% $75,090,286
====== ===========
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$7,290,000 U.S. Treasury Inflation Index Notes, 3.625%, 1/15/08;
value including accrued interest - $7,332,960.
Summary of Abbreviations:
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
61
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 98.4%
Advertising & Related Services - 1.6%
149,490 Omnicom Group, Inc.................................. $ 8,670,420
------------
Aerospace & Defense - 2.2%
126,640 Cordant Technologies, Inc. ......................... 4,749,000
63,650 United Technologies Corp. .......................... 6,921,938
------------
11,670,938
------------
Building, Construction & Furnishings - 6.1%
160,140 Centex Corp. ....................................... 7,216,309
109,295 Ethan Allen Interiors, Inc.......................... 4,481,095
135,740 Home Depot, Inc. ................................... 8,305,591
163,335 Mohawk Industries, Inc.............................. 6,870,278
103,790 Southdown, Inc...................................... 6,143,071
------------
33,016,344
------------
Business Equipment &
Services - 5.6%
30,000 Automatic Data Processing, Inc...................... 2,405,625
159,675 *Oracle Systems Corp................................ 6,885,984
122,670 Paychex, Inc........................................ 6,309,838
192,250 *Robert Half International, Inc. ................... 8,591,172
53,760 Xerox Corp.......................................... 6,343,680
------------
30,536,299
------------
Communication Systems & Services - 6.3%
218,135 *Cisco Systems, Inc................................. 20,245,655
123,850 Lucent Technologies, Inc. .......................... 13,623,500
------------
33,869,155
------------
Consumer Products &
Services - 4.4%
67,900 Clorox Co........................................... 7,931,569
24,400 Colgate-Palmolive Co................................ 2,266,150
149,780 Procter & Gamble Co. ............................... 13,676,786
------------
23,874,505
------------
Electrical Equipment &
Services - 5.7%
247,075 General Electric Co................................. 25,217,092
44,475 *Sofamor/Danek Group, Inc........................... 5,414,831
------------
30,631,923
------------
Finance & Insurance - 4.7%
59,835 American Express Co. ............................... 6,118,129
77,625 Exel Limited Hamilton............................... 5,821,875
113,375 Federal Home Loan Mortgage Corp. ................... 7,305,601
83,360 Federal National Mortgage Association............... 6,168,640
------------
25,414,245
------------
Food & Beverage Products - 3.1%
13,660 Coca Cola Co........................................ 913,513
45,751 Hershey Foods Corp. ................................ 2,845,140
118,700 *Safeway, Inc....................................... 7,233,281
197,750 Sara Lee Corp. ..................................... 5,574,078
------------
16,566,012
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Healthcare Products & Services - 22.1%
146,005 Abbott Laboratories................................ $ 7,154,245
42,000 American Home Products Corp. ...................... 2,365,125
101,700 *Arterial Vascular Engineering, Inc. .............. 5,339,250
135,315 Bristol-Myers Squibb Co............................ 18,106,838
52,500 Cardinal Health, Inc. ............................. 3,983,438
73,100 Guidant Corp....................................... 8,059,275
156,975 *Health Management Associates, Inc. Cl. A.......... 3,394,584
14,375 Johnson & Johnson.................................. 1,205,703
136,480 Merck & Co., Inc. ................................. 20,156,390
172,145 Pfizer, Inc........................................ 21,593,438
317,300 Schering-Plough Corp. ............................. 17,530,825
96,435 *Universal Health Services, Inc. Cl. B............. 5,002,566
77,375 Warner-Lambert Co.................................. 5,817,633
------------
119,709,310
------------
Information Services & Technology - 20.5%
143,750 America Online, Inc. .............................. 23,000,000
203,805 *Computer Horizons Corp. .......................... 5,426,308
109,115 *Compuware Corp.................................... 8,524,609
179,795 *Dell Computer Corp................................ 13,158,747
37,700 *EMC Corp.......................................... 3,204,500
165,500 Intel Corp......................................... 19,622,094
87,650 Keane Inc. ........................................ 3,500,522
194,725 *Microsoft Corp. .................................. 27,005,924
217,850 *Unisys Corp....................................... 7,502,209
------------
110,944,913
------------
Leisure & Tourism - 2.2%
177,050 Carnival, Corp. Cl. A.............................. 8,498,400
90,600 Royal Caribbean Cruises Ltd. ...................... 3,352,200
------------
11,850,600
------------
Oil Field Services - 2.1%
261,000 Diamond Offshore Drilling, Inc..................... 6,182,438
176,600 Halliburton Co. ................................... 5,231,775
------------
11,414,213
------------
Paper & Packaging - 1.1%
127,320 Avery Dennison Corp................................ 5,737,358
------------
Printing, Publishing, Broadcasting &
Entertainment - 0.4%
30,500 Gannett Co., Inc. ................................. 1,967,250
------------
Retailing & Wholesale - 6.5%
100,595 *Costco Companies, Inc............................. 7,261,702
90,600 Dayton Hudson Corp................................. 4,915,050
324,540 Family Dollar Stores, Inc.......................... 7,139,880
69,750 Gap, Inc. ......................................... 3,923,437
241,700 TJX Co., Inc....................................... 7,009,300
84,000 Walgreen Co........................................ 4,919,250
------------
35,168,619
------------
Transportation - 0.7%
66,190 AMR Corp. ......................................... 3,930,031
------------
</TABLE>
62
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Utilities - Telephone - 3.1%
98,150 AT&T Corp.......................................... $ 7,385,788
177,860 SBC Communications, Inc. .......................... 9,537,742
------------
16,923,530
------------
Total Common Stocks
(cost $370,821,123)............................... 531,895,665
------------
<CAPTION>
Principal
Amount
<C> <S> <C>
SHORT-TERM INVESTMENTS - 2.0%
Repurchase Agreement - 2.0%
$10,486,587 Dresdner Bank AG 4.25%, dated 12/31/1998, due
1/4/99, maturity value $10,491,539
(cost $10,486,587) (a)............................ 10,486,587
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
Money Market Shares - 0.0%
183,607 Valiant General Fund (cost $183,607)................ $ 183,607
------------
Total Short-Term Investments
(cost $10,670,194)................................. 10,670,194
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments
(cost $381,491,317)........................ 100.4% 542,565,859
Other Assets and Liabilities - net.......... (0.4) (1,941,594)
------ ------------
Net Assets.................................. 100.0% $540,624,265
====== ============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$9,935,000 U.S. Treasury Notes 5.625%, 11/30/99; value including
accrued interest--$10,069,525 and $1,300,000 U.S. Treasury STRIP,
8/15/12; value including accrued interest - $628,160.
Summary of Abbreviations:
STRIP Separate Trading of Registered and Interest and Principal of Secu-
rities.
See Combined Notes to Financial Statements.
63
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - 95.6%
Aerospace & Defense - 1.0%
65,000 Raytheon Co. Cl. A.................................... $ 3,359,688
------------
Automotive Equipment &
Manufacturing - 1.3%
90,000 Goodyear Tire & Rubber Co............................. 4,539,375
------------
Banks - 15.3%
167,000 Chase Manhattan Corp.................................. 11,366,437
65,000 First American Corp................................... 2,884,375
255,000 Fleet Financial Group, Inc............................ 11,395,312
125,000 Mellon Bank Corp...................................... 8,593,750
115,000 PNC Bank Corp......................................... 6,224,375
135,000 SouthTrust Corp....................................... 4,986,563
185,000 Summit Bancorp........................................ 8,082,188
------------
53,533,000
------------
Capital Goods - 0.8%
125,000 Case Corp............................................. 2,726,563
------------
Consumer Products &
Services - 1.3%
75,000 Maytag Corp........................................... 4,668,750
------------
Electrical Equipment &
Services - 2.4%
140,000 Motorola, Inc......................................... 8,548,750
------------
Finance & Insurance - 14.4%
90,000 Allstate Corp......................................... 3,476,250
230,000 Citigroup, Inc........................................ 11,385,000
195,000 Countrywide Credit Industries, Inc.................... 9,786,562
80,000 Loews Corp............................................ 7,860,000
125,000 Merrill Lynch & Co., Inc.............................. 8,343,750
80,000 Nationwide Financial Services, Inc.
Cl. A................................................ 4,135,000
120,000 ReliaStar Financial Corp.............................. 5,535,000
------------
50,521,562
------------
Food & Beverage Products - 4.0%
55,000 Fortune Brands, Inc................................... 1,739,375
232,000 Philip Morris Companies, Inc.......................... 12,412,000
------------
14,151,375
------------
Healthcare Products &
Services - 5.1%
95,000 Bristol-Myers Squibb Co............................... 12,712,187
190,000 *Tenet Healthcare Corp................................ 4,987,500
------------
17,699,687
------------
Information Services & Technology - 10.4%
100,000 Intel Corp............................................ 11,856,250
65,000 International Business Machines Corp.................. 12,008,750
145,000 *Sun Microsystems, Inc................................ 12,415,625
------------
36,280,625
------------
Manufacturing -
Distributing - 2.5%
130,000 Philips Electronics NV................................ 8,799,375
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<C> <S> <C>
COMMON STOCKS - continued
Metal Products & Services - 2.4%
95,000 Aluminum Co. of America.............................. $ 7,083,437
60,000 USX United States Steel Group........................ 1,380,000
------------
8,463,437
------------
Oil/Energy - 11.3%
190,000 Cabot Corp........................................... 5,308,125
140,000 Mobil Corp........................................... 12,197,500
80,000 Texaco, Inc.......................................... 4,230,000
210,000 Tosco Corp........................................... 5,433,750
130,000 Ultramar Diamond Shamrock Corp....................... 3,152,500
290,000 Williams Companies, Inc.............................. 9,044,375
------------
39,366,250
------------
Oil Field Services - 1.2%
95,000 Diamond Offshore Drilling, Inc....................... 2,250,313
270,000 *R & B Falcon Corp................................... 2,058,750
------------
4,309,063
------------
Real Estate - 0.7%
110,000 FelCor Lodging Trust Inc. REIT....................... 2,536,875
------------
Retailing & Wholesale - 1.5%
120,000 Sears, Roebuck & Co.................................. 5,100,000
------------
Telecommunication Services &
Equipment - 2.1%
60,500 Nokia Corp. ADR...................................... 7,286,469
------------
Textile & Apparel - 1.5%
115,000 V. F. Corp........................................... 5,390,625
------------
Transportation - 1.5%
160,000 Burlington Northern Santa Fe Corp.................... 5,400,000
------------
Utilities - Electric - 8.3%
155,000 GPU, Inc............................................. 6,849,062
160,000 Houston Industries, Inc.............................. 5,140,000
270,000 PacifiCorp........................................... 5,686,875
95,000 Pinnacle West Capital Corp. ......................... 4,025,625
90,000 Scana Corp........................................... 2,902,500
120,000 UtiliCorp United, Inc................................ 4,402,500
------------
29,006,562
------------
Utilities - Gas - 3.2%
110,000 El Paso Energy Corp. Delaware........................ 3,829,374
170,000 NICOR, Inc........................................... 7,182,500
------------
11,011,874
------------
Utilities - Telephone - 3.4%
175,000 Century Telephone Enterprises, Inc................... 11,812,500
------------
Total Common Stocks
(cost $271,012,850)................................. 334,512,405
------------
PREFERRED STOCKS - 1.7%
Printing, Publishing, Broadcasting & Entertainment -
1.7%
240,000 News Corp. Ltd. ADR
(cost $5,841,939)................................... 5,925,000
------------
</TABLE>
64
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Strategic Value Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
SHORT-TERM INVESTMENTS - 2.6%
Repurchase Agreement - 1.6%
$5,471,616 Dresdner Bank AG 4.25%, dated 12/31/98, due 1/4/99,
maturity value $5,474,200 (cost $5,471,616)(a)..... $ 5,471,616
------------
</TABLE>
<TABLE>
<CAPTION>
Shares
<C> <S> <C>
Money Market Shares - 1.0%
3,540,742 Valiant General Fund
(cost $3,540,742)................................... 3,540,742
------------
Total Short-Term Investments
(cost $9,012,358)................................... 9,012,358
------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
Total Investments
(cost $285,867,147).......................... 99.9% 349,449,763
Other Assets and
Liabilities - net............................ 0.1 338,748
------ ------------
Net Assets.................................... 100.0% $349,788,511
====== ============
</TABLE>
* Non-income producing securities.
(a) At December 31, 1998, the repurchase agreement was collateralized by:
$5,415,000 U.S. Treasury Note, 5.875% 7/31/99; value including
accrued interest--$5,584,522.
Summary of Abbreviations:
ADR American Depository Receipt
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
65
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Fund
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Core Equity Diversified Value Large Cap Blend Small Cap
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $1,411,899,248 $603,044,982 $385,498,211 $ 57,323,307
Net unrealized gains
or losses............ 530,631,920 82,990,947 125,809,500 9,768,948
- ------------------------------------------------------------------------------------------
Market value of
securities............. $1,942,531,168 $686,035,929 $511,307,711 $ 67,092,255
Cash.................... 50,941 18,873 10,043 557
Receivable for
securities sold........ 144,427,614 2,594,151 0 140,451
Receivable for Fund
shares sold............ 183,550 114,769 67,641 34,025
Dividends and interest
receivable............. 2,633,888 809,615 695,987 5,513
Prepaid expenses and
other assets........... 30,368 47,990 51,526 56,340
- ------------------------------------------------------------------------------------------
Total assets.......... 2,089,857,529 689,621,327 512,132,908 67,329,141
- ------------------------------------------------------------------------------------------
Liabilities
Payable for securities
purchased.............. 191,382,287 1,018,125 0 613,315
Payable for Fund shares
repurchased............ 2,139,141 2,267,187 126,856 25,859
Distributions payable... 2,275,049 86,444 482,960 0
Advisory fee payable.... 950,484 288,028 251,185 41,960
Distribution Plan
expenses payable....... 5,470 758 34 0
Due to related
parties................ 52,465 15,378 10,768 622
Accrued expenses and
other liabilities...... 214,886 66,937 34,391 6,316
- ------------------------------------------------------------------------------------------
Total liabilities..... 197,019,782 3,742,857 906,194 688,072
- ------------------------------------------------------------------------------------------
Net assets.............. $1,892,837,747 $685,878,470 $511,226,714 $ 66,641,069
- ------------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $1,280,053,725 $634,517,525 $385,997,827 $ 67,545,623
Undistributed net
investment income...... (72,726) (29,707) 349,040 (205,787)
Accumulated net
realized gains or
losses on securities
and futures
contracts.............. 82,224,828 (31,600,295) (929,653) (10,467,715)
Net unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... 530,631,920 82,990,947 125,809,500 9,768,948
- ------------------------------------------------------------------------------------------
Total net assets...... $1,892,837,747 $685,878,470 $511,226,714 $ 66,641,069
- ------------------------------------------------------------------------------------------
Net assets consists of
Class I................. $1,868,254,237 $684,509,010 $ 18,540,910 $ 66,641,069
Class IS................ 24,583,510 1,369,460 313,312 --
Class IC................ -- -- 492,372,492 --
- ------------------------------------------------------------------------------------------
$1,892,837,747 $685,878,470 $511,226,714 $ 66,641,069
- ------------------------------------------------------------------------------------------
Shares outstanding
Class I................. 21,978,928 26,945,869 404,715 5,303,684
Class IS................ 308,337 54,525 6,839 --
Class IC................ -- -- 10,747,462 --
- ------------------------------------------------------------------------------------------
Net asset value per
share
Class I................. $ 85.00 $ 25.40 $ 45.81 $ 12.57
- ------------------------------------------------------------------------------------------
Class IS................ $ 79.73 $ 25.12 $ 45.81 --
- ------------------------------------------------------------------------------------------
Class IC................ -- -- $ 45.81 --
- ------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
66
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (continued)
December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Small Company Social Principles Special Equity Strategic Growth Strategic Value
Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Identified cost of
securities............. $107,836,916 $118,993,304 $79,046,339 $381,491,317 $285,867,147
Net unrealized gains
or losses............ (7,529,864) 48,132,674 (3,416,740) 161,074,542 63,582,616
- -----------------------------------------------------------------------------------------------------------
Market value of
securities............. $100,307,052 $167,125,978 $75,629,599 $542,565,859 $349,449,763
Cash.................... 75,880 0 0 0 0
Receivable for
securities sold........ 0 0 0 0 0
Receivable for Fund
shares sold............ 6,399 20,180 7,602 183,249 541,061
Dividends and interest
receivable............. 67,208 114,555 38,375 320,713 522,890
Prepaid expenses and
other assets........... 35,176 42,870 23,531 40,010 20,379
- -----------------------------------------------------------------------------------------------------------
Total assets.......... 100,491,715 167,303,583 75,699,107 543,109,831 350,534,093
- -----------------------------------------------------------------------------------------------------------
Liabilities
Payable for securities
purchased.............. 2,289,610 0 370,974 500,940 0
Payable for Fund shares
repurchased............ 0 46,615 144,291 1,651,865 193,583
Distributions payable... 12,661 27,960 0 15,256 339,880
Advisory fee payable.... 62,112 93,694 40,647 250,410 173,209
Distribution Plan
expenses payable....... 0 12 847 1,228 450
Due to related
parties................ 2,211 3,957 11,834 14,899 11,685
Accrued expenses and
other liabilities...... 12,709 24,929 40,228 50,968 26,775
- -----------------------------------------------------------------------------------------------------------
Total liabilities..... 2,379,303 197,167 608,821 2,485,566 745,582
- -----------------------------------------------------------------------------------------------------------
Net assets.............. $ 98,112,412 $167,106,416 $75,090,286 $540,624,265 $349,788,511
- -----------------------------------------------------------------------------------------------------------
Net assets represented
by
Paid-in capital......... $109,383,584 $118,232,366 $73,494,964 $378,095,036 $295,216,044
Undistributed net
investment income...... (43,067) (24,739) (67,553) 6,631 (125,799)
Accumulated net
realized gains or
losses on securities
and futures
contracts.............. (3,698,241) 766,011 5,079,615 1,448,056 (8,884,351)
Net unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (7,529,864) 48,132,778 (3,416,740) 161,074,542 63,582,616
- -----------------------------------------------------------------------------------------------------------
Total net assets...... $ 98,112,412 $167,106,416 $75,090,286 $540,624,265 $349,788,510
- -----------------------------------------------------------------------------------------------------------
Net assets consists of
Class I................. $ 98,112,412 $ 3,006,342 $72,253,775 $528,827,307 $348,058,612
Class IS................ -- 117,819 2,836,511 11,796,958 1,729,898
Class IC................ -- 163,982,255 -- -- --
- -----------------------------------------------------------------------------------------------------------
$ 98,112,412 $167,106,416 $75,090,286 $540,624,265 $349,788,510
- -----------------------------------------------------------------------------------------------------------
Shares outstanding
Class I................. 11,148,518 82,430 7,228,217 14,107,268 1,621,252
Class IS................ -- 3,234 286,241 315,304 8,056
Class IC................ -- 4,497,865 -- -- --
- -----------------------------------------------------------------------------------------------------------
Net asset value per
share
Class I................. $ 8.80 $ 36.47 $ 10.00 $ 37.49 $ 214.69
- -----------------------------------------------------------------------------------------------------------
Class IS................ -- $ 36.44 $ 9.91 $ 37.41 $ 214.75
- -----------------------------------------------------------------------------------------------------------
Class IC................ -- $ 36.46 -- -- --
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
67
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Operations
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Core Equity Diversified Value Large Cap Blend Small Cap
Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $70,570,
$14,417, $4,629 and $0,
respectively).......... $ 13,370,403 $ 5,276,709 $3,306,107 $ 63,066
Interest................ 2,203,554 325,185 509,423 49,210
- ----------------------------------------------------------------------------------------
Total income........... 15,573,957 5,601,894 3,815,530 112,276
- ----------------------------------------------------------------------------------------
Expenses
Advisory fee............ 6,379,443 2,071,009 1,660,032 237,738
Administrative service
fees................... 247,377 93,526 63,509 4,273
Distribution Plan
expenses............... 26,213 1,201 367 0
Trustees' fees and
expenses............... 18,328 6,439 4,004 156
Transfer agent fees..... 10,401 303,100 377 143
Custodian fees.......... 234,193 16,076 61,759 11,961
Printing and postage.... 67,772 15,911 6,528 15,596
Registration and filing
fees................... 55,084 6,123 56,302 29,680
Professional fees....... 16,303 5,398 17,696 14,698
Other................... 15,959 3,383 4,327 5,069
- ----------------------------------------------------------------------------------------
Expenses............... 7,071,073 2,522,166 1,874,901 319,314
Less: Fee credits..... (4,164) (1,191) (7,642) (1,585)
Fee waivers and/or
reimbursement ..... (912,714) (345,168) (237,147) 0
- ----------------------------------------------------------------------------------------
Net expenses........... 6,154,195 2,175,807 1,630,112 317,729
- ----------------------------------------------------------------------------------------
Net investment income... 9,419,762 3,426,087 2,185,418 (205,453)
- ----------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions
Net realized gains or
losses on:
Securities............. 72,711,219 (31,620,092) (531,552) (8,949,205)
Futures contracts...... 11,184,610 0 0 0
- ----------------------------------------------------------------------------------------
Net realized gains or
losses on securities
and futures contracts.. 83,895,829 (31,620,092) (531,552) (8,949,205)
Net change in unrealized
gains or losses on
securities, futures
contracts and foreign
currency related
transactions........... (80,456,198) 19,505,324 5,267,850 6,359,977
- ----------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... 3,439,631 (12,114,768) 4,736,298 (2,589,228)
- ----------------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from operations........ $ 12,859,393 $ (8,688,681) $6,921,716 $(2,794,681)
- ----------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
68
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Operations (continued)
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Small Company Social Principles Special Equity Strategic Growth Strategic Value
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends (net of
foreign withholding
taxes of $0, $2,457,
$701, $0 and $3,353,
respectively).......... $ 360,701 $ 847,794 $ 134,787 $ 1,735,063 $ 2,910,709
Interest................ 95,529 184,314 161,244 630,206 399,187
- ----------------------------------------------------------------------------------------------------------
Total income........... 456,230 1,032,108 296,031 2,365,269 3,309,896
- ----------------------------------------------------------------------------------------------------------
Expenses
Advisory fee............ 351,749 633,322 508,576 1,625,524 1,068,539
Administrative service
fees................... 10,420 21,211 7,503 61,908 40,766
Distribution Plan
expenses............... 0 149 3,317 10,194 1,688
Trustees' fees and
expenses............... 150 1,074 270 5,092 1,017
Transfer agent fees..... 264 991 12,856 71,022 2,155
Custodian fees.......... 12,641 18,356 10,988 53,970 40,312
Printing and postage.... 2,492 15,287 9,973 19,606 5,619
Registration and filing
fees................... 38,243 36,982 39,687 61,767 53,792
Professional fees....... 8,660 8,744 25,189 13,822 10,976
Other................... 214 1,570 9,550 1,973 15,218
- ----------------------------------------------------------------------------------------------------------
Expenses............... 424,833 737,686 627,909 1,924,878 1,240,082
Less: Fee credits..... (1,406) (406) (824) (1,971) (831)
Fee waivers and/or
reimbursement...... (39,083) (79,165) (267,577) (270,593) (152,649)
- ----------------------------------------------------------------------------------------------------------
Net expenses........... 384,344 658,115 359,508 1,652,314 1,086,602
- ----------------------------------------------------------------------------------------------------------
Net investment income... 71,886 373,993 (63,477) 712,955 2,223,294
- ----------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions
Net realized gains or
losses on:
Securities............. (3,647,253) 3,804,798 8,266,213 12,573,140 (8,878,429)
Futures contracts...... 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------
Net realized gains or
losses on securities
and futures
contracts.............. (3,647,253) 3,804,798 8,266,213 12,573,140 (8,878,429)
Net change in
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (4,915,651) (5,520,883) (9,282,571) 24,102,610 2,816,743
- ----------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... (8,562,904) (1,716,085) (1,016,358) 36,675,750 (6,061,686)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............. $(8,491,018) $(1,342,092) $(1,079,835) $37,388,705 $(3,838,392)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
69
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Core Equity Diversified Value Large Cap Blend Small Cap
Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 9,419,762 $ 3,426,087 $ 2,185,418 $ (205,453)
Net realized gains or
losses on securities
and futures contracts.. 83,895,829 (31,620,092) (531,552) (8,949,205)
Net change in unrealized
gains or losses on
securities, futures
contracts and foreign
currency related
transactions........... (80,456,198) 19,505,324 5,267,850 6,359,977
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 12,859,393 (8,688,681) 6,921,716 (2,794,681)
- ------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class I................ (9,421,674) (3,536,588) (62,565) 0
Class IS............... (86,725) (4,041) (869) 0
Class IC............... 0 0 (1,821,413) 0
Net realized gain on
securities
Class I................ (160,679,308) (17,317,740) (1,840,649) (100,814)
Class IS............... (2,314,063) (34,597) (31,945) 0
Class IC............... 0 0 (50,455,977) 0
- ------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (172,501,770) (20,892,966) (54,213,418) (100,814)
- ------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 99,156,908 44,543,255 32,461,636 1,660,748
Payment for shares
redeemed............... (144,321,152) (146,810,903) (37,244,777) (1,508,429)
Net asset value of
shares issued in
reinvestment of
distributions.......... 126,984,431 20,165,669 51,434,980 100,757
- ------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 81,820,187 (82,101,979) 46,651,839 253,076
- ------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... (77,822,190) (111,683,626) (639,863) (2,642,419)
Net assets
Beginning of period..... 1,970,659,937 797,562,096 511,866,577 69,283,488
- ------------------------------------------------------------------------------------------
End of period........... $1,892,837,747 $ 685,878,470 $511,226,714 $66,641,069
- ------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ (72,726) $ (29,707) $ 349,040 $ (205,787)
- ------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
70
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
Six Months Ended December 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Small Company Social Principles Special Equity Strategic Growth Strategic Value
Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income... $ 71,886 $ 373,993 $ (63,477) $ 712,955 $ 2,223,294
Net realized gains or
losses on securities
and futures contracts.. (3,647,253) 3,804,798 8,266,213 12,573,140 (8,878,429)
Net change in unrealized
gains or losses on
securities, futures
contracts and foreign
currency related
transactions........... (4,915,651) (5,520,883) (9,282,571) 24,102,610 2,816,743
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ (8,491,018) (1,342,092) (1,079,835) 37,388,705 (3,838,392)
- -----------------------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class I................ (184,266) (7,306) 0 (786,024) (2,415,992)
Class IS............... 0 (178) 0 (5,471) (8,865)
Class IC............... 0 (451,814) 0 0 0
Net realized gain on
securities
Class I................ (363,011) (157,473) (7,643,649) (42,795,680) (7,731,471)
Class IS............... 0 (6,402) (298,735) (947,112) (36,622)
Class IC............... 0 (8,960,042) 0 0 0
- -----------------------------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (547,277) (9,583,215) (7,942,384) (44,534,287) (10,192,950)
- -----------------------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 29,814,465 9,051,284 9,144,666 67,969,011 89,544,959
Payment for shares
redeemed............... (824,940) (19,884,893) (10,175,745) (90,243,239) (22,220,226)
Net asset value of
shares issued in
reinvestment of
distributions.......... 514,381 9,067,592 7,935,176 40,396,433 7,974,726
Shares issued in
acquisition of CoreFund
Equity Growth Fund..... 0 0 0 205,742,310 0
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 29,503,906 (1,766,017) 6,904,097 223,864,515 75,299,459
- -----------------------------------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... 20,465,611 (12,691,324) (2,118,122) 216,718,933 61,268,117
Net assets
Beginning of period..... 77,646,801 179,797,740 77,208,408 323,905,332 288,520,393
- -----------------------------------------------------------------------------------------------------------
End of period........... $98,112,412 $167,106,416 $75,090,286 $540,624,265 $349,788,510
- -----------------------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ (43,067) $ (24,739) $ (67,553) $ 6,631 $ (125,799)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
71
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
Year ended June 30, 1998
<TABLE>
<CAPTION>
Core Diversified Large Cap
Equity Value Blend Small Cap
Fund (a) Fund (b) Fund (a) Fund (c)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income... $ 11,215,922 $ 4,518,633 $ 2,329,360 $ (130,149)
Net realized gain on
securities and written
options................ 161,218,815 17,369,461 51,925,395 407,197
Net change in
unrealized gain or
loss on securities..... 53,230,680 63,485,623 5,211,744 (1,425,687)
- ------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............ 225,665,417 85,373,717 59,466,499 (1,148,639)
- ------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class I................ (11,166,520) (4,502,185) (29,968) 0
Class IS............... (29,555) (1,220) (475) 0
Class IC............... 0 0 (2,357,277) 0
Net realized gains on
securities*
Class I................ 0 0 0 0
Class IS............... 0 0 0 0
Class IC............... 0 0 0 0
- ------------------------------------------------------------------------------------
Total distributions to
shareholders.......... (11,196,075) (4,503,405) (2,387,720) 0
- ------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 1,978,861,338 844,178,135 502,787,135 24,034,367
Payment of shares
redeemed............... (222,735,836) (130,961,973) (48,017,312) (1,126,600)
Proceeds from
reinvestment of
distributions.......... 65,093 3,475,622 17,975 --
- ------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 1,756,190,595 716,691,784 454,787,798 22,907,767
- ------------------------------------------------------------------------------------
Total increase in net
assets............... 1,970,659,937 797,562,096 511,866,577 21,759,128
Net assets
Beginning of period..... -- -- -- 47,524,360
- ------------------------------------------------------------------------------------
End of period........... $1,970,659,937 $ 797,562,096 $511,866,577 $69,283,488
- ------------------------------------------------------------------------------------
Undistributed net
investment income...... $ 15,911 $ 84,835 $ 48,469 $ (334)
- ------------------------------------------------------------------------------------
</TABLE>
(a) For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
(b) For the period from January 22, 1998 (commencement of operations) to June
30, 1998.
(c) For the period from March 1, 1998 to June 30, 1998. The Fund changed its
fiscal year ended from February 28 to June 30, 1998.
See Combined Notes to Financial Statements.
72
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
Year ended June 30, 1998
<TABLE>
<CAPTION>
Small Social Special Strategic Strategic
Company Principles Equity Growth Value
Fund (b) Fund (a) Fund Fund (a) Fund (a)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations
Net investment income... $ 158,103 $ 119,251 $ (396,076) $ 334,100 $ 1,678,953
Net realized gain on
securities and written
options................ 302,967 6,082,094 11,241,857 32,617,708 7,762,171
Net change in
unrealized gain or
loss on securities..... (2,614,213) 4,046,653 (654,231) 17,033,702 12,371,066
- ----------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations............. (2,153,143) 10,247,998 10,191,550 49,985,510 21,812,190
- ----------------------------------------------------------------------------------------------
Distributions to
shareholders from
Net investment income
Class I................ (152,163) (1,626) 0 (325,046) (1,676,451)
Class IS............... 0 (42) 0 0 (2,273)
Class IC............... 0 (160,897) 0 0 0
Net realized gains on
securities(1)
Class I................ 0 0 (9,099,479) 0 0
Class IS............... 0 0 (364,614) 0 0
Class IC............... 0 0 -- 0 0
- ----------------------------------------------------------------------------------------------
Total distributions to
shareholders........... (152,163) (162,565) (9,464,093) (325,046) (1,678,724)
- ----------------------------------------------------------------------------------------------
Capital share
transactions
Proceeds from shares
sold................... 86,504,946 181,779,780 14,069,175 341,558,248 284,680,865
Payment of shares
redeemed............... (6,702,683) (12,070,972) (20,704,096) (67,348,327) (16,580,621)
Proceeds from
reinvestment of
distributions.......... 149,844 3,499 8,789,058 34,947 286,683
- ----------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions.......... 79,952,107 169,712,307 2,154,137 274,244,868 268,386,927
- ----------------------------------------------------------------------------------------------
Total increase in net
assets............... 77,646,801 179,797,740 2,881,594 323,905,332 288,520,393
Net assets
Beginning of period..... -- -- 74,326,814 -- --
- ----------------------------------------------------------------------------------------------
End of period........... $77,646,801 $179,797,740 $77,208,408 $323,905,332 $288,520,393
- ----------------------------------------------------------------------------------------------
Undistributed net
investment income...... $ 69,313 $ 60,566 $ (4,076) $ 85,171 $ 75,764
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) Distributions from net realized capital gains for the Special Equity Fund
for the year ended June 30, 1998 are those of the CoreFund. Amounts shown
for Class I have been reclassified from Class Y of the CoreFund. Amounts
shown for Class IS reflect the combination and reclassification of Class A
and Class B of the CoreFund.
(a) For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
(b) For the period from December 23, 1997 (commencement of operations) to June
30, 1998.
See Combined Notes to Financial Statements.
73
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Select Equity Growth Funds
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets (continued)
Periods Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
Small Cap Fund
-----------------------
1998 1997 (a)
- -------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income............................... $ (134,192) $ (9,482)
Net realized gain or loss on securities............. (415,947) 398,376
Net change in unrealized gain or loss on
securities......................................... 4,981,029 (462,663)
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations........................................ 4,430,890 (73,769)
- -------------------------------------------------------------------------------
Distributions to shareholders from
Net realized gains on securities.................... (1,657,057) (35,700)
- -------------------------------------------------------------------------------
Capital share transactions
Proceeds from shares sold........................... 42,857,020 517,700
Payment of shares redeemed.......................... (2,634,970) 0
Proceeds from reinvestment of distributions......... 1,640,345 34,000
- -------------------------------------------------------------------------------
Net increase in net assets resulting from capital
share transactions................................. 41,862,395 551,700
- -------------------------------------------------------------------------------
Total increase in net assets........................ 44,636,228 442,231
Net assets
Beginning of period................................. 2,888,132 2,445,901
- -------------------------------------------------------------------------------
End of period....................................... $47,524,360 $2,888,132
- -------------------------------------------------------------------------------
Undistributed net investment income................. $ 320 $ 0
- -------------------------------------------------------------------------------
</TABLE>
(a) For the eight-month period ended February 28, 1997. The Fund changed its
fiscal year end from June 30 to the last day of February effective February
28, 1997.
See Combined Notes to Financial Statements.
74
<PAGE>
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Select Equity Growth Funds consist of Evergreen Select Core
Equity Fund ("Core Equity Fund") (formerly Evergreen Select Common Stock Fund),
Evergreen Diversified Value Fund ("Diversified Value Fund"), Evergreen Select
Large Cap Blend Fund ("Large Cap Blend Fund"), Evergreen Select Small Cap
Growth Fund ("Small Cap Fund"), Evergreen Select Small Company Value Fund
("Small Company Fund"), Evergreen Select Social Principles Fund ("Social
Principles Fund"), Evergreen Select Special Equity Fund ("Special Equity
Fund"), Evergreen Select Strategic Growth Fund ("Strategic Growth Fund") and
Evergreen Select Strategic Value Fund ("Strategic Value Fund"), each of which
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as diversified, open-end management investment companies. Each of the
Funds is a separate series of Evergreen Select Equity Trust, a Delaware
business trust organized on September 18, 1997, and are collectively referred
to herein as the "Funds".
The Funds offer an Institutional Class of shares ("Class I") and an
Institutional Service Class of shares ("Class IS"). Additionally, Large Cap
Blend Fund and Social Principles Fund offer an Institutional Charitable Class
of shares ("Class IC"). Each class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Class IS shares pay an ongoing
service fee. Class I and Class IS shares are available to institutional
investors through broker dealers, banks and other financial intermediaries.
Class IC shares are available only to those investors that qualify as a non-
profit organization under the Internal Revenue Code. Such organizations would
include charitable trusts, non-profit hospitals, private foundations, private
schools and colleges, public charities, religious entities and charitable
remainder trusts.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
Securities traded on a national securities exchange or included on the NASDAQ
National Market System ("NMS") are valued at the last reported sales price on
the exchange where primarily traded. Securities traded on an exchange or NMS
for which there has been no sale and other securities traded in the over-the-
counter market are valued at the mean between the last reported bid and asked
price. Securities, for which market quotations are not readily available, in-
cluding restricted securities, are valued at fair value as determined in good
faith according to procedures approved by the Board of Trustees.
Investments in money market shares are valued at net asset value. Short-term
investments with remaining maturities of 60 days or less are carried at
amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase
agreements with banks and other financial institutions which are deemed by the
investment advisor to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, certain Funds managed by Evergreen Investment Management Company
("EIMC") (formerly, Keystone Investment Management Company), may transfer
uninvested cash balances into a joint trading account. These balances are
invested in one or more repurchase agreements that are fully collateralized by
U.S. Treasury and/or federal agency obligations.
75
<PAGE>
Combined Notes to Financial Statements (Unaudited)(continued)
C. Futures Contracts
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
D. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into United States dollars as
follows: market value of investments, other assets and liabilities at the daily
rate of exchange; purchases and sales of investments, income and expenses at
the rate of exchange prevailing on the respective dates of such transactions.
Net unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized gain or loss on
securities and foreign currency related transactions. Net realized foreign
currency gains or losses resulting from changes in exchange rates include
foreign currency gains and losses between trade date and settlement date on
securities transactions, foreign currency related transactions and the
difference between the amounts of interest and dividends recorded on the books
of the Fund and the amounts that are actually received and are included in
realized gain or loss on foreign currency related transactions. The portion of
foreign currency gains or losses related to fluctuations in exchange rates
between the initial purchase trade date and subsequent sale trade date is
included in realized gains or losses on securities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex- dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable.
F. Federal Taxes
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). Thus, the Funds
will not incur any federal income tax liability since they are expected to
distribute all of their net investment company taxable income and net capital
gains, if any, to their shareholders. The Funds also intend to avoid any excise
tax liability by making the required distributions under the Code. Accordingly,
no provision for federal taxes is required. To the extent that realized capital
gains can be offset by capital loss carryforwards, it is each Fund's policy not
to distribute such gains.
G. Distributions
Distributions from net investment income for the Funds are declared and paid
monthly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
Certain distributions paid during previous years have been reclassified to
conform with current year presentation.
76
<PAGE>
Combined Notes to Financial Statements (Unaudited)(continued)
H. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for Class IS.
3. CONVERSION INFORMATION
On November 24, 1997, the Core Equity Fund, Strategic Growth Fund and Strategic
Value Fund commenced operations of their respective Class I shares as a result
of a conversion of common trust funds managed by First Union National Bank
("FUNB"), a subsidiary of First Union Corporation ("First Union"). Also, the
Large Cap Blend Fund and Social Principles Fund commenced operations of their
respective Class IC shares as a result of similar common trust fund conver-
sions. The following summarizes pertinent data related to each Fund on the date
of conversion:
<TABLE>
<CAPTION>
Core Large Cap
Equity Fund Blend Fund
---------------------------
<S> <C> <C>
Shares issued....................... 22,828,425 10,264,770
Net assets.......................... $1,894,078,143 $462,393,873
Net asset value per share........... $ 82.97 $ 45.05
Unrealized appreciation of
securities......................... $ 557,857,438 $115,329,906
</TABLE>
<TABLE>
<CAPTION>
Social Strategic Strategic
Principles Fund Growth Fund Value Fund
------------------------------------------
<S> <C> <C> <C>
Shares issued...... 4,293,581 5,750,026 831,617
Net assets......... $ 157,379,236 $ 186,600,811 $169,109,520
Net asset value per
share............. $ 36.65 $ 32.45 $ 203.35
Unrealized
appreciation of
securities........ $ 49,607,008 $ 53,350,873 $ 48,394,807
</TABLE>
The forgoing amounts are reflected in proceeds from shares sold in the state-
ments of changes in net assets.
4. IN-KIND TRANSACTION
On January 21, 1998, The Evergreen Value Fund, Class Y executed a redemption
in-kind transaction of $793,367,277. This transaction resulted in the liquida-
tion of substantially all of the net assets of the Evergreen Value Fund's Class
Y shares. In turn, the assets were transferred to Evergreen Select Diversified
Value Fund Class I share.
On January 22, 1998, Diversified Value Fund commenced operations of its Class I
share through in-kind purchases of 33,532,392 shares amounting to $793,367,277.
This amount is reflected in proceeds from shares sold in the statement of
changes in net assets. In exchange for these shares, investment securities, ex-
cluding cash and cash equivalents, with a cost and market value of $774,879,156
were contributed to the Diversified Value Fund. Additionally, Diversified Value
Fund received cash and cash equivalents of $23,488,121 to complete the transac-
tion.
5. ACQUISITIONS
Effective on the close of business July 24, 1998, Special Equity Fund acquired
all of the net assets and certain liabilities of the CoreFund Special Equity
Fund ("CoreFund") an open-end, management investment company, registered under
the 1940 Act through a tax-free exchange of shares. Shareholders of Class A,
Class B and Class Y shares of the CoreFund became owners of that number of full
and fractional shares of Class IS, Class IS and Class I shares, respectively,
of Special Equity Fund having an aggregate net asset value equal to the aggre-
gate net asset value of their shares of the CoreFund immediately prior to the
close of business on July, 24, 1998. The Special Equity Fund had no operations
prior to the acquisition. Since both the Special Equity Fund and the CoreFund
were similar funds, and the CoreFund contributed the majority of the net assets
and shareholders, its basis of accounting for assets and liabilities and its
operating results for prior periods are carried forward as the accounting sur-
vivor.
77
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Also, effective the close of business on July 24, 1998, Strategic Growth Fund
acquired the net assets of the CoreFund Equity Growth Fund, an open-end manage-
ment investment company registered under the 1940 Act in an exchange of shares.
The net assets were exchanged through a tax-free exchange for 186,381 Class IS
shares and 5,297,535 Class I shares of Strategic Growth Fund. The acquired net
assets consisted primarily of portfolio securities with unrealized appreciation
of $66,587,357. The aggregate nets assets of CoreFund Equity Growth Fund and
Strategic Growth Fund immediately before the acquisition were $205,742,310 and
$326,300,095, respectively. The aggregate net assets of Strategic Growth Fund
after the acquisition were $532,042,405.
Immediately following the common trust fund conversion, on November 24, 1997,
the Strategic Growth Fund acquired substantially all of the net assets of Eq-
uity Growth Fund ("Equity Growth"), a common trust fund managed by FUNB. The
net assets were acquired through a taxable exchange for 2,517,542 Class I
shares of Strategic Growth Fund, valued at $32.45 per share. The acquired net
assets consisted primarily of portfolio securities with unrealized appreciation
of $25,897,713. The aggregate net assets of Equity Growth and Strategic Growth
Fund immediately prior to the acquisition were $81,699,736 and $186,600,811,
respectively. The aggregate net assets and shares outstanding of Strategic
Growth Fund immediately after the acquisition were $268,300,547 and 8,267,568,
respectively.
6. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with $0.001
par value authorized. Shares of beneficial interest of the Funds are currently
divided into Class I, Class IS and/or Class IC. Transactions in shares of the
Funds were as follows:
Core Equity Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
------------------------- --------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold............. 993,029 $ 84,232,798 23,538,750 $1,957,108,914
Shares redeemed......... (1,583,205) (135,721,094) (2,451,922) (219,096,830)
Shares issued in
reinvestment of
distributions.......... 1,481,823 125,093,753 453 40,719
- -------------------------------------------------------------------------------
Net increase............ 891,647 73,605,457 21,087,281 1,738,052,803
- -------------------------------------------------------------------------------
Class IS
Shares sold............. 183,318 14,924,110 250,305 21,752,424
Shares redeemed......... (107,555) (8,600,058) (41,914) (3,639,006)
Shares issued in
reinvestment of
distributions.......... 23,900 1,890,678 283 24,374
- -------------------------------------------------------------------------------
Net increase............ 99,663 8,214,730 208,674 18,137,792
- -------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... $ 81,820,187 $1,756,190,595
- -------------------------------------------------------------------------------
</TABLE>
(a) For Class I and Class IS, for the period from November 24, 1997 and Febru-
ary 4, 1998, respectively, (commencement of operations) to June 30, 1998.
78
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Diversified Value Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
------------------------- -------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold.............. 1,823,892 $ 43,431,725 35,285,849 $ 843,364,554
Shares redeemed.......... (6,088,657) (146,785,799) (5,013,312) (130,385,842)
Shares issued in
reinvestment of
distributions........... 804,180 20,127,032 133,917 3,474,402
- --------------------------------------------------------------------------------
Net increase (decrease).. (3,460,585) $ (83,227,042) 30,406,454 716,453,114
- --------------------------------------------------------------------------------
Class IS
Shares sold.............. 45,913 $ 1,111,530 30,796 $ 813,581
Shares redeemed.......... (1,048) (25,104) (22,745) (576,131)
Shares issued in
reinvestment of
distributions........... 1,561 38,637 48 1,220
- --------------------------------------------------------------------------------
Net increase............. 46,426 1,125,063 8,099 238,670
- --------------------------------------------------------------------------------
Net increase (decrease)
in net assets resulting
from capital share
transactions............ $ (82,101,979) $ 716,691,784
- --------------------------------------------------------------------------------
(a) For Class I and Class IS, for the period from January 22, 1998 and March
31, 1998, respectively, (commencement of operations) to June 30, 1998.
Large Cap Blend Fund
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
------------------------- -------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold.............. 149,268 $ 6,928,154 281,458 $ 13,881,808
Shares redeemed.......... (60,798) (2,674,583) (5,242) (257,909)
Shares issued in
reinvestment of
distributions........... 39,690 1,805,848 339 16,702
- --------------------------------------------------------------------------------
Net increase............. 128,160 6,059,419 276,555 13,640,601
- --------------------------------------------------------------------------------
Class IS
Shares sold.............. 425 22,340 5,918 297,642
Shares redeemed.......... (234) (9,219) (1) (44)
Shares issued in
reinvestment of
distributions........... 721 32,797 10 475
- --------------------------------------------------------------------------------
Net increase............. 912 45,918 5,927 298,073
- --------------------------------------------------------------------------------
Class IC
Shares sold.............. 567,368 25,511,142 10,802,599 488,607,729
Shares redeemed.......... (715,057) (34,560,975) (997,016) (47,759,403)
Shares issued in
reinvestment of
distributions........... 1,089,552 49,596,335 16 798
- --------------------------------------------------------------------------------
Net increase............. 941,863 40,546,502 9,805,599 440,849,124
- --------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions............ $ 46,651,839 $ 454,787,798
- --------------------------------------------------------------------------------
</TABLE>
(a) For Class I, Class IS and IC, for the period from December 19, 1997, March
12, 1998 and November 24, 1997, respectively, (commencement of operations)
to June 30, 1998.
79
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Small Cap Fund
<TABLE>
<CAPTION>
Six Months Ended Year Ended February 28,
December 31, 1998 Year Ended ---------------------------------------
(Unaudited) June 30, 1998(a) 1998 1997(b)
-------------------- ---------------------- ---------------------- ---------------
Shares Amount Shares Amount Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class I
Shares sold............. 153,486 $1,660,748 1,770,376 $22,034,367 3,414,877 $42,857,020 43,108 $517,700
Shares redeemed......... (138,494) (1,508,429) (82,127) (1,126,600) (209,509) (2,634,970) 0 0
Shares issued in
reinvestment of
distributions.......... 8,734 100,757 0 0 130,289 1,640,345 2,944 34,000
- --------------------------------------------------------------------------------------------------------------
Net increase in net
assets resulting from
capital share
transactions........... $ 253,076 $20,907,767 $41,862,395 $551,700
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For the period from March 1, 1998 to June 30, 1998. The fund changed its
fiscal year end from from February 28 to June 30, effective June 30, 1998.
(b) For the eight-month period ended February 28, 1997. The Fund changed its
fiscal year end from June 30 to the last day of February, effective Febru-
ary 28, 1997.
Small Company Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
---------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold................... 3,485,900 $29,814,465 8,353,679 $86,504,946
Shares redeemed............... (96,538) (824,940) (669,991) (6,702,683)
Shares issued in reinvestment
of distributions............. 61,254 514,381 14,214 149,844
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share
transactions................. $29,503,906 $79,952,107
- ------------------------------------------------------------------------------
</TABLE>
(a) For the period from December 23, 1997 (commencement of class operations) to
June 30, 1998.
Social Principles Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
--------------------- -----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold.................... 17,998 $ 631,572 61,760 $ 2,208,624
Shares redeemed................ (1,884) (65,100) (59) (2,272)
Shares issued in reinvestment
of distributions.............. 4,582 158,611 33 1,243
- -------------------------------------------------------------------------------
Net increase................... 20,696 725,083 61,734 2,207,595
- -------------------------------------------------------------------------------
Class IS
Shares sold.................... 796 28,294 5,274 207,403
Shares redeemed................ (3,026) (113,087) (1) (36)
Shares issued in reinvestment
of distributions.............. 190 6,579 1 42
- -------------------------------------------------------------------------------
Net increase (decrease)........ (2,040) (78,214) 5,274 207,409
- -------------------------------------------------------------------------------
Class IC
Shares sold.................... 243,886 8,391,418 4,876,095 179,363,747
Shares redeemed................ (551,623) (19,706,706) (327,340) (12,068,700)
Shares issued in reinvestment
of distributions.............. 256,787 8,902,402 60 2,256
- -------------------------------------------------------------------------------
Net increase (decrease)........ (50,950) (2,412,886) 4,548,815 167,297,303
- -------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from capital
share transactions............ $(1,766,017) $169,712,307
- -------------------------------------------------------------------------------
</TABLE>
(a) For Class I, Class IS and Class IC, for the period from November 24, 1997,
March 12, 1998 and November 24, 1997, respectively (commencement of opera-
tions) to June 30, 1998.
80
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Special Equity Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Year Ended
(Unaudited) June 30, 1998(1)
----------------------- ------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold................ 860,672 $ 8,750,477 1,100,970 $ 12,968,366
Shares redeemed............ (1,020,356) (9,439,910) (1,727,770) (20,152,176)
Shares issued in
reinvestment of
distributions............. 812,275 7,643,511 816,325 8,424,468
- ------------------------------------------------------------------------------
Net increase............... 652,591 6,954,078 189,525 1,240,658
- ------------------------------------------------------------------------------
Class IS
Shares sold................ 38,928 $ 393,548 92,537 $ 1,100,809
Shares redeemed............ (73,214) (735,194) (47,881) (551,920)
Shares issued in
reinvestment of
distributions............. 31,295 291,665 35,511 364,590
- ------------------------------------------------------------------------------
Net increase (decrease).... (2,991) (49,981) 80,167 913,479
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions........ $ 6,904,097 $ 2,154,137
- ------------------------------------------------------------------------------
</TABLE>
(1) Capital share activity for the year ended June 30, 1998 is that of the
CoreFund. Amounts shown for Class I have been reclassified from Class Y of
the CoreFund. Amounts shown for Class IS reflect the combination and re-
classification of Class A and Class B of the CoreFund.
Strategic Growth Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
------------------------ ------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold............... 1,829,586 $ 65,172,974 447,254 $ 16,811,393
Shares redeemed........... (2,466,647) (88,997,444) (385,382) (14,145,118)
Shares issued in
reinvestment of
distributions............ 1,075,522 39,458,184 (385,382) (14,145,118)
Shares issued in
acquisition of CoreFund
Equity Growth Fund....... 5,297,535 198,759,540 (385,382) (14,145,118)
- -------------------------------------------------------------------------------
Net increase.............. 5,735,996 214,393,254 (708,892) (25,623,961)
- -------------------------------------------------------------------------------
Class IS
Shares sold............... 77,376 2,796,037 9,834,675 324,746,855
Shares redeemed........... (35,943) (1,245,795) (1,464,385) (53,203,209)
Shares issued in
reinvestment of
distributions............ 25,618 938,249 982 34,947
Shares issued in
acquisition of CoreFund
Equity Growth Fund....... 186,381 6,982,770 982 34,947
- -------------------------------------------------------------------------------
Net increase.............. 253,432 9,471,261 8,372,254 271,613,540
- -------------------------------------------------------------------------------
Net increase in net assets
resulting from capital
share transactions....... $223,864,515 $245,989,579
- -------------------------------------------------------------------------------
</TABLE>
(a) For Class I and Class IS, for the period from November 24, 1997 and Febru-
ary 27, 1998, respectively (commencement of operations) to June 30, 1998.
Strategic Value Fund
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1998 Period Ended
(Unaudited) June 30, 1998(a)
--------------------- -----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold................... 417,718 $88,584,094 1,344,196 $283,217,426
Shares redeemed............... (104,486) (21,636,962) (74,798) (16,435,232)
Shares issued in reinvestment
of distributions............. 37,357 7,935,135 1,265 284,542
- ------------------------------------------------------------------------------
Net increase.................. 350,589 74,882,267 1,270,663 267,066,736
- ------------------------------------------------------------------------------
Class IS
Shares sold................... 4,718 960,865 6,502 1,463,439
Shares redeemed............... (2,719) (583,264) (641) (145,389)
Shares issued in reinvestment
of distributions............. 187 39,591 9 2,141
- ------------------------------------------------------------------------------
Net increase.................. 2,186 417,192 5,870 1,320,191
- ------------------------------------------------------------------------------
Net increase in net assets
resulting from capital share
transactions................. $75,299,459 $268,386,927
- ------------------------------------------------------------------------------
</TABLE>
(a) For Class I and Class IS, for the period from November 24, 1997 and March
11, 1998, respectively (commencement of operations) to June 30, 1998.
81
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
7. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities (excluding short-term
investments) were as follows for the six months ended December 31, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------------------
<S> <C> <C>
Core Equity Fund...................... $462,896,707 $512,562,944
Diversified Value Fund................ 185,631,910 286,432,134
Large Cap Blend Fund.................. 77,964,309 93,079,700
Small Cap Fund........................ 44,828,508 44,058,092
Small Company Fund.................... 49,581,262 10,004,969
Social Principles Fund................ 23,735,415 25,094,921
Special Equity Fund................... 29,993,775 36,473,684
Strategic Growth Fund................. 261,008,757 287,105,261
Strategic Value Fund.................. 119,034,717 38,674,273
</TABLE>
On July 24, 1998, Strategic Growth Fund acquired securities, excluding cash
equivalents, with an aggregate cost $139,199,312 from its acquisition of
CoreFund Equity Growth Fund.
As of June 30, 1998, Small Cap Fund had a capital loss carryover for federal
income tax purposes of $1,349,000 expiring in 2006.
8. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds. Each Fund
has adopted a Distribution Plan for Class IS shares, as allowed by Rule 12b-1
of the 1940 Act. Distribution plans permit a fund to reimburse its principal
underwriter for costs related to selling shares of the fund and for various
other services. These costs, which consist primarily of commissions and service
fees to broker-dealers who sell shares of the fund, are paid by the fund
through expenses called "Distribution Plan expenses". Class IS, currently pays
a service fee equal to 0.25% of the average daily net asset of the class. Dis-
tribution Plan expenses are calculated daily and paid monthly.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
9. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The investment advisor to each Fund, other than Small Cap Fund, Small Company
Fund and Special Equity Fund is Evergreen Investment Management ("EIM"), for-
merly known as the Capital Markets Group, a division of FUNB. Each Fund, other
than Small Cap Fund, Small Company Fund and Special Equity Fund, pays EIM a fee
for its services as set forth below. The annual advisory fees are calculated
daily and paid monthly and are based on a percentage of average daily net as-
sets of each fund.
<TABLE>
<CAPTION>
Annual
Advisory fee
------------
<S> <C>
Core Equity Fund.................................... 0.70%
Diversified Value Fund.............................. 0.60%
Large Cap Blend Fund................................ 0.70%
Social Principles Fund.............................. 0.80%
Strategic Growth Fund............................... 0.70%
Strategic Value Fund................................ 0.70%
</TABLE>
EIMC, a wholly-owned subsidiary of First Union, is the investment advisor to
Small Cap Fund. In return for its services, EIMC is paid an annual advisory fee
equal to 0.80% of the Funds first $100 million of average daily net assets and
at reduced rates thereafter.
Evergreen Asset Management Corp. ("EAMC"), a subsidiary of First Union, is the
investment advisor to Small Company Fund. Small Company Fund pays EAMC an an-
nual fee of 0.90% of its average daily net assets.
82
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Leiber & Company, an affiliate of First Union, is the investment sub-advisor to
Small Company Fund.Leiber & Company provides these services at no additional
cost to the Fund.
Leiber & Company also provides brokerage services to Small Company Fund with
respect to substantially all security transactions effected on either the New
York or American Stock Exchanges. For the six months ended December 31, 1998,
Small Company Fund incurred $72,205, in brokerage commissions with Leiber &
Company.
Meridian Investment Company ("Meridian"), an indirect subsidiary of FUNB,
serves as investment advisor to Special Equity Fund. In return for its servic-
es, Meridian is paid an annual fee equal to 1.50% of average daily net assets
of Special Equity Fund. Currently, Meridian has voluntarily agreed to limit its
advisory fee to 0.74% of average daily net assets.
Each investment advisor, other than EIMC, has voluntarily agreed to waive a
portion of the investment advisory fee on each Fund and/or to reimburse a por-
tion of each Fund's annual operating expenses (excluding interest, taxes, bro-
kerage commissions and extraordinary expenses). For the six months ended Decem-
ber 31, 1998, the investment advisors voluntarily reduced their fees by the
following amounts:
<TABLE>
<S> <C>
Core Equity Fund........................................ $912,714
Diversified Value Fund.................................. 345,168
Large Cap Blend Fund.................................... 237,147
Small Company Fund...................................... 39,083
Social Principles Fund.................................. 79,165
Special Equity Fund..................................... 267,577
Strategic Growth Fund................................... 270,593
Strategic Value Fund.................................... 152,649
</TABLE>
Evergreen Investment Services ("EIS"), a subsidiary of First Union, serves as
the administrator and BISYS serves as sub-administrator to the Funds. As admin-
istrator, EIS provides the Funds with facilities, equipment and personnel. As
sub-administrator to the Funds, BISYS provides the officers of the Funds. The
administrator and sub-administrator for each Fund are entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the invest-
ment advisors. The administration fee is calculated by applying percentage
rates, which start at 0.05% and decline to 0.01% per annum as net assets in-
crease, to the average daily net asset value of the Fund. The sub-administra-
tion fee is calculated by applying percentage rates, which start at 0.01% and
decline to .004% per annum as net assets increase, to the average daily net as-
set value of the Fund. EIS and BISYS provide administration and sub-administra-
tion services to Small Cap Fund at no cost to the Fund. For the six months
ended December 31, 1998, the following amounts were paid to EIS and BISYS for
providing their services:
<TABLE>
<CAPTION>
EIS BISYS
----------------
<S> <C> <C>
Core Equity Fund............................... $197,021 $50,356
Diversified Value Fund......................... 74,389 19,137
Large Cap Blend Fund........................... 50,426 13,083
Small Company Fund............................. 8,705 1,715
Social Principles Fund......................... 16,839 4,372
Special Equity Fund............................ 6,000 1,503
Strategic Growth Fund.......................... 49,329 12,579
Strategic Value Fund........................... 32,428 8,338
</TABLE>
For the six months ended December 31, 1998, Small Cap Fund reimbursed EIMC for
certain administrative and accounting expenses amounting to $4,273.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC re-
lating to certain cash balances held at First Union for the benefit of the Ev-
ergreen Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
10. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
83
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
11. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of their duties as Trustees. The Trustees' deferred balances are
allocated to deferral accounts, which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000.
12. FINANCING AGREEMENTS
Certain Evergreen Funds and State Street Bank and Trust ("SSB") and a group of
banks (collectively, the "Banks") entered into a financing agreement dated De-
cember 22, 1997, as amended on November 20, 1998. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated, under the terms of the financing agreement, among the Banks. The
credit facility is to be accessed by the Funds for temporary or emergency pur-
poses only and is subject to each Fund's borrowing restrictions. Borrowings un-
der this facility bore interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum was incurred on the unused portion
of the committed facility, which will be allocated to all funds. For its assis-
tance in arranging this financing agreement, the Capital Market Group of First
Union was paid a one-time arrangement fee of $27,500. SSB served as agent for
the Banks, and as administrative agent is entitled to a fee of $20,000 per an-
num which is allocated to all of the participating Funds.
On December 22, 1998, the financing agreement referenced above was amended and
renewed among all Evergreen Funds, SSB and Bank of New York ("BONY"). Under
this agreement, SSB and BONY provide an unsecured credit facility in the aggre-
gate amount of $150 million ($125 million committed and $25 million uncommit-
ted). The remaining terms and conditions of the agreement were unaffected.
During the six months ended December 31, 1998, the Funds had no borrowings un-
der these agreements.
13. YEAR 2000
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisors and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
84
<PAGE>
Evergreen Select Funds
Money Market Growth and Income/Balanced
Money Market Fund Equity Income Fund
Treasury Money Market Fund Balanced Fund
100% Treasury Money Market Fund
Municipal Money Market Fund Growth
Special Equity Fund
Municipal Fixed Small Cap Growth Fund
Income Small Company Value Fund
Intermediate Tax Exempt Bond Fund Strategic Growth Fund
Core Equity Fund
Taxable Fixed Equity Index Fund
Income Large Cap Blend Fund
International Bond Fund Strategic Value Fund
Total Return Bond Fund Diversified Value Fund
Income Plus Fund Social Principles Fund
Core Bond Fund
Fixed Income Fund
Adjustable Rate Fund
Limited Duration Fund
44158 542780 02/99
-------------
[LOGO OF EVERGREEN FUNDS/TM/ APPEARS HERE] BULK RATE
U.S. POSTAGE
200 Berkeley Street PAID
Boston, MA 02116 PERMIT NO. 19
HUDSON, MA
-------------
EVERGREEN SELECT EQUITY TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability and
Indemnification of Trustees" under the caption "Information on Shareholders'
Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Select
Equity Trust's Pre-Effective Amendment No. 2 filed on November 17, 1997
Registration No. 333-36047 ("Pre-Effective Amendment No. 2").
2. Bylaws. Incorporated by reference to Pre-Effective Amendment No. 2.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus
contained in Part A of this Registration Statement.
5. Declaration of Trust Articles III, V, VI and VIII; By-Laws Article II.
Incorporated by reference to Pre-Effective Amendment No. 2.
6. Investment Management and Advisory Agreement between First Union
National Bank and Evergreen Select Equity Trust. Incorporated by reference to
Evergreen Select Equity Trust's Post-Effective Amendment No. 4. filed on June
30, 1998 Registration No. 333-36047 ("Post-Effective Amendment No. 4").
7(a). Distribution Agreement between Evergreen Distributor, Inc. and
Evergreen Select Equity Trust. Incorporated by reference to Post-Effective
Amendment No. 4.
7(b). Not applicable.
8. Form of Deferred Compensation Plan. Incorporated by reference to
Pre-Effective Amendment No. 2.
9. Custody Agreement between State Street Bank and Trust Company and
Evergreen Select Equity Trust. Incorporated by reference to Post-Effective
Amendment No. 4.
10(a). Rule 12b-1 Distribution Plan. Incorporated by reference to
Post-Effective Amendment No. 4.
10(b). Multiple Class Plan. Incorporated by reference to Evergreen Select
Equity Trust's Post-Effective Amendment No. 9 filed on April 30, 1999
Registration No. 333-36047.
11. Opinion and Consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax Opinion and Consent of Sullivan & Worcester LLP. Filed herewith.
13(a). Administration Agreement between Evergreen Investment Services, Inc.
and Evergreen Select Equity Trust. Incorporated by reference to Post-Effective
Amendment No. 4.
13(b). Transfer Agent Agreement between Evergreen Service Company and
Evergreen Select Equity Trust. Incorporated by reference to Post-Effective
Amendment No. 4.
14 Consent of KPMG Peat Marwick LLP. Filed herewith.
15. Not applicable.
16. Powers of Attorney. Incorporated by reference to Post-Effective
Amendment No. 4.
17. Form of Proxy Card. Filed herewith.
Item 17. Undertakings.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus that is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act, the
reoffering prospectus will contain the information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new Registration Statement for
the securities offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, as amended, this Registration
Statement has been signed on behalf of the Registrant, in the City of Columbus,
State of Ohio, on the 24th day of May, 1999.
EVERGREEN SELECT EQUITY TRUST
By: /s/ William J. Tomko
-----------------------
Name: William J. Tomko
Title: President
As required by the Securities Act of 1933, the following persons have
signed this Registration Statement in the City of Boston, State of Massachusetts
in the capacities indicated as of the 24th day of May, 1999.
<TABLE>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Chairman of the Board Trustee
and Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD /s/ Leroy Keith, Jr.
- ------------------------------ ------------------------------- --------------------------------
David M. Richardson* Russell A. Salton, III MD* Leroy Keith, Jr.*
Trustee Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
</TABLE>
*By: /s/ Catherine E. Foley
- -------------------------------
Catherine E. Foley
Attorney-in-Fact
*Catherine E. Foley, 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 and included as Exhibit 6 to this
Registration Statement.
<PAGE>
INDEX TO EXHIBITS
N-14
EXHIBIT NO.
11 Opinion and Consent of Sullivan & Worcester LLP
12 Tax Opinion and Consent of Sullivan & Worcester LLP
14 Consent of KPMG Peat Marwick LLP
17 Form of Proxy Card
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
767 THIRD AVENUE ONE POST OFFICE SQUARE
NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
May 20, 1999
Evergreen Select Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen Select Equity Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 18, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen Select Core Equity Fund (the "Acquiring Fund"), a series of the Trust.
We understand that the Trust is about to file a Registration Statement on Form
N-14 for the purpose of registering shares of the Trust under the Securities Act
of 1933, as amended (the "1933 Act"), in connection with the proposed
acquisition by the Acquiring Fund of all of the assets of Evergreen Select
Equity Income Fund (the "Acquired Fund"), a series of the Trust, in exchange
solely for shares of the Acquiring Fund and the assumption by the Acquiring Fund
of the identified liabilities of the Acquired Fund pursuant to an Agreement and
Plan of Reorganization, the form of which is included in the Form N-14
Registration Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware. To the extent that the conclusions based on the
laws of the State of Delaware are involved in the opinion set forth herein
below, we have relied, in rendering such opinions, upon our examination of
Chapter 38 of Title 12 of the Delaware Code Annotated, as amended, entitled
"Treatment of Delaware Business Trusts" (the "Delaware business trust law") and
on our knowledge of interpretation of analogous common law of The Commonwealth
of Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on July 23, 1999, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
F:\RNH\SALEM28\COREQUIT\N14SWOP.C:3/16/98
May 19, 1999
Evergreen Select Equity Income Fund
Evergreen Select Core Equity Fund
200 Berkeley Street
Boston, Massachusetts 02116
Re: Acquisition of Assets of Evergreen Select Equity Income
Fund by Evergreen Select Core Equity Fund
Ladies and Gentlemen:
You have asked for our opinion as to certain Federal income tax
consequences of the transactions described below:
Parties to the Transaction. Evergreen Select Equity Income Fund
("Target Fund") is a series of Evergreen Select Equity Trust, a Delaware
business trust.
Evergreen Select Core Equity Fund ("Acquiring Fund") is also a series
of Evergreen Select Equity Trust, a Delaware business trust.
Description of Proposed Transaction. Acquiring Fund will issue its
shares to Target Fund and assume certain stated liabilities of Target Fund, in
exchange for all of the assets of Target Fund. Target Fund will then immediately
dissolve and distribute all of the Acquiring Fund shares which it holds to its
shareholders pro rata in proportion to their shareholdings in Target Fund, in
complete redemption of all outstanding shares of Target Fund.
Scope of Review and Assumptions. In rendering our opinion, we have
reviewed and relied upon the form of Agreement and Plan of Reorganization (the
"Reorganization Agreement") between Acquiring Fund and Target Fund dated as of
April 30, 1999 which is enclosed in a draft preliminary prospectus/proxy
statement to be dated June 25, 1999 which describes the proposed transaction,
and on the information provided in such prospectus/proxy statement. We have
relied, without independent verification, upon the factual statements made
therein, and assume that there will be no change in material facts disclosed
therein between the date of this letter and the date of the closing of the
transaction. We further assume that the transaction will be carried out in
accordance with the Reorganization Agreement.
Representations. Written representations, copies of which are attached
hereto, have been made to us by the appropriate officers of Target Fund and of
Acquiring Fund, and we have without independent verification relied upon such
representations in rendering our opinions.
Opinions
--------
Based on and subject to the foregoing, and our examination of the legal
authority we have deemed to be relevant, we have the following opinions:
1. The acquisition by Acquiring Fund of all of the assets of Target
Fund solely in exchange for voting shares of Acquiring Fund and assumption of
certain specified liabilities of Target Fund followed by the distribution by
Target Fund of said Acquiring Fund shares to the shareholders of Target Fund in
exchange for their Target Fund shares will constitute a reorganization within
the meaning of ss. 368(a)(1)(D) of the Code, and Acquiring Fund and Target Fund
will each be "a party to a reorganization" within the meaning of ss. 368(b) of
the Code.
2. No gain or loss will be recognized to Target Fund upon the transfer
of all of its assets to Acquiring Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of certain specified liabilities
of Target Fund, or upon the distribution of such Acquiring Fund voting shares to
the shareholders of Target Fund in exchange for all of their Target Fund shares.
3. No gain or loss will be recognized by Acquiring Fund upon the
receipt of the assets of Target Fund solely in exchange for Acquiring Fund
voting shares and assumption by Acquiring Fund of any liabilities of Target
Fund.
4. The basis of the assets of Target Fund acquired by Acquiring Fund
will be the same as the basis of those assets in the hands of Target Fund
immediately prior to the transfer, and the holding period of the assets of
Target Fund in the hands of Acquiring Fund will include the period during which
those assets were held by Target Fund.
5. The shareholders of Target Fund will recognize no gain or loss upon
the exchange of all of their Target Fund shares solely for Acquiring Fund voting
shares.
6. The basis of the Acquiring Fund voting shares to be received by the
Target Fund shareholders will be the same as the basis of the Target Fund shares
surrendered in exchange therefor.
7. The holding period of the Acquiring Fund voting shares to be
received by the Target Fund shareholders will include the period during which
the Target Fund shares surrendered in exchange therefor were held, provided the
Target Fund shares were held as a capital asset on the date of the exchange.
This opinion letter is delivered to you in satisfaction of the
requirements of Section 8.6 of the Reorganization Agreement. We hereby consent
to the filing of this opinion as an exhibit to the Registration Statement on
Form N-14 and to use of our name and any reference to our firm in such
Registration Statement or in the Prospectus/Proxy Statement constituting a part
thereof. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/S/ SULLIVAN & WORCESTER LLP
----------------------------
SULLIVAN & WORCESTER LLP
E:\CHC\SALEM28\EVRSELEC.OPN
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen Select Equity Trust
We consent to the use of our report, dated July 31, 1998, for Evergreen Select
Core Equity Fund (formerly Evergreen Select Common Stock Fund) and Evergreen
Select Equity Income Fund, portfolios of Evergreen Select Equity Trust,
incorporated herein by reference and to the references to our firm under the
caption "FINANCIAL STATEMENTS AND EXPERTS" in the Prospectus/Proxy Statement.
/s/ KPMG LLP
KPMG LLP
Boston, Massachusetts
May 21, 1999
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF TRUSTEES RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before mailing.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
EVERGREEN SELECT EQUITY INCOME FUND,
a series of Evergreen Select Equity Trust
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 30, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce, Maureen E. Towle, Sally E. Ganem, Catherine E. Foley and Beth
K. Werths or any of them as Proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all shares of Evergreen
Select Equity Income Fund, a series of Evergreen Select Equity Trust, ("Equity
Income") that the undersigned is entitled to vote at the special
meeting of shareholders of Equity Income to be held at 2:00 p.m. on July 30,
1999 at the offices of the Evergreen Funds, 200 Berkeley Street, 26th Floor,
Boston, Massachusetts 02116 and at any adjournments thereof, as fully as the
undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If joint
owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
Date , 1999
----------------------------------------
----------------------------------------
Signature(s) and Title(s), if applicable
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
SELECT EQUITY TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO
THE ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN SELECT EQUITY TRUST RECOMMENDS A VOTE FOR THE
PROPOSALS. PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK.
EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby Evergreen
Core Equity Fund, a series of Evergreen Select Equity Trust, will (i) acquire
all of the assets of Equity Income in exchange for shares of Evergreen Core
Equity Fund; and (ii) assume the identified liabilities of Equity Income, as
substantially described in the accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come before
said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
