1933 Act No. 333-36047
1940 Act No. 811-08363
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 14 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 15 [X]
EVERGREEN SELECT EQUITY TRUST
(Exact Name of Registrant as Specified in Charter)
200 Berkeley Street, Boston, Massachusetts 02116-5034
(Address of Principal Executive Offices)
(617) 210-3200
(Registrant's Telephone Number)
The Corporate Trust Company
1209 Orange Street
Wilmington, Delaware 19801
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[X] on October 26, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on February 17, 1999 pursuant to paragraph (a)(ii) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
<PAGE>
EVERGREEN SELECT EQUITY TRUST
CONTENTS OF POST-EFFECTIVE NO. 14 TO
REGISTRATION STATEMENT ON
FORM N-1A
This Post-Effective Amendment No. 14 to Registrant's Registration
Statement No. 333-36047/811-08363 consists of the following pages, items of
information and documents, together with the exhibits indicated in Part C as
being filed herewith.
Facing Sheet
PART A
Prospectus for the Institutional Shares and Institutional Service Shares
of Evergreen Select Balanced Fund, Evergreen Select Core Equity Fund, Evergreen
Equity Index Fund, Evergreen Select Secular Growth Fund, Evergreen
Select Small Cap Growth Fund, Evergreen Special Equity Fund,
Evergreen Select Strategic Growth Fund, Evergreen Select Strategic Value Fund
and Prospectus for the Class A, Class B and Class C Shares of Evergreen
Equity Index and Evergreen Special Equity Fund are contained
herein.
PART B
Statement of Additional Information for Evergreen Select Balanced Fund,
Evergreen Select Core Equity Fund, Evergreen Equity Index Fund,
Evergreen Select Secular Growth Fund, Evergreen Select Small Cap Growth Fund,
Evergreen Special Equity Fund, Evergreen Select Strategic Growth
Fund, Evergreen Select Strategic Value Fund is contained herein.
PART C
Exhibits
Indemnification
Business and Other Connections
of Investment Advisors
Principal Underwriter
Location of Accounts and Records
Undertakings
Signatures
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART A
INSTITUTIONAL PROSPECTUS
<PAGE>
EVERGREEN SELECT EQUITY FUNDS
Evergreen Equity Index Fund
(formerly Evergreen Select Equity Index Fund)
Evergreen Select Balanced Fund
Evergreen Select Core Equity Fund
Evergreen Select Secular Growth Fund
Evergreen Select Small Cap Growth Fund
Evergreen Select Strategic Growth Fund
Evergreen Select Strategic Value Fund
Evergreen Special Equity Fund
(formerly Evergreen Select Special Equity Fund)
Institutional shares
Institutional Service shares
[LOGO OF EVERGREEN FUNDS]
Prospectus, November 1, 2000
The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor
has it approved or disapproved these securities. Anyone who tells you
otherwise is committing a crime.
<PAGE>
TABLE OF CONTENTS
FUND RISK/RETURN SUMMARIES:
<TABLE>
<S> <C>
Overview of Fund Risks...................................................... 2
Evergreen Equity Index Fund................................................. 4
Evergreen Select Balanced Fund.............................................. 6
Evergreen Select Core Equity Fund........................................... 8
Evergreen Select Secular Growth Fund........................................ 10
Evergreen Select Small Cap Growth Fund...................................... 12
Evergreen Select Strategic Growth Fund...................................... 14
Evergreen Select Strategic Value Fund....................................... 16
Evergreen Special Equity Fund............................................... 18
GENERAL INFORMATION:
The Funds' Investment Advisor............................................... 20
The Fund's Portfolio Managers............................................... 20
Calculating the Share Price................................................. 22
How to Choose an Evergreen Fund............................................. 22
How to Choose the Share Class That Best Suits You........................... 22
How to Buy Shares........................................................... 23
How to Redeem Shares........................................................ 24
Other Services.............................................................. 25
The Tax Consequences of Investing in the Funds.............................. 25
Fees and Expenses of the Funds.............................................. 26
Financial Highlights........................................................ 27
Other Fund Practices........................................................ 35
</TABLE>
In general, Funds included in this prospectus provide investors with a
selection of investment alternatives which seek to provide long-term capital
growth.
Fund Summaries Key
Each Fund's summary is organized around the following basic topics and
questions:
INVESTMENT GOAL
What is the Fund's financial objective? You can find clarification on how the
Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about trying to meet its goals? What types of investments
does it contain? What style of investing and investment philosophy does it
follow? Does it have limits on the amount invested in any particular type of
security?
RISK FACTORS
What are the specific risks for an investor in the Fund?
PERFORMANCE
How well has the Fund performed in the past year? The past five years? The past
ten years?
EXPENSES
How much does it cost to invest in the Fund? What is the difference between
sales charges and expenses?
<PAGE>
OVERVIEW OF FUND RISKS
Select Equity Funds
typically rely on a combination of the following strategies:
. investing in common and preferred stocks, convertible securities and
foreign securities; and
. selling a portfolio investment i) when the issuer's investment fundamentals
begin to deteriorate; ii) when the investment reaches or exceeds estimated
fair value; iii) when the investment no longer appears to meet the Fund's
investment objective; iv) when the Fund must meet redemptions; or v) for
other investment reasons which the portfolio manager deems necessary.
may be appropriate for investors who:
. are seeking long-term capital growth.
Following this overview, you will find information on each Fund's specific
investment strategies and risks.
................................................................................
Risk Factors For All Mutual Funds
Please remember that an investment in
a mutual fund is:
. not guaranteed to achieve their investment goal
. not a deposit with a bank
. not insured, endorsed or guaranteed by the FDIC or any government agency
. subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an Evergreen Fund could fluctuate
significantly in value over time and could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following
this overview:
Stock Market Risk
Your investment in a Fund 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, equity 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 your investment would likely decline. Even if
general economic conditions do not change, your investment may decline in value
if the particular industries, issuers or sectors your Fund invest in do not
perform well.
Interest Rate Risk
When interest rates go up, the value of debt securities and certain dividend-
paying stocks tend to fall. Since your Fund invests a significant portion of
its portfolio in debt securities or stocks purchased primarily for dividend
income, and interest rates rise, then the value of and total return earned on
your investment may decline. When interest rates go down, interest earned by a
Fund on its debt securities may also decline, which could cause the Fund to
reduce the dividends it pays. The longer the term of the security held by a
Fund, the more the Fund is subject to interest rate risk.
Credit Risk
The value of a debt security is directly affected by the issuer's ability to
repay principal and pay interest on time. If your Fund invests in debt
securities, the value of your investment may decline if an issuer fails to pay
an obligation on a timely basis.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
Fund that invests in these companies to increase in
SELECT EQUITY FUNDS
2
<PAGE>
OVERVIEW OF FUND RISKS
value more rapidly than a Fund that invests in larger, fully-valued companies.
Investing in medium and small capitalization companies may be subject to
special risks associated with narrower product lines, more limited financial
resources, smaller management groups, and a more limited trading market for
their stocks as compared with larger companies. As a result, stocks of small
and medium capitalization companies may decline significantly in market
downturns.
Investment Style Risk
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform or underperform other funds that employ a different style.
A Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they
are more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when
value investing is in favor. Value stocks are those which are undervalued in
comparison to their peers due to adverse business developments or other
factors. Value oriented funds will typically underperform when growth investing
is in favor.
SELECT EQUITY FUNDS
3
<PAGE>
EVERGREEN
Equity Index Fund
FUND FACTS:
Goal:
. Price and Yield Performance Comparable to the S&P 500 Index
Principal Investment:
. Equity Securities listed on S&P 500 Index
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Manager:
. William E. Zieff
NASDAQ Symbols:
. EVIIX (Institutional)
. EVISX (Institutional Service)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks investment results that achieve price and yield performance
similar to the S&P 500 Index.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests substantially all of its total assets in equity securities that
represent a composite of the S&P 500 Index. The correlation between the
performance of the Fund and the S&P 500 Index is expected to be, before
expenses, 0.98 or higher. The Fund's portfolio manager uses a computer model
that closely monitors the industry weightings of the S&P 500 Index. The S&P 500
Index is an unmanaged index of 500 common stocks chosen by Standard & Poor's to
reflect the industries of the U.S. economy and is often considered a proxy for
the stock market in general. To replicate the performance of the S&P 500 Index,
the Fund's portfolio manager uses a passive management approach and invests in
substantially all of the stocks comprising the Index.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Investment Style Risk
The Fund is also subject to index fund risk. The Fund is not actively managed
and invests in securities included in the S&P 500 Index regardless of their
investment merit. Therefore, the Fund cannot modify its investment strategy to
respond to changes in the economy and may be particularly susceptible to a
general decline in the U.S. or global stock market segment relating to the S&P
500 Index. Although the Fund's modeling techniques are intended to produce
performance that approximates that of the S&P 500 Index (before expenses),
there can be no assurance that these techniques will reduce "tracking error"
(i.e., the difference between the Fund's investment results (before expenses)
and the S&P 500 Index's). Tracking error may arise as a result of brokerage
costs, fees and operating expenses and a lack of correlation between the Fund's
investments and the S&P 500 Index.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
4
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each of the last ten calendar years. It should give you a
general idea of the risks of investing in the Fund by showing how the Fund's
return has varied from year-to-year. This table includes the effects of Fund
expenses.
Year-by-Year Total Return for Institutional Shares (%)
[GRAPH]
1990 -4.05%
1991 29.18%
1992 6.77%
1993 9.32%
1994 0.29%
1995 36.62%
1996 22.86%
1997 32.54%
1998 27.69%
1999 20.69%
Best Quarter: 4th Quarter 1998 +21.30%
Worst Quarter: 3rd Quarter 1990 -13.60%
Year-to-date total return through 9/30/2000 is -1.62%.
The next table lists the Fund's average annual total return by class over the
past one, five and ten years and since inception (through 12/31/1999). This
table is intended to provide you with some indication of the risks of investing
in the Fund by comparing its performance with the S&P 500 Index (S&P 500). S&P
500 is an unmanaged market value-weighted index measuring the performance of
500 U.S. stocks chosen for market size, liquidity, and industry group
representation. An index does not include transactional costs associated with
buying and selling securities or any mutual fund expenses. It is not possible
to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date Since
of Class 1 year 5 year 10 year 2/14/1985
<S> <C> <C> <C> <C> <C>
Institutional 2/14/1985 20.69% 27.94% 17.40% 17.31%
Institutional Service 10/9/1996 20.34% 27.81% 17.34% 17.27%
S&P 500 21.04% 28.56% 18.21% 18.44%
</TABLE>
* Historical performance shown for Institutional Service shares prior to its
inception is based on the performance of (1) the Class A shares of the Fund's
predecessor CoreFund Equity Index Fund from 10/9/1996 to 7/27/1998 (2) the
Class Y shares of the Fund's predecessor, CoreFund Equity Index Fund, from
6/1/1991 to 10/8/1996 and (3) the Class Y shares of the Fund's predecessor,
Viking Index Fund, from 2/14/1985 through 5/31/1991. Performance of Class Y
for CoreFund Equity Index and Class Y for Viking Index Fund has not been
adjusted to reflect the effect of the 0.25% 12b-1 fee applicable to
Institutional Service shares. Class Y pays not 12b-1 fee. If these fees had
been reflected, returns would have been lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.32% 0.00% 0.27% 0.59%
Institutional Service 0.32% 0.25% 0.27% 0.84%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.30% for Institutional shares and 0.55%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Institutional
After: Institutional Service
<S> <C> <C>
1 year $60 $86
3 years $189 $268
5 years $329 $466
10 years $738 $1,037
</TABLE>
SELECT EQUITY FUNDS
5
<PAGE>
EVERGREEN
Select Balanced Fund
FUND FACTS:
Goal:
. Long-term Total Return
Principal Investments:
. Common and Preferred Stocks of Large and Mid-Cap U.S. Companies
. Fixed Income Securities
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Managers:
. Rollin C. Williams, CFA
. W. Shannon Reid, CFA
. David M. Chow, CFA
. Jay Zelko
NASDAQ Symbol:
. ESAIX (Institutional)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks long-term total return through capital growth, dividends and
interest income.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests in common stocks, preferred stocks and fixed income securities.
It is anticipated that the Fund's assets allocation will range between 40-75% in
common and preferred stocks, 25-50% in fixed income securities and 0-25% in cash
equivalents. The equity portion of the fund invests primarily in the equity
securities of large and mid-sized U.S. companies (i.e., typically having a
market capitalization of $1.5 billion and greater at the time of investment).
The Fund's stock selection is based on style of equity management which the
portfolio managers select equities that demonstrate superior and sustainable
earnings growth. The investment process combines quantitative and qualitative
fundamental analysis to identify companies which exhibit, histories of superior
earnings, strong current fundamentals, and rising earnings expectations.
The Fund's fixed income portion may include corporate debt securities,
securities issued by the U.S. Treasury or by an agency or instrumentality of
the U.S. government, including all kinds of convertible securities. The Fund
may invest in mortgage-backed securities and other asset-backed securities,
including collateralized mortgage obligations and stripped mortgage-backed
securities. The debt securities which the Fund invests in will be investment
grade quality rated within the top four categories of Standard & Poor's Rating
Services (S&P), Moody's Investors Service, Inc. (Moody's) or Fitch IBCA, Inc.,
or if not rated or rated by another system, determined by the Fund's portfolio
manager to be of equivalent credit quality. The Fund is not required to sell
any security that loses its rating or has its rating reduced after purchase.
The Fund has no limitation on the duration of its portfolio of investments. The
Fund periodically adjusts the duration based upon interest rate outlook.
Corporate bond positions are monitored to take advantage of changing yield
relationships and to maintain the quality of investments. The Fund currently
expects the dollar-weighted average maturity of its investments to range from
four to ten years.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Interest Rate Risk
. Credit Risk
. Market Capitalization Risk
. Investment Style Risk
Like other debt securities, changes in interest rates generally affect the
value of mortgage-backed securities. Mortgage-backed securities are generally
subject to higher prepayment risks than most other types of debt instruments
because the loans held in the asset pool often may be prepaid without penalty
or premium. Prepayment of mortgages may expose the Fund to a lower rate of
return when it reinvests the principal. Prepayment risks in mortgage-backed
securities tend to increase during periods of declining interest rates because
many borrowers refinance their mortgages to take advantage of the more
favorable rates. Additionally, some mortgage-backed securities may be
structured so that they may be particularly sensitive to interest rates. Early
repayment of mortgages underlying these securities may expose the Fund to a
lower rate of return when it reinvests the principal.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
6
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each calendar year since 4/1/1991. It should give you a general
idea of the risks of investing in the Fund by showing how the Fund's return has
varied from year-to-year. This table includes the effects of Fund expenses.
Year-by-Year Total Return for Institutional Shares (%)*
[GRAPH]
1992 8.21%
1993 10.68%
1994 -2.15%
1995 26.81%
1996 11.72%
1997 21.21%
1998 11.30%
1999 13.93%
Best Quarter: 4th Quarter 1999 +16.38%
Worst Quarter: 3rd Quarter 1998 -6.08%
Year-to-date total return through 9/30/2000 is +11.30%.
The next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999). This table is
intended to provide you with some indication of the risks of investing in the
Fund by comparing its performance with the S&P 500 Index (S&P 500) and Lehman
Brothers Government/Credit Index (formerly Lehman Brothers Government/Corporate
Bond Index) (LBGCI). S&P 500 is an unmanaged market value-weighted index
measuring the performance of 500 U.S. stocks chosen for market size, liquidity,
and industry group representation. LBGCI is an unmanaged fixed income index
that includes investment grade fixed-rate U.S. government, U.S. government
agency, and corporate securities. An index does not include transactional costs
associated with buying and selling securities or any mutual fund expenses. It
is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 4/1/1991
<S> <C> <C> <C> <C> <C>
Institutional 1/22/1998 13.93% 16.84% N/A 13.02%
Institutional Service 4/9/1998 13.69% 16.79% N/A 12.99%
S&P 500 21.04% 28.56% N/A 19.64%
LBGCI -2.15% 7.61% N/A 7.48%
</TABLE>
* Historical performance shown for Institutional shares prior to its inception
is based on the performance of the Class Y shares of Evergreen Balanced Fund
II, from 4/1/1991 through 1/22/1998, the inception of Institutional shares.
On 1/22/1998, substantially all of the assets of the Class Y shares of
Evergreen Balanced Fund II were transferred through a redemption in-kind
transaction to the Fund's Institutional shares. Performance from 1/23/1998
through the inception of Institutional Service shares reflects that of
Institutional shares. Performance prior to inception of Institutional Service
shares does not include this class' 0.25% 12b-1 fees. Institutional shares do
not pay 12b-1 fees. If these fees were reflected, returns would have been
lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.52% 0.00% 0.21% 0.73%
Institutional Service 0.52% 0.25% 0.21% 0.98%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.65% for Institutional shares and 0.89%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three- five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Institutional
After: Institutional Service
<S> <C> <C>
1 year $75 $100
3 years $233 $312
5 years $406 $542
10 years $906 $1,201
</TABLE>
SELECT EQUITY FUNDS
7
<PAGE>
EVERGREEN
Select Core Equity Fund
FUND FACTS:
Goal:
. Long-term Capital Growth
Principal Investment:
. Common Stocks of Large and Mid-Cap U.S. Companies
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Managers:
. Mark C. Sipe, CFA
. Hanspeter Giger, CFA
NASDAQ Symbols:
. EISCX (Institutional)
. EISSX (Institutional Service)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in common stocks of U.S. companies with large (i.e.,
typically having a market capitalization over $8.5 billion at the time of
investment) and medium market capitalization (i.e., typically have a market
capitalization from $1.5 billion to $8.5 billion at the time of investment).
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.
"Growth" securities are securities of companies which the Fund's portfolio
managers believe have anticipated earnings ranging from steady to accelerated
growth. "Value" securities are securities which the Fund's portfolio managers
believe are undervalued.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
8
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each of the last ten calendar years. It should give you a
general idea of the risks of investing in the Fund by showing how the Fund's
return has varied from year-to-year. This table includes the effects of Fund
expenses.
Year-by-Year Total Return for Institutional Shares (%)*
[GRAPH]
1990 -2.48%
1991 28.00%
1992 5.60%
1993 7.25%
1994 -7.38%
1995 36.29%
1996 25.93%
1997 27.27%
1998 12.96%
1999 17.64%
Best Quarter: 4th Quarter 1998 +18.14%
Worst Quarter: 3rd Quarter 1998 -14.64%
Year-to-date total return through 9/30/2000 is -1.74%.
The next table lists the Fund's average annual total return by class over the
past one, five and ten years and since inception (through 12/31/1999). This
table is intended to provide you with some indication of the risks of investing
in the Fund by comparing its performance with the S&P 500 Index (S&P 500). S&P
500 is an unmanaged market value-weighted index measuring the performance of
500 U.S. stocks chosen for market size, liquidity, and industry group
representation. An index does not include transactional costs associated with
buying and selling securities of any mutual fund expenses. It is not possible
to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date Since
of Class 1 year 5 year 10 year 12/31/1981
<S> <C> <C> <C> <C> <C>
Institutional 11/24/1997 17.64% 23.75% 14.28% 15.70%
Institutional Service 2/4/1998 17.34% 23.45% 14.00% 15.41%
S&P 500 21.04% 28.56% 18.21% 18.52%
</TABLE>
* Historical performance shown for Institutional Service shares from
11/24/1997 to its inception 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 fees. If these fees had been reflected, returns would have been lower.
Prior to 11/24/1997, the returns for Institutional and Institutional Service
share 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 CTF 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 years =
23.83%, 10 years = 14.37%, and since 12/31/1981 = 15.80%; Institutional
Service shares -- 5 years = 23.52%, 10 years = 14.09% and since 12/31/1981 =
15.51%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.62% 0.00% 0.16% 0.78%
Institutional Service 0.62% 0.25% 0.16% 1.03%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.70% for Institutional shares and 0.95%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional Institutional Service
<S> <C> <C>
1 year $80 $105
3 years $249 $328
5 years $433 $569
10 years $966 $1,259
</TABLE>
SELECT EQUITY FUNDS
9
<PAGE>
EVERGREEN
Select Secular Growth Fund
FUND FACTS:
Goal:
. Long-term Capital Growth
Principal Investment:
. Common Stocks of Large U.S. Growth Companies
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Sub-Advisor:
. Forefront Capital Advisors, LLC
Portfolio Manager:
. Stephen M. Dalton, CFA
NASDAQ Symbol:
. ESSGX (Institutional)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in common stocks of large U.S. growth companies
(i.e., typically having a market capitalization over $8.5 billion at the time of
investment), although it may invest in issuers of any size. The Fund's portfolio
manager seeks to purchase the securities of high quality companies with
anticipated earnings ranging from steady to accelerated growth. The Fund selects
securities of companies which are viewed as a service or product innovator,
which have experienced and proven management and high predictability of
earnings.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
10
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each calendar year since 12/31/1994. It should give you a
general idea of the risks of investing in the Fund by showing how the Fund's
return has varied from year-to-year. This table includes the effects of Fund
expenses.
Year-by-Year Total Return for Institutional Shares (%)*
[GRAPH]
1995 36.52%
1996 24.99%
1997 29.42%
1998 41.47%
1999 66.22%
Best Quarter: 4th Quarter 1999 +54.51%
Worst Quarter: 3rd Quarter 1998 -9.23%*
Year-to-date total return through 9/30/2000 is +6.15%.
The next table lists the Fund's average annual total return by class over
the past one and five years and since inception (through 12/31/1999). This
table is intended to provide you with some indication of the risks of
investing in the Fund by comparing its performance with the S&P 500 Index
(S&P 500) and Russell 1000 Growth Index (Russell 1000 Growth). S&P 500 is
an unmanaged market value-weighted index measuring the performance of 500
U.S. stocks chosen for market size, liquidity, and industry group
representation. Russell 1000 Growth is an unmanaged market capitalization-
weighted index measuring the performance of those Russell 1000 companies
with higher price-to-book ratios and higher forecasted growth values. An
index does not include transactional costs associated with buying and
selling securities or any mutual fund expenses. It is not possible to
invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 12/31/1994
<S> <C> <C> <C> <C> <C>
Institutional 2/26/1999 66.22% 39.03% N/A 39.03%
Institutional Service 2/26/1999 65.76% 38.68% N/A 38.68%
S&P 500
Russell 1000 Growth 33.16% 32.41% N/A 32.41%
</TABLE>
* Historical performance shown for the Institutional and Institutional Service
shares, prior to 7/12/1999 is based on the Fund's predecessor common trust
fund's (CTFs) 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 CTF was converted to a mutual fund. If fee waivers and expense
reimbursements in existence at the time of the conversion had been calculated
into the mutual fund class expense ratio, the total returns would be as
follows: Institutional -- 1 year = 66.30%, 5 years = 39.16%, and since
12/31/1994 = 39.16%; Institutional Service -- 1 year = 65.84%, 5 years =
38.80% and since 12/31/1994 = 38.80%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.62% 0.00% 0.17% 0.79%
Institutional Service 0.62% 0.25% 0.17% 1.04%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.71% for Institutional shares and 0.96%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-years. The example is intended to help you
compare the cost of investing in this Fund versus other mutual funds and is for
illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional Institutional Service
<S> <C> <C>
1 year $81 $106
3 years $252 $331
5 years $439 $574
10 years $978 $1,271
</TABLE>
SELECT EQUITY FUNDS
11
<PAGE>
EVERGREEN
Select Small Cap Growth Fund
FUND FACTS:
Goal:
. Long-term Capital Growth
Principal Investment:
. Equity Securities of Small U.S. Growth Companies
Class of Shares Offered in this Prospectus:
. Institutional
Investment Advisor:
. Evergreen Investment Management Company
Portfolio Manager:
. Thomas L. Holman
NASDAQ Symbol:
. EVSIX
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks to provide shareholders with long-term growth of capital.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in equity securities of U.S. companies with small
market capitalizations (i.e., typically having a market capitalization up to
$1.5 billion at the time of investment). The Fund invests in stocks of companies
which the portfolio manager believes have above average earnings growth
potential and, are reasonably valued and represent high-quality small companies.
Risk within the portfolio is managed with careful attention to valuation and
reasonable diversification.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
12
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each calendar year since the Institutional shares' inception on
12/28/1995. It should give you a general idea of the risks of investing in the
Fund by showing how the Fund's return has varied from year-to-year. This table
includes the effects of Fund expenses.
Year-by-Year Total Return for Institutional Shares (%)
[GRAPH]
1996 20.45%
1997 7.67%
1998 2.13%
1999 58.84%
Best Quarter: 4th Quarter 1999 +50.91%
Worst Quarter: 3rd Quarter 1998 -23.40%
Year-to-date total return through 9/30/2000 is +10.23%.
The next table lists the Fund's average annual total return over the past
year and since inception (through 12/31/1999). This table is intended to
provide you with some indication of the risks of investing in the Fund by
comparing its performance with the Russell 2000 Index (Russell 2000) and
Russell 2000 Growth Index (Russell 2000 Growth). Russell 2000 is an unmanaged
market capitalization-weighted index measuring the performance of the 2000
smallest companies in the Russell 3000 Index, representing approximately 10% of
the total market capitalization of the Russell 3000 Index. Russell 2000 Growth
is an unmanaged market capitalization-weighted index measuring the performance
of those Russell 2000 companies with higher price-to-book ratios and higher
forecasted growth values. An index does not include transactional costs
associated with buying and selling securities or any mutual fund expenses. It
is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 12/28/1995
<S> <C> <C> <C> <C> <C>
Institutional 12/28/1995 58.84% N/A N/A 20.42%
Russell 2000 21.26% N/A N/A 13.92%
Russell 2000 Growth 43.09% N/A N/A 16.15%
</TABLE>
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total
Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses
<S> <C> <C> <C> <C>
Institutional 0.66% 0.00% 0.27% 0.93%
</TABLE>
+Restated for the fiscal year ended 6/30/2000 to reflect current fees.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional
<S> <C>
1 year $95
3 years $296
5 years $515
10 years $1,143
</TABLE>
SELECT EQUITY FUNDS
13
<PAGE>
EVERGREEN
Select Strategic Growth Fund
FUND FACTS:
Goal:
. Long-term Capital Growth
Principal Investment:
. Equity Securities of Large and Mid-Size U.S. Companies
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Managers:
. W. Shannon Reid, CFA
. David M. Chow, CFA
. Jay Zelko
NASDAQ Symbols:
. ESGIX (Institutional)
. ESGSX (Institutional Service)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in the equity securities of large (i.e., typically
having a market capitalization of $8.5 billion and greater at the time of
investment) and mid-sized U.S. companies (i.e., typically having a market
capitalization of $1.5 billion and greater at the time of investment). The
Fund's stock selection is based on an equity style of management which the
portfolio managers select equities that demonstrate superior and sustainable
earnings growth. The investment process combines quantitative and qualitative
fundamental analysis to identify companies which exhibit histories of superior
earnings, strong current fundamentals, and rising earnings expectations.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
14
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each calendar year since 12/31/1994. It should give you a
general idea of the risks of investing in the Fund by showing how the Fund's
return has varied from year-to-year. This table includes the effects of Fund
expenses.
Year-by-Year Total Return for Institutional Shares (%)*
[GRAPH]
1995 38.13%
1996 23.97%
1997 30.60%
1998 24.39%
1999 58.29%
Best Quarter: 4th Quarter 1999 +37.34%
Worst Quarter: 3rd Quarter 1998 -13.41%
Year-to-date total return through 9/30/2000 is +13.17%.
The next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999). This table is
intended to provide you with some indication of the risks of investing in the
Fund by comparing its performance with the Russell 1000 Growth Index (Russell
1000 Growth). Russell 1000 Growth is an unmanaged market capitalization-
weighted index measuring the performance of those Russell 1000 companies with
higher price-to-book ratios and higher forecasted growth values. An index does
not include transactional costs associated with buying and selling securities
or any mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 12/31/1994
<S> <C> <C> <C> <C> <C>
Institutional 11/24/1997 58.29% 34.51% N/A 34.51%
Institutional Service 2/27/1998 57.88% 34.16% N/A 34.16%
Russell 1000 Growth 33.16% 32.41% N/A 32.41%
</TABLE>
* Historical performance shown for Institutional Service shares from 11/24/1997
to its inception 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 11/24/1997,
the returns for Institutional 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 CTF 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 years = 34.59% and since 12/31/1994 = 34.59; Institutional Service
shares -- 5 years = 34.24% and since 12/31/1994 = 34.24%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.62% 0.00% 0.17% 0.79%
Institutional Service 0.62% 0.25% 0.17% 1.04%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.72% for Institutional shares and 0.97%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional Institutional Service
<S> <C> <C>
1 year $81 $106
3 years $252 $331
5 years $439 $574
10 years $978 $1,271
</TABLE>
SELECT EQUITY FUNDS
15
<PAGE>
EVERGREEN
Select Strategic Value Fund
FUND FACTS:
Goals:
. Long-term Capital Growth
. Current Income
Principal Investment:
. Equity Securities of Large and Mid-Size U.S. Companies
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Managers:
. Timothy E. O'Grady
. C. Thomas Meisse, CFA
. John E. Gray
. J. Frederick Meinke
NASDAQ Symbol:
. ESSIX (Institutional)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks long-term capital growth with current income as a secondary
objective.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in the equity securities of large companies (i.e.,
typically having a market capitalization over $8.5 billion at the time of
investment). Generally, securities selected are common stocks that the Fund's
portfolio manager believes are undervalued and exhibit positive trends in their
underlying operations and earnings expectations. The Fund's investment in equity
securities will be on the basis of industry leadership, quality of management,
the company's current position and future earnings prospects.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
16
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional shares
of the Fund in each of the last ten calendar years. It should give you a
general idea of the risks of investing in the Fund by showing how the Fund's
return has varied from year-to-year. This table includes the effects of Fund
expenses.
Year-by-Year Total Return for Institutional Shares (%)*
[GRAPH]
1990 -12.98%
1991 21.91%
1992 19.62%
1993 13.01%
1994 1.69%
1995 33.20%
1996 25.66%
1997 32.12%
1998 6.31%
1999 9.06%
Best Quarter: 4th Quarter 1998 +16.86%
Worst Quarter: 3rd Quarter 1998 -16.19%
Year-to-date total return through 9/30/2000 is -2.22%.
The next table lists the Fund's average annual total return by class over the
past one, five and ten years and since inception (through 12/31/1999). This
table is intended to provide you with some indication of the risks of investing
in the Fund by comparing its performance with the Russell 1000 Value Index
(Russell 1000). Russell 1000 is an unmanaged market capitalization-weighted
index measuring the performance of those Russell 1000 companies with lower
price-to-book ratio and lower forecasted growth values. An index does not
include transactional costs associated with buying and selling securities or any
mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 12/31/1981
<S> <C> <C> <C> <C> <C>
Institutional 11/24/1997 9.06% 20.72% 14.10% 16.76%
Institutional Service 3/11/1998 8.80% 20.44% 13.82% 16.47%
Russell 1000 33.16% 32.41% 20.32% 18.58%
</TABLE>
* Historical performance shown for Institutional Service shares from 11/24/1997
to its inception 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 11/24/1997,
the returns for Institutional 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 CTF was converted to a mutual
fund. If fee waivers and expense reimbursements in existence at the time of
the conversion had been calculated into the mutual fund class expense ratio,
the total returns would be as follows: Institutional shares -- 5
years = 20.79%, 10 years = 14.19% and since 12/31/1981 = 16.86%;
Institutional Service shares -- 5 years = 20.51%, 10 years = 13.91% and since
12/31/1981 = 16.58%.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.62% 0.00% 0.17% 0.79%
Institutional Service 0.62% 0.25% 0.17% 1.04%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 0.75% for Institutional shares and 1.00%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional Institutional Service
<S> <C> <C>
1 year $81 $106
3 years $252 $331
5 years $439 $574
10 years $978 $1,271
</TABLE>
SELECT EQUITY FUNDS
17
<PAGE>
EVERGREEN
Special Equity Fund
FUND FACTS:
Goal:
. Capital Growth
Principal Investment:
. Common Stocks of Small Companies
Classes of Shares Offered in this Prospectus:
. Institutional
. Institutional Service
Investment Advisor:
. Meridian Investment Company
Portfolio Managers:
. Eric M. Teal
. Timothy M. Stevenson, CFA
. Mark Thiele, CFA
NASDAQ Symbols:
. ESDDX (Institutional)
. ESSEX (Institutional Service)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 2.
The Fund invests primarily in common stocks of U.S. companies with small market
capitalizations (i.e., typically having a market capitalization up to $1.5
billion at the time of investment). The Fund's portfolio managers choose
companies which they expect will experience growth in earnings and price. This
style of diversified equity management is best defined as a blend between growth
and value stocks. "Growth" stocks are stocks of companies which have accelerated
earnings while "Value" stocks are stocks believed to be intrinsically
undervalued by the marketplace. The Fund combines both styles and invests in
companies that have been long-term market and sector leaders. The Fund strives
to provide a return greater than stock market indices such as the Russell 2000
Index. The Fund may purchase stocks in initial public offerings (IPO).
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 2 under the headings:
. Stock Market Risk
. Market Capitalization Risk
. Investment Style Risk
You should be aware of the risks associated with the Fund purchasing IPOs.
Stocks purchased in IPOs have a tendency to fluctuate in value significantly
shortly after the IPO relative to the price at which they were purchased. These
fluctuations could impact the net asset value and return earned on the Fund's
shares.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
SELECT EQUITY FUNDS
18
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Institutional Service
shares of the Fund in each calendar year since the Institutional Service
shares' inception on 3/15/1994. It should give you a general idea of the risks
of investing in the Fund by showing how the Fund's return has varied from year-
to-year. This table includes the effects of Fund expenses.
Year-by-Year Total Return for Institutional Service Shares (%)*
[GRAPH]
1995 34.46%
1996 25.95%
1997 19.10%
1998 5.31%
1999 73.97%
Best Quarter: 4th Quarter 1998 +28.01%
Worst Quarter: 3rd Quarter 1998 -22.00%*
Year-to-date total return through 9/30/2000 is +6.13%.
The next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999). This table is
intended to provide you with some indication of the risks of investing in the
Fund by comparing its performance with the Russell 2000 Index (Russell 2000).
Russell 2000 is an unmanaged market capitalization-weighted index measuring the
performance of the 2000 smallest U.S. companies in the Russell 3000 Index,
representing approximately 10% of the total market capitalization of the
Russell 3000 Index. An index does not include transactional costs associated
with buying and selling securities or any mutual fund expenses. It is not
possible to invest directly in an index.
Average Annual Total Return
(for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date Since
of Class 1 year 5 year 10 year 3/15/1994
<S> <C> <C> <C> <C> <C>
Institutional 3/15/1994 74.31% 30.15% N/A 23.31%
Institutional Service 3/15/1994 73.97% 29.88% N/A 23.08%
Russell 2000 21.26% 16.69% N/A 13.24%
</TABLE>
* Historical performance shown for the Institutional shares prior to 7/27/1998
is based on (1) the performance of the Class Y shares of the Fund's
predecessor fund, CoreFund Special Equity Fund, from 2/21/1995 to 7/26/1998
and (2) the Class A shares of the Fund's predecessor fund from 3/15/1994 to
2/20/1995. Historical performance shown for the Institutional Service shares
prior to 7/27/1998 is based on the Class A shares of the Fund's predecessor
fund and reflects the same 0.25% 12b-1 fee applicable to Institutional Service
shares.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
You pay no shareholder transaction fees.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Institutional 0.92% 0.00% 0.43% 1.35%
Institutional Service 0.92% 0.25% 0.43% 1.60%
</TABLE>
+ Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++ From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The Annual Fund Operating Expenses do
not reflect fee waivers and expense reimbursements. Including current fee
waivers and expense reimbursements and restated to reflect current fees,
Total Fund Operating Expenses were 1.05% for Institutional shares and 1.30%
for Institutional Service shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
After: Institutional Institutional Service
<S> <C> <C>
1 year $137 $163
3 years $428 $505
5 years $739 $871
10 years $1,624 $1,900
</TABLE>
SELECT EQUITY FUNDS
19
<PAGE>
EVERGREEN
THE FUNDS' INVESTMENT ADVISOR
An investment advisor manages a Fund's investments and supervises its daily
business affairs. There are four investment advisors for the Funds. All
investment advisors for the Evergreen Funds are subsidiaries of First Union
Corporation, the sixth largest bank holding company in the United States, with
over $248.8 billion in consolidated assets as of 9/30/2000. First Union
Corporation is located at 301 South College Street, Charlotte, North Carolina
28288-0013.
Evergreen Institutional Asset Management (EIAM) is the investment advisor to:
. Equity Index Fund
. Select Balanced Fund
. Select Core Equity Fund
. Select Secular Growth Fund
. Select Strategic Growth Fund
. Select Strategic Value Fund
EIAM (formerly First Capital Group), a division of First Union National Bank
(FUNB), has been managing money for over 50 years and currently manages $48.3
billion in assets for 27 of the Evergreen Funds. FCG is located at 201 South
College Street, Charlotte, North Carolina 28288-0630.
Forefront Capital Advisors, LLC (Forefront Capital) is the sub-advisor to:
. Select Secular Growth Fund
Forefront Capital manages the day-to-day investment operations of the Fund.
There is no additional charge to the Fund for the services provided by
Forefront Capital. FUNB currently has a 40% ownership interest in Forefront
Capital. Forefront Capital is located at 123 South Broad Street, Philadelphia,
Pennsylvania 19109.
Evergreen Investment Management Company (EIMC) is the investment advisor to:
. Select Small Cap Growth Fund
EIMC has been managing mutual funds and private accounts since 1932 and
currently manages over $12.9 billion in assets for 28 of the Evergreen Funds.
EIMC is located at 200 Berkeley Street, Boston, Massachusetts 02116-5034.
Meridian Investment Company (MIC) is the investment advisor to:
. Special Equity Fund
MIC has been managing money for over 15 years and currently manages over $3.0
billion in assets, including $1.7 billion in assets for 2 of the Evergreen
Funds. MIC is located at 55 Valley Stream Parkway, Malvern, Pennsylvania 19355.
For the fiscal year ended 6/30/2000, the aggregate advisory fee paid to the
investment advisor by each Fund was as follows:
<TABLE>
<CAPTION>
% of the Fund's
Fund average daily net assets
<S> <C>
Equity Index Fund 0.07%
Select Balanced Fund 0.48%
Select CoreEquity Fund 0.58%
Select Secular Growth Fund 0.57%
Select Small Cap Growth Fund 0.73%
Select Strategic Growth Fund 0.58%
Select Strategic Value Fund 0.62%
Special Equity Fund 0.80%
</TABLE>
*As of January 3, 2000, the Funds' contractual advisory fees were reduced in
order to offset an increase in each Fund's administrative services fee to an
annual rate of 0.10% of each Fund's average daily net assets.
THE FUNDS' PORTFOLIO MANAGERS
Equity Index Fund
William E. Zieff has managed the Fund since July 2000. Mr. Zieff joined EIAM in
January 2000 as Managing Director of Global Structured Products. His previous
experience includes Managing Director and co-Chief Investment Officer of the
Global Asset Allocation group at Putnam Investments, Inc. from November 1996 to
December 1998. From October 1992 until November 1996, Mr. Zieff was portfolio
manager and head of Assets Allocation at Grantham, Mayo, Van Otterloo & Co.
LLC.
Select Balanced Fund
Rollin C. Williams, CFA, W. Shannon Reid, CFA, David M. Chow, CFA and Jay Zelko
co-manage the Fund.
Rollin C. Williams has managed the Fund and its predecessor since December
1995. Mr. Williams joined FUNB as a Vice President and senior portfolio manager
in February 1993 and became a Senior Vice President in September 1997.
W. Shannon Reid has co-managed the Fund since October 1999. Mr. Reid has been
with FUNB since October 1988 as a Senior Vice President and portfolio manager.
David M. Chow has co-managed the Fund since October 1999. Mr. Chow has been a
portfolio manager since he joined EIAM in September 1998. From September 1994
until he joined EIAM, he was an investment associate/portfolio manager for
FUNB's First Investment Advisors Group, the investment group at FUNB
responsible for managing private capital portfolios.
SELECT EQUITY FUNDS
20
<PAGE>
EVERGREEN
Jay Zelko has co-managed the Fund since October 2000. Mr. Zelko joined FUNB in
April 1994 and is an equity portfolio manager within MIC who maintained sector
analytical and portfolio management responsibilities.
Select Core Equity Fund
Mark C. Sipe, CFA, and Hanspeter Giger, CFA, co-manage the Fund.
Mark C. Sipe has co-managed the Fund and its predecessor since December 1994.
Mr. 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. Aside from co-managing the Fund, Mr. Sipe
is responsible for the oversight of all equity investment process, and asset
allocation within the First Investment Advisors.
Hanspeter Giger has co-managed the Fund and its predecessor since December
1996. Mr. Giger joined FUNB as an equity analyst in September 1987 and became
Director of Equity Research, responsible for overseeing and coordinating FUNB's
Investment Research/Core Team in October 1993.
Select Secular Growth Fund
Stephen M. Dalton, CFA, has managed the Fund since February 1999. Mr. Dalton is
Chairman and CEO of Forefront Capital. Prior he was a senior portfolio manager
and Senior Vice President at EIAM since he joined FUNB in July 1998 as a result
of the FUNB/CoreStates Bank merger. From 1984 until he joined FUNB, Mr. Dalton
was a senior portfolio manager with CoreStates Investment Advisors, Inc.
Select Small Cap Growth Fund
Thomas L. Holman has managed the Fund since joining EIMC in January 1997. From
May 1993 until he joined EIMC, Mr. Holman was an investment officer and
securities analyst at Invista Capital Management, Inc.
Select Strategic Growth Fund
W. Shannon Reid, David M. Chow, CFA and Jay Zelko co-manage the Fund.
W. Shannon Reid has co-managed the Fund since January 1995. Mr. Reid has been
with FUNB since October 1988 as a Senior Vice President and portfolio manager.
David M. Chow has co-managed the Fund since September 1998. From September 1994
until he joined EIAM, he was an investment associate/portfolio manager for
FUNB's Investment Advisors Group.
Jay Zelko has co-managed the Fund since October 2000. Mr. Zelko joined FUNB in
April 1994 and is an equity portfolio manager, within MIC, who maintained
sector analytical and portfolio management responsibilities.
Select Strategic Value Fund
Timothy E. O'Grady, C. Thomas Meisse, John E. Gray and J. Frederick Meisse co-
manage the Fund.
Timothy E. O'Grady has managed the Fund since December 1991. Mr. O'Grady is a
Senior Vice President
SELECT EQUITY FUNDS
21
<PAGE>
EVERGREEN
and senior portfolio manager. Mr. O'Grady joined FUNB in November 1986 as a
portfolio manager.
C. Thomas Meisse has co-managed the Fund since 1998. Mr. Meisse joined EIAM in
September 1977 as an analyst and became a senior portfolio within the Strategic
Value Team in September 1998.
John E. Gray has co-managed the Fund since July 1995. Mr. Gray is a Senior Vice
President who joined FUNB in April 1992 as a portfolio manager and became a
senior portfolio manager within the Strategic Value Team in 1997.
J. Frederick Meinke has co-managed the Fund since October 2000. Mr. Meinke
joined EIAM in 1995 as an analyst and became a senior research analyst within
the Strategic Value Team in 2000.
Special Equity Fund
Eric M. Teal, Timothy M. Stevenson, CFA and Mark Thiele, CFA, co-manage the
Fund.
Eric M. Teal has co-managed the Fund with Timothy M. Stevenson since October
1999. Mr. Teal joined FUNB in September 1993 as a quantitative equity analyst.
Mr. Teal has been affiliated with MIC as a portfolio manager since June 1999.
Timothy M. Stevenson has co-managed the Fund with Mr. Teal since October 1999.
Mr. Stevenson joined FUNB in November 1994 as a Senior Vice President and
portfolio manager. Mr. Stevenson has been associated with MIC as a portfolio
manager since October 1999.
Mark Thiele has co-managed the Fund since October 2000. Mr. Thiele joined FUNB
in 1989. He became a senior equity analyst for the FUNB's First Investment
Advisors Group, the investment goup at FUNB responsible for managing private
capital portfolios, in March 1996. March 1996. Mr. Thiele has been associated
with MIC as a portfolio manager since October 2000.
CALCULATING THE SHARE PRICE
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated on each day the New York Stock Exchange is open at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares
outstanding. Each class of shares is calculated separately. Each security held
by a Fund is valued using the most recent market data for that security. If no
market data is available for a given security, the Fund will price that
security at fair value according to policies established by the Fund's Board of
Trustees. Short-term securities with maturities of 60 days or less will be
valued on the basis of amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your account at
any given time is the latest share price multiplied by the number of shares you
own. Your account balance may change daily because the share price may change
daily.
Certain Funds may invest in foreign securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Funds do not
price its shares. As a result, the NAV of the Funds may change on days when
investors will not be able to purchase or redeem the Fund's shares
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
. Most importantly, read the prospectus to see if the Fund is suitable for you.
. Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading the
Fund's prospectus. He or she can also assist you through all phases of
opening your account.
. Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website www.evergreen-
funds.com.
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a Fund, you select a share class. Each Fund offered in this
prospectus offers up to two different institutional classes -- Institutional
and Institutional Service. To determine which classes of shares are offered by
a Fund, see the Fund Facts section next to each Fund's Risk/Return Summary
previously presented. Each institutional class of shares has its own expenses.
Pay particularly close attention to this fee structure so you know how much you
will be paying before you invest. Institutional shares are only offered to
investment advisory clients of an investment advisor of an Evergreen Fund (or
the advisor's affiliates)and through special arrangements entered into on behalf
of the Evergreen Funds with certain financial services firms.
Each class of shares is sold without a front-end sales charge or contingent
deferred sales charge. Institutional Service shares pay an ongoing service fee.
Institutional shares do not pay a service fee. The minimum initial investment
in either class of shares is $1 million, which may be waived in certain
situations. There is no minimum amount required for subsequent purchases.
Each Fund's Institutional Service shares incur an annual service fee of 0.25%
of the average daily net assets of the class for personal services rendered to
shareholders and/or the maintenance of accounts. As a result, income
distributions paid by the Fund with respect to Institutional Service shares
will generally be less than those paid with respect to Institutional shares.
SELECT EQUITY FUNDS
22
<PAGE>
EVERGREEN
HOW TO BUY SHARES
Institutional investors may buy shares through broker-dealers, banks and certain
other financial intermediaries, or directly through the Fund's distributor,
Evergreen Distributor, Inc. (EDI).
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<C> <S> <C>
By Phone . Call 1-800-343-2898 to set . Call the Evergreen Express
up an account number and Line** at 1-800-346-3858
get wiring instructions 24hours a day or 1-800-343-2898
(call before 12 noon if between 8 a.m. and 6 p.m.
you want wired funds to be Eastern time, on any business
credited that day). day.
. Instruct your bank to wire . If your bank account is set up
or transfer your purchase on file, you can request
(they may charge a wiring either:
fee).
. Complete the account - Federal Funds Wire (offers
application and mail to: immediate access to funds) or
Postal Service Address: - Electronic transfer through the
Evergreen Service Company Automated Clearing House
P.O. Box 2121 which avoids wiring fees.
Boston, MA 02106-9970
Overnight Address:
Evergreen Service Company
200 Berkeley St.
Boston, MA 02116-5034
. Wires received after 4 p.m.
Eastern time on market trading days
will receive the next market day's
closing price.*
By Exchange . You can make an additional investment by exchange from an
existing Evergreen Funds account by contacting your
investment professional or by calling the Evergreen Express
Line at 1-800-346-3858.***
. You can only exchange shares within the same class.
. There is no sales charge or redemption fee when exchanging
funds within the Evergreen Funds family.
. Orders placed before 4 p.m. Eastern time on market trading
days will receive that day's closing share price (if not, you
will receive the next market day's closing price).*
. Exchanges are limited to three per calendar quarter, but in
no event more than five per calendar year.
. Exchanges between accounts which do not have identical
ownership must be made in writing with a signature guarantee
(see "Exceptions: Redemption Requests That Require A
Signature Guarantee" on the next page).
</TABLE>
* The Fund's shares may be made available through financial services firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
** The Evergreen Express Line is only available to Institutional Service
shareholders.
*** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded and/or
monitored for verification, recordkeeping and quality-assurance purposes.
The Evergreen Funds reserve the right to terminate the exchange privilege
of any shareholder who exceeds the listed maximum number of exchanges, as
well as to reject any large dollar exchange if placing it would, in the
judgment of the portfolio manager, adversely affect the price of the Fund.
SELECT EQUITY FUNDS
23
<PAGE>
EVERGREEN
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
<CAPTION>
Methods Requirements
<S> <C>
Call Us . Call the Evergreen Express Line** at 1-800-346-3858 24 hours a day or 1-800-343-
2898 between 8 a.m. and 6 p.m. Eastern time, on any business day.
. This service must be authorized ahead of time, and is only available for regular
accounts.***
. All authorized requests made before 4 p.m. Eastern time on market trading days will
be processed at that day's closing Price. Requests after 4 p.m. will be processed
the following business day.*
. We can either:
- Wire the proceeds into your bank account (service charges may apply)
- electronically transmit the proceeds to your bank account via the Automated Clearing
House service
- mail you a check.
. All telephone calls are recorded and/or monitored for your protection. We are not
responsible for acting on telephone orders we believe are genuine.
. See "Exceptions: Redemption Requests That Require a Signature Guarantee" below for
requests that must be made in writing.
Write Us . You can mail a redemption request to:
Postal Service Address: Overnight Address:
Evergreen Service Company Evergreen Service Company
P.O. Box 2121 200 Berkeley St.
Boston, MA 02106-9970 Boston, MA 02116-5034
. Your letter of instructions must:
-List the Fund name and the account number
-Indicate the number of shares or dollar value you wish to redeem
-Be signed by the registered owner(s)
. See "Exceptions: Redemption Requests That Require A Signature Guarantee" below for
requests that must be signature guaranteed.
Redeem Your . You may also redeem your shares through participating broker-dealers by delivering
Shares in a letter as described above to your broker-dealer.
Person . A fee may be charged for this service.
</TABLE>
* The Fund's shares may be made available through financial services firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
** The Evergreen Express Line is only available to Institutional Service
shareholders.
*** Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded and/or
monitored for verification, recordkeeping and quality-assurance purposes.
The Evergreen Funds reserve the right to terminate the exchange privilege
of any shareholder who exceeds the listed maximum number of exchanges, as
well as to reject any large dollar exchange if placing it would, in the
judgment of the portfolio manager, adversely affect the price of the Fund.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days
for investments made by Automated Clearing House transfer. We also reserve the
right to redeem in kind, under certain circumstances, by paying you the
proceeds of a redemption in securities rather than in cash, and to redeem the
remaining amount in the account if your redemption brings the account balance
below the initial minimum of $1,000,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
. You want the proceeds transmitted to a bank Who Can Provide A
account not listed on the account Signature Guarantee:
. You want the proceeds payable to anyone other than . Commercial Bank
the registered owner(s) of the account . Trust Company
. Either your address or the address of your bank . Savings Association
account has been changed within 30 days . Credit Union
. Member of a U.S. stock
exchange
SELECT EQUITY FUNDS
24
<PAGE>
EVERGREEN
OTHER SERVICES
Evergreen Express Line
(Institutional Service shares only)
1-800-346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find a Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market
commentary from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can
be made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will
be included on your statement.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
at amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request
is received.
Dividend Exchange
You may elect on the application to reinvest capital gains and/or dividends
earned in one Evergreen Fund into an existing account in another Evergreen Fund
in the same share class -- automatically. Please indicate on the application
the Evergreen Fund(s) into which you want to invest the distributions.
THE TAX CONSEQUENCES OF INVESTING IN THE FUNDS
You may be taxed in two ways:
. On Fund distributions (dividends and capital gains)
. On the profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the Fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Funds will distribute two types of taxable income to you:
. Dividends. To the extent that regular dividends are derived from investment
income that is not tax exempt, or from short-term capital gains, you will
have to include them in your federal taxable income. Each Fund pays a monthly
dividend from the dividends, interest and other income on the securities in
which it invests.
. Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. The Funds generally distribute capital gains, if
any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and are
considered ordinary income just like dividends. Profits on securities held
longer than 12 months are considered long-term capital gains and are taxed at
a special tax rate (20% for most taxpayers). It is not anticipated that any
significant capital gains will be realized by the Funds.
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and
capital gain payments will be reinvested to buy additional shares. Distribution
checks that are returned and distribution checks that are uncashed when the
shareholder has failed to respond to mailings from the shareholder servicing
agent will automatically be reinvested to buy additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
We will send you a statement each January with the federal tax status of
dividends and distributions paid by each Fund during the previous calendar
year.
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital
gains. It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must
SELECT EQUITY FUNDS
25
<PAGE>
EVERGREEN
report any capital gain or loss you incur when you sell shares. Remember, an
exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend
and capital gains distributions for each calendar year on Form 1099 DIV.
Proceeds from a sale are reported on Form 1099B. You must report these on your
tax return. Since the IRS receives a copy as well, you could pay a penalty if
you neglect to report them.
Evergreen Service Company will send you a tax information guide each year
during tax season, which may include a cost basis statement detailing the gain
or loss on taxable transactions you had during the year. Please consult your
own tax advisor for further information regarding the federal, state and local
tax consequences of an investment in the Funds.
FEES AND EXPENSES OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses
and related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Institutional Service shares. Up to 0.75% of the Institutional Service
shares' average daily net assets are payable as 12b-1 fees. However, currently
the 12b-1 fees are limited to 0.25% of the Institutional Service shares'
average daily net assets. These fees will increase the cost of your investment.
The purpose of the 12b-1 fees is to promote the sale of more shares of the Fund
to the public. The Fund may use the 12b-1 fees for advertising and marketing
and as a "service fee" to the broker-dealer for additional shareholder
services.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken
out before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your
total return in the Fund is reduced in direct proportion to the fees;
2) expense ratios can vary greatly between funds and fund families, from under
0.25% to over 3.00%; and 3) the Fund's advisor may waive a portion of the
Fund's expenses for a period of time, reducing its expense ratio.
SELECT EQUITY FUNDS
26
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at the results for one share in each share class
of the Funds -- how much income it earned, how much of this income was passed
along as a distribution and how much the return was reduced by expenses. The
following tables have been derived from financial information audited by KPMG
LLP, the Funds' independent auditors. For a more complete picture of the Funds'
financial statements, please see the Funds' Annual Report as well as the SAI.
EVERGREEN (formerly,
Equity Index Fund Evergreen
Select
Equity Index
Fund)
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------
1996
2000 1999 (a) 1998 (a) 1997 (a) (a)(b)
<S> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning
of period $ 52.06 $ 46.27 $ 37.39 $ 28.47 $ 23.79
-------- -------- -------- -------- --------
Income from investment
operations
Net investment income 0.56 0.54 0.50 0.51 0.51
Net realized and unrealized
gains on securities and
futures contracts 3.06 8.85 10.12 9.16 5.47
-------- -------- -------- -------- --------
Total from investment
operations 3.62 9.39 10.62 9.67 5.98
-------- -------- -------- -------- --------
Distributions to
shareholders from
Net investment income (0.57) (0.51) (0.50) (0.51) (0.51)
Net realized gains (0.36) (3.09) (1.24) (0.24) (0.79)
-------- -------- -------- -------- --------
Total distributions to
shareholders (0.93) (3.60) (1.74) (0.75) (1.30)
-------- -------- -------- -------- --------
Net asset value, end of
period $ 54.75 $ 52.06 $ 46.27 $ 37.39 $ 28.47
-------- -------- -------- -------- --------
Total return 7.02% 22.03% 29.17% 34.44% 25.69%
Ratios and supplemental data
Net assets, end of period
(thousands) $539,804 $570,864 $315,920 $241,413 $166,350
Ratios to average net assets
Expenses++ 0.30% 0.30% 0.38% 0.37% 0.35%
Net investment income 1.04% 1.19% 1.19% 1.63% 1.94%
Portfolio turnover rate 12% 21% 12% 11% 13%
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1999 1998
2000 (a) (a) 1997 (a)(c)
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 52.04 $ 46.27 $ 37.37 $29.62
------- ------- ------- ------
Income from investment operations
Net investment income 0.41 0.45 0.49 0.32
Net realized and unrealized gains on
securities and futures contracts 3.07 8.81 10.12 8.05
------- ------- ------- ------
Total from investment operations 3.48 9.26 10.61 8.37
------- ------- ------- ------
Distributions to shareholders from
Net investment income (0.43) (0.40) (0.47) (0.38)
Net realized gains (0.36) (3.09) (1.24) (0.24)
------- ------- ------- ------
Total distributions to shareholders (0.79) (3.49) (1.71) (0.62)
------- ------- ------- ------
Net asset value, end of period $ 54.73 $ 52.04 $ 46.27 $37.37
------- ------- ------- ------
Total return 6.74% 21.70% 29.17% 28.58%
Ratios and supplemental data
Net assets, end of period (thousands) $18,708 $38,051 $11,944 $4,507
Ratios to average net assets
Expenses++ 0.55% 0.55% 0.38% 0.37%+
Net investment income 0.79% 0.95% 1.19% 1.51%+
Portfolio turnover rate 12% 21% 12% 11%
</TABLE>
(a) On July 24, 1998, the assets and liabilities of CoreFund Equity Index Fund
("CoreFund") were acquired by Evergreen Select Equity Index Fund ("Equity
Index Fund"). Shareholders of CoreFund, Class A, Class B and Class Y became
owners of that number of shares of Equity Index Fund, Institutional Serv-
ice, Institutional Service and Institutional shares, respectively, 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.
(b) On April 22, 1996, the Class A shares of CoreFund were redesignated as
Class Y shares of CoreFund.
(c) For the period from October 9, 1996 (commencement of class operations) to
June 30, 1997.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
SELECT EQUITY FUNDS
27
<PAGE>
EVERGREEN
Select Balanced Fund
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------
2000 1999 1998 (a)
<S> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning of period $ 13.56 $ 13.39 $ 12.58
-------- -------- --------
Income from investment operations
Net investment income 0.44 0.46 0.16
Net realized and unrealized gains on securities 2.09 0.27 0.81
-------- -------- --------
Total from investment operations 2.53 0.73 0.97
-------- -------- --------
Distributions to shareholders from
Net investment income (0.46) (0.42) (0.16)
Net realized gains (0.53) (0.14) 0
-------- -------- --------
Total distributions to shareholders (0.99) (0.56) (0.16)
-------- -------- --------
Net asset value, end of period $ 15.10 $ 13.56 $ 13.39
-------- -------- --------
Total return 19.52% 5.70% 7.76%
Ratios and supplemental data
Net assets, end of period (thousands) $601,453 $658,733 $723,850
Ratios to average net assets
Expenses++ 0.65% 0.69% 0.70%+
Net investment income 3.04% 3.47% 2.80%+
Portfolio turnover rate 163% 60% 37%
<CAPTION>
Year Ended June 30,
----------------------------
2000 1999 1998 (b)
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 13.59 $ 13.42 $ 13.34
-------- -------- --------
Income from investment operations
Net investment income 0.43 0.35 0.07
Net realized and unrealized gains on securities 2.08 0.35 0.09
-------- -------- --------
Total from investment operations 2.51 0.70 0.16
-------- -------- --------
Distributions to shareholders from
Net investment income (0.43) (0.39) (0.08)
Net realized gains (0.53) (0.14) 0
-------- -------- --------
Total distributions to shareholders (0.96) (0.53) (0.08)
-------- -------- --------
Net asset value, end of period $ 15.14 $ 13.59 $ 13.42
-------- -------- --------
Total return 19.23% 5.43% 1.23%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1,039 $ 405 $ 215
Ratios to average net assets
Expenses++ 0.89% 0.93% 0.95%+
Net investment income 2.74% 3.35% 2.58%+
Portfolio turnover rate 163% 60% 37%
</TABLE>
(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.
+ Annualized
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
SELECT EQUITY FUNDS
28
<PAGE>
EVERGREEN
Select Core Equity Fund
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
2000 1999 1998 (a)
<S> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning of period $ 92.30 $ 92.59 $ 82.97
---------- ---------- ----------
Income from investment operations
Net investment income 0.41 0.72 0.51
Net realized and unrealized gains on
securities 6.16 7.51 9.62
---------- ---------- ----------
Total from investment operations 6.57 8.23 10.13
---------- ---------- ----------
Distributions to shareholders from
Net investment income (0.40) (0.69) (0.51)
Net realized gains (9.10) (7.83) 0
---------- ---------- ----------
Total distributions to shareholders (9.50) (8.52) (0.51)
---------- ---------- ----------
Net asset value, end of period $ 89.37 $ 92.30 $ 92.59
---------- ---------- ----------
Total return 7.71% 9.82% 12.23%
Ratios and supplemental data
Net assets, end of period (thousands) $2,485,896 $1,913,483 $1,952,436
Ratios to average net assets
Expenses++ 0.70% 0.67% 0.70%+
Net investment income 0.47% 0.83% 0.96%+
Portfolio turnover rate 42% 55% 22%
<CAPTION>
Year Ended June 30,
----------------------------------
2000 1999 1998 (b)
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 86.54 $ 87.33 $ 80.21
---------- ---------- ----------
Income from investment operations
Net investment income 0.19 0.48 0.27
Net realized and unrealized gains on
securities 5.75 7.02 7.16
---------- ---------- ----------
Total from investment operations 5.94 7.50 7.43
---------- ---------- ----------
Distributions to shareholders from
Net investment income (0.19) (0.46) (0.31)
Net realized gains (9.10) (7.83) 0
---------- ---------- ----------
Total distributions to shareholders (9.29) (8.29) (0.31)
---------- ---------- ----------
Net asset value, end of period $ 83.19 $ 86.54 $ 87.33
---------- ---------- ----------
Total return 7.45% 9.53% 9.27%
Ratios and supplemental data
Net assets, end of period (thousands) $ 52,699 $ 30,240 $ 18,244
Ratios to average net assets
Expenses++ 0.95% 0.92% 0.95%+
Net investment income 0.21% 0.56% 0.60%+
Portfolio turnover rate 42% 55% 22%
</TABLE>
(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.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
SELECT EQUITY FUNDS
29
<PAGE>
EVERGREEN
Select Secular Growth Fund
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------
2000 1999 (a)
<S> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning of period $ 99.99 $ 100.00
---------- ---------
Income from investment operations
Net investment income (loss) (0.35) 0.15
Net realized and unrealized gains or losses on
securities 50.07 (0.01)
---------- ---------
Total from investment operations 49.72 0.14
---------- ---------
Distributions to shareholders from
Net investment income 0 (0.15)
Net realized gains (3.27) 0
---------- ---------
Total distributions to shareholders (3.27) (0.15)
---------- ---------
Net asset value, end of period $ 146.44 $ 99.99
---------- ---------
Total return 50.60% 0.14%
Ratios and supplemental data
Net assets, end of period (thousands) $ 917,548 $ 40,128
Ratios to average net assets
Expenses++ 0.71% 0.71%+
Net investment income (loss) (0.24%) 0.18%+
Portfolio turnover rate 137% 65%
<CAPTION>
Year Ended June 30,
----------------------
2000 1999 (a)
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 99.95 $ 100.00
---------- ---------
Income from investment operations
Net investment income (loss) (0.45) 0.21
Net realized and unrealized gains or losses on
securities 49.75 (0.15)
---------- ---------
Total from investment operations 49.30 0.06
---------- ---------
Distributions to shareholders from
Net investment income 0 (0.11)
Net realized gains (3.27) 0
---------- ---------
Total distributions to shareholders (3.27) (0.11)
---------- ---------
Net asset value, end of period $ 145.98 $ 99.95
---------- ---------
Total return 50.19% 0.06%
Ratios and supplemental data
Net assets, end of period (thousands) $ 1,212 $ 1
Ratios to average net assets
Expenses++ 0.97% 0.96%+
Net investment income (loss) (0.53%) 0.63%+
Portfolio turnover rate 137% 65%
</TABLE>
(a) For the period from February 26, 1999 (commencement of class operations) to
June 30, 1999.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
SELECT EQUITY FUNDS
30
<PAGE>
EVERGREEN
Select Small Cap Growth Fund
<TABLE>
<CAPTION>
Year Ended
Year Ended June 30, February 28,
----------------------------- -------------------- Year Ended
2000 1999 1998 (a) 1998 # 1997 (b) # June 30, 1996 (c)
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value,
beginning of period $ 13.65 $ 13.12 $ 13.23 $ 11.28 $11.65 $10.00
-------- ------- ------- ------- ------ ------
Income from investment
operations
Net investment loss (0.07) (0.08) (0.03) (0.06) (0.04) (0.03)
Net realized and
unrealized gains or
losses on securities 9.18 0.63 (0.08) 2.48 (0.16) 1.68
-------- ------- ------- ------- ------ ------
Total from investment
operations 9.11 0.55 (0.11) 2.42 (0.20) 1.65
-------- ------- ------- ------- ------ ------
Distributions to
shareholders from
Net realized gains 0 (0.02) 0 (0.47) (0.17) 0
-------- ------- ------- ------- ------ ------
Total distributions to
shareholders 0 (0.02) 0 (0.47) (0.17) 0
-------- ------- ------- ------- ------ ------
Net asset value, end of
period $ 22.76 $ 13.65 $ 13.12 $ 13.23 $11.28 $11.65
-------- ------- ------- ------- ------ ------
Total return 66.74% 4.22% (0.83%) 21.67% (1.75%) 16.50%
Ratios and supplemental
data
Net assets, end of
period (thousands) $159,444 $70,114 $69,283 $47,524 $2,888 $2,446
Ratios to average net
assets
Expenses++ 0.93% 1.02% 1.01%+ 0.92% 1.00%+ 1.00%+
Net investment loss (0.42%) (0.68%) (0.62%)+ (0.48%) (0.57%)+ (0.45%)+
Portfolio turnover rate 312% 165% 54% 166% 123% 57%
</TABLE>
(a) 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.
(b) For the period form July 1, 1996 to February 28, 1997. The Fund changed its
fiscal year end from June 30 to February 28, effective February 28, 1997.
(c) For the period from December 28, 1995 (commencement of class operations) to
June 30, 1996.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
# Net investment loss is based on average shares outstanding during the peri-
od.
SELECT EQUITY FUNDS
31
<PAGE>
EVERGREEN
Select Strategic Growth Fund
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
2000 1999 # 1998 (a)
<S> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning of period $ 41.94 $ 38.41 $ 32.45
-------- -------- --------
Income from investment operations
Net investment income 0.04 0.08 0.04
Net realized and unrealized gains on
securities 18.58 6.80 5.96
-------- -------- --------
Total from investment operations 18.62 6.88 6.00
-------- -------- --------
Distributions to shareholders from
Net investment income (0.03) (0.09) (0.04)
Net realized gains (8.05) (3.26) 0
-------- -------- --------
Total distributions to shareholders (8.08) (3.35) (0.04)
-------- -------- --------
Net asset value, end of period $ 52.48 $ 41.94 $ 38.41
-------- -------- --------
Total return 52.26% 19.22% 18.53%
Ratios and supplemental data
Net assets, end of period (thousands) $817,618 $481,119 $321,532
Ratios to average net assets
Expenses++ 0.72% 0.72% 0.72%+
Net investment income 0.80% 0.24% 0.19%+
Portfolio turnover rate 152% 155% 80%
<CAPTION>
Year Ended June 30,
------------------------------
2000 1999 # 1998 (b)
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 41.83 $ 38.36 $ 36.10
-------- -------- --------
Income from investment operations
Net investment income (loss) (0.05) 0.04 (0.08)
Net realized and unrealized gains on
securities 18.48 6.73 2.34
-------- -------- --------
Total from investment operations 18.43 6.77 2.26
-------- -------- --------
Distributions to shareholders from
Net investment income 0 (0.04) 0
Net realized gains (8.05) (3.26) 0
-------- -------- --------
Total distributions to shareholders (8.05) (3.30) 0
-------- -------- --------
Net asset value, end of period $ 52.21 $ 41.83 $ 38.36
-------- -------- --------
Total return 51.87% 18.88% 6.29%
Ratios and supplemental data
Net assets, end of period (thousands) $ 23,719 $ 12,650 $ 2,373
Ratios to average net assets
Expenses++ 0.97% 0.97% 0.97%+
Net investment loss (0.17%) (0.03%) (0.27%)+
Portfolio turnover rate 152% 155% 80%
</TABLE>
(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.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
# Net investment income or loss is based on average shares outstanding during
the period.
SELECT EQUITY FUNDS
32
<PAGE>
EVERGREEN
Select Strategic Value Fund
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------
2000 1999 1998 (a)
<S> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value, beginning of period $ 237.17 $ 226.02 $ 203.35
-------- -------- --------
Income from investment operations
Net investment income 2.47 3.31 1.60
Net realized and unrealized gains or losses on
securities (19.42) 15.66 22.67
-------- -------- --------
Total from investment operations (16.95) 18.97 24.27
-------- -------- --------
Distributions to shareholders from
Net investment income (2.90) (2.93) (1.60)
Net realized gains (4.19) (4.89) 0
-------- -------- --------
Total distributions to shareholders (7.09) (7.82) (1.60)
-------- -------- --------
Net asset value, end of period $ 213.13 $ 237.17 $ 226.02
-------- -------- --------
Total return (7.33%) 8.85% 11.95%
Ratios and supplemental data
Net assets, end of period (thousands) $750,470 $530,995 $287,194
Ratios to average net assets
Expenses++ 0.75% 0.71% 0.75%+
Net investment income 1.14% 1.61% 1.26%+
Portfolio turnover rate 31% 41% 12%
<CAPTION>
Year Ended June 30,
-----------------------------
2000 1999 1998 (b)
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
Net asset value, beginning of period $ 237.23 $ 226.04 $ 223.08
-------- -------- --------
Income from investment operations
Net investment income 1.93 2.87 0.61
Net realized and unrealized gains or losses on
securities (19.45) 15.62 3.13
-------- -------- --------
Total from investment operations (17.52) 18.49 3.74
-------- -------- --------
Distributions to shareholders from
Net investment income (2.36) (2.41) (0.78)
Net realized gains (4.19) (4.89) 0
-------- -------- --------
Total distributions to shareholders (6.55) (7.30) (0.78)
-------- -------- --------
Net asset value, end of period $ 213.16 $ 237.23 $ 226.04
-------- -------- --------
Total return (7.56%) 8.60% 1.68%
Ratios and supplemental data
Net assets, end of period (thousands) $ 6,724 $ 1,810 $ 1,327
Ratios to average net assets
Expenses++ 1.00% 0.96% 1.00%+
Net investment income 0.87% 1.34% 0.93%+
Portfolio turnover rate 31% 41% 12%
</TABLE>
(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.
+ Annualized.
++ The ratio of expenses to average net assets includes fee waivers and ex-
cludes expense reductions.
SELECT EQUITY FUNDS
33
<PAGE>
EVERGREEN (formerly, Evergreen
Special Equity Fund Select Special Equity Fund)
<TABLE>
<CAPTION>
Year Ended June 30, Period Ended Year Ended
--------------------------------------- June 30, October 31,
2000 1999 (e) 1998 1997 1996 (b) (c) (d) 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SHARES
Net asset value,
beginning of period $ 14.20 $ 11.25 $ 11.27 $ 11.86 $ 11.42 $ 9.37
-------- -------- ------- ------- ------- -------
Income from investment
operations
Net investment income
or loss (0.05) (0.02) (0.05) 0.02 0.07 0.12
Net realized and
unrealized gains or
losses on securities 3.96 4.15 1.52 1.81 2.13 2.12
-------- -------- ------- ------- ------- -------
Total from investment
operations 3.91 4.13 1.47 1.83 2.20 2.24
-------- -------- ------- ------- ------- -------
Distributions to
shareholders from
Net investment income 0 0 0 (0.03) (0.07) (0.12)
Net realized gains (2.19) (1.18) (1.49) (2.39) (1.69) (0.07)
-------- -------- ------- ------- ------- -------
Total distributions to
shareholders (2.19) (1.18) (1.49) (2.42) (1.76) (0.19)
-------- -------- ------- ------- ------- -------
Net asset value, end of
period $ 15.92 $ 14.20 $ 11.25 $ 11.27 $ 11.86 $ 11.42
-------- -------- ------- ------- ------- -------
Total return 30.89% 42.02% 14.23% 17.94% 22.27% 24.44%
Ratios and supplemental
data
Net assets, end of
period (thousands) $192,146 $116,966 $73,981 $71,980 $63,680 $57,396
Ratios to average net
assets
Expenses++ 1.05% 1.06% 1.10% 0.84% 0.34%+ 0.32%
Net investment income
or loss (0.35%) (0.36%) (0.48%) 0.19% 0.94%+ 1.14%
Portfolio turnover rate 172% 99% 62% 74% 72% 129%
<CAPTION>
Year Ended June 30, Period Ended Year Ended
--------------------------------------- June 30, October 31,
2000 1999 (e) 1998 1997 1996 (b) (c) (d) 1995 (a)
<S> <C> <C> <C> <C> <C> <C>
INSTITUTIONAL SERVICE
SHARES
Net asset value,
beginning of period $ 14.05 $ 11.18 $ 11.25 $ 11.85 $ 11.42 $ 9.37
-------- -------- ------- ------- ------- -------
Income from investment
operations
Net investment income
or loss (0.10) (0.06) (0.10) 0 0.08 0.12
Net realized and
unrealized gains or
losses on securities 3.94 4.11 1.52 1.81 2.11 2.12
-------- -------- ------- ------- ------- -------
Total from investment
operations 3.84 4.05 1.42 1.81 2.19 2.24
-------- -------- ------- ------- ------- -------
Distributions to
shareholders from
Net investment income 0 0 0 (0.02) (0.07) (0.12)
Net realized gains (2.19) (1.18) (1.49) (2.39) (1.69) (0.07)
-------- -------- ------- ------- ------- -------
Total distributions to
shareholders (2.19) (1.18) (1.49) (2.41) (1.76) (0.19)
-------- -------- ------- ------- ------- -------
Net asset value, end of
period $ 15.70 $ 14.05 $ 11.18 $ 11.25 $ 11.85 $ 11.42
-------- -------- ------- ------- ------- -------
Total return 30.70% 41.55% 13.78% 17.73% 22.14% 24.44%
Ratios and supplemental
data
Net assets, end of
period (thousands) $ 7,835 $ 4,043 $ 2,981 $ 2,347 $ 1,144 $ 734
Ratios to average net
assets
Expenses++ 1.30% 1.31% 1.35% 1.14% 0.37%+ 0.27%
Net investment income
or loss (0.61%) (0.61%) (0.73%) (0.12%) 0.91%+ 1.29%
Portfolio turnover rate 172% 99% 62% 74% 72% 129%
</TABLE>
(a) 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
income, 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
February 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 Financial
Highlights' reflect this allocation.
(b) For the period from November 1, 1995 to June 30, 1996. The Fund changed its
fiscal year end from October 31 to June 30, effective June 30, 1996.
(c) On April 15, 1996, the Conestoga Special Equity Fund was acquired by the
CoreFund Special Equity Fund ("CoreFund").
(d) On April 15, 1996, the Institutional shares of the CoreFund were exchanged
for Class Y shares and the Retail Class shares of the CoreFund were
exchanged for Class A shares of the CoreFund.
(e) On July 24, 1998, the assets and certain liabilities of CoreFund were
acquired by Evergreen Select Special Equity Fund ("Special Equity Fund").
Shareholders of CoreFund Class A, Class B and Class Y became owners of that
number of shares of Special Equity Fund, Institutional Service,
Institutional Service and Institutional shares, 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.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
SELECT EQUITY FUNDS
34
<PAGE>
EVERGREEN
OTHER FUND PRACTICES
The Funds may invest up to 10% of its 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.
A Fund's investment in non-U.S. securities could expose it to certain unique
risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. In addition, if the value of any foreign currency
in which the Fund's investments are denominated declines relative to the U.S.
dollar, the value of and total return earned on your investment in the Fund may
decline as well. Certain foreign countries have less developed and less
regulated securities markets and accounting systems than the U.S. This may make
it harder to get accurate information about a security or company, and increase
the likelihood that an investment will not perform as well as expected.
The Funds may invest in a variety of derivative instruments including options
and futures. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate. Small price movements in the underlying
asset can result in immediate and substantial gains or losses in the value of
derivatives.
Options and futures can be used to increase return and to hedge a Fund's
portfolio against changes in the market value of securities owned or intended
to be purchased. Although this is intended to increase returns, these practices
may actually reduce returns or increase volatility. Evergreen Equity Index Fund
may also use options and futures as a substitute for the sale or purchase of
securities in the S&P 500 Index.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Funds, including risks.
SELECT EQUITY FUNDS
35
<PAGE>
EVERGREEN
Evergreen Funds
Select Money Market Trust
Select Money Market Fund
Select Municipal Money Market
Select Treasury Money Market Fund
Select U.S. Government Money Market Fund
Select 100% Treasury Money Market Fund
Select Fixed Income Trust
Select Adjustable Rate Fund
Select Core Bond Fund
Select Fixed Income Fund
Select Fixed Income Fund II
Select High Yield Bond Fund
Select Income Plus Fund
Select Intermediate Term Municipal Bond Fund
Select International Bond Fund
Select Limited Duration Fund
Select Equity Trust
Equity Index Fund
Select Balanced Fund
Select Core Equity Fund
Select Secular Growth Fund
Select Small Cap Growth Fund
Select Strategic Growth Fund
Select Strategic Value Fund
Special Equity Fund
Equity Trust
Small Cap Value Fund
Stock Selector Fund
Express Line
(Institutional Service shares only)
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
SELECT EQUITY FUNDS
36
<PAGE>
QUICK REFERENCE GUIDE
Evergreen Express Line
1 (Institutional Service shares only)
Call 1-800-346-3858
24 hours a day to
. check your account
. order a statement
. get a Fund's current price, yield and total return
. buy, redeem or exchange Fund shares
Investor Services
2 Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m.
Eastern time to
. buy, redeem or exchange shares
. order applications
. get assistance with your account
Information Line for Hearing and Speech
3 Impaired (TTY/TDD)
Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m. Eastern time
Write us a letter
4 Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-9970
. to buy, redeem or exchange shares
. to change the registration on your account
. for general correspondence
For express, registered or certified mail
5 Evergreen Service Company
200 Berkeley St.
Boston, MA 02116-5034
Visit us on-line
6 www.evergreen-funds.com
Regular communications you will receive
7 Account Statements -- You will receive quarterly statements for each
Fund in which you invest in.
Confirmation Notices -- We send a confirmation of any transaction you
make within five days of the transaction.
Annual and Semi-annual Reports -- You will receive a detailed financial
report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax information you
need to include with your tax returns as well as the Evergreen Tax
Information Guide.
<PAGE>
For More Information About the Evergreen Select Equity Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's portfolio holdings as of a specific date, as well as commentary from
the Fund's portfolio manager. This Report discusses the market conditions
and investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
professional. We will mail material within three business days. In addition,
any of these documents, with the exception of the SAI, may be downloaded off
our website at www.evergreen-funds.com.
Information about these Funds (including the SAI) is also available on the
SEC's Internet website at http://www.sec.gov. Copies of this material may be
obtained, for a duplication fee, by writing the SEC Public Reference
Section, Washington, D.C. 20549-6009, or by electronic request at the
following e-mail address: [email protected]. This material can also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
For information about the operation of the Public Reference Room, call the
SEC at 1-800-SEC-0330.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.: 811-08363
16420
541909 RV4
-------------
PRSRT STD
U.S. POSTAGE
PAID
LANCASTER, PA
[LOGO OF EVERGREEN FUNDS] PERMIT NO. 11
-------------
401 South Tryon Street
Charlotte, NC 28288
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART A
RETAIL PROSPECTUS
<PAGE>
EVERGREEN Equity Funds
Evergreen Equity Index Fund
(formerly Evergreen Select Equity Index Fund)
Evergreen Special Equity Fund
(formerly Evergreen Select Special Equity Fund)
Class A
Class B
Class C
Prospectus, November 1, 2000
[LOGO OF EVERGREEN FUNDS]
The Securities and Exchange Commission has not determined that the
information in this prospectus is accurate or complete, nor has it
approved or disapproved these securities. Anyone who tells you otherwise
is committing a crime.
<PAGE>
TABLE OF CONTENTS
FUND RISK/RETURN SUMMARIES:
<TABLE>
<S> <C>
Overview of Fund Risks...................................................... 1
Evergreen Equity Index Fund................................................. 2
Evergreen Special Equity Fund............................................... 4
GENERAL INFORMATION:
The Funds' Investment Advisors.............................................. 6
The Funds' Portfolio Managers............................................... 6
Calculating the Share Price................................................. 6
How to Choose an Evergreen Fund............................................. 7
How to Choose the Share Class That Best Suits You........................... 7
How to Buy Shares........................................................... 9
How to Redeem Shares........................................................ 10
Other Services.............................................................. 11
The Tax Consequences of Investing in the Funds.............................. 11
Fees and Expenses of the Funds.............................................. 12
Financial Highlights........................................................ 13
Other Fund Practices........................................................ 17
</TABLE>
In general, Funds included in this prospectus provide investors with a selection
of investment alternatives which seek to provide capital growth.
Fund Summaries Key
Each Fund's summary is organized around the following basic topics and
questions:
INVESTMENT GOAL
What is the Fund's financial objective? You can find clarification on how the
Fund seeks to achieve its objective by looking at the Fund's strategy and
investment policies. The Fund's Board of Trustees can change the investment
objective without a shareholder vote.
INVESTMENT STRATEGY
How does the Fund go about trying to meet its goals? What types of investments
does it contain? What style of investing and investment philosophy does it
follow? Does it have limits on the amount invested in any particular type of
security?
RISK FACTORS
What are the specific risks for an investor in the Fund?
PERFORMANCE
How well has the Fund performed in the past year? The past five years? The past
ten years?
EXPENSES
How much does it cost to invest in the Fund? What is the difference between
sales charges and expenses?
<PAGE>
OVERVIEW OF FUND RISKS
Equity Funds
typically rely on a combination of the following strategies:
. investing primarily in common stocks;
. investing in companies expected to provide capital growth; and
. selling a portfolio investment: i) when the issuer's investment
fundamentals begin to deteriorate, ii) when the investment reaches or
exceeds estimated fair value, iii) when the investment no longer appears to
meet the Fund's investment objective; iv) when the Fund must meet
redemptions; or v) for other investment reasons which the portfolio manager
deems necessary.
may be appropriate for investors who:
. are seeking long-term capital growth.
Following this overview, you will find information on each Fund's specific
investment strategies and risks.
................................................................................
Risk Factors For All Mutual Funds
Please remember that an investment in a mutual fund is:
. not guaranteed to achieve their investment goal
. not a deposit with a bank
. not insured, endorsed or guaranteed by the FDIC or any government agency
. subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in a Fund could fluctuate
significantly in value over time and could result in a loss of money.
Following are some of the most important factors that may affect the value of
your investment. Other factors may be described in the discussion following
this overview:
Stock Market Risk
Your investment in a Fund 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, equity 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 your investment would likely decline. Even if
general economic conditions do not change, your investment may decline in value
if the particular industries, issuers or sectors your Fund invests in do not
perform well.
Market Capitalization Risk
Stocks fall into three broad market capitalization categories--large, medium
and small. Investing primarily in one category carries the risk that due to
current market conditions that category may be out of favor with investors. If
valuations of large capitalization companies appear to be greatly out of
proportion to the valuations of small or medium capitalization companies,
investors may migrate to the stocks of small and mid-sized companies causing a
Fund that invests in these companies to increase in value more rapidly than a
Fund that invests in larger, fully-valued companies. Investing in medium and
small capitalization companies may be subject to special risks associated with
narrower product lines, more limited financial resources, smaller management
groups, and a more limited trading market for their stocks as compared with
larger companies. As a result, stocks of small and medium capitalization
companies may decline significantly in market downturns.
Investment Style Risk
Securities with different characteristics tend to shift in and out of favor
depending upon market and economic conditions as well as investor sentiment. A
Fund may outperform or underperform other funds that employ a different style.
A Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different styles include growth and value
investing. Growth stocks may be more volatile than other stocks because they
are more sensitive to investor perceptions of the issuing company's growth of
earnings potential. Growth oriented funds will typically underperform when
value investing is in favor. Value stocks are those which are undervalued in
comparison to their peers due to adverse business developments or other
factors. Value oriented funds will typically underperform when growth investing
is in favor.
EQUITY FUNDS
1
<PAGE>
EVERGREEN
Equity Index Fund
FUND FACTS:
Goal:
. Price and Yield Performance comparable to the S&P 500 Index
Principal Investment:
. Equity Securities listed on S&P 500 Index
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
Investment Advisor:
. Evergreen Institutional Asset Management
Portfolio Manager:
. William E. Zieff
NASDAQ Symbols:
. ESINX (Class A)
. ESIOX (Class B)
. ESECX (Class C)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks investment results that achieve price and yield performance
similar to the S&P 500 Index.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund invests substantially all of its total assets in equity securities that
represent a composite of the S&P 500 Index. The correlation between the
performance of the Fund and the S&P 500 Index is expected to be, before
expenses, 0.98 or higher. The Fund's portfolio manager uses a computer model
that closely monitors the industry weightings of the S&P 500 Index. The S&P 500
Index is an unmanaged index of 500 common stocks chosen by Standard & Poor'sto
reflect the industries of the U.S. economy and is often considered a proxy for
the stock market in general. To replicate the performance of the S&P 500 Index,
the Fund's portfolio manager uses a passive management approach and invests in
substantially of the stocks comprising the S&P 500 Index.
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
.Stock Market Risk
The Fund is also subject to index fund risk. The Fund is not actively managed
and invests in securities included in the S&P 500 Index regardless of their
investment merit. Therefore, the Fund cannot modify its investment strategy to
respond to changes in the economy and may be particularly susceptible to a
general decline in the U.S. or global stock market segment relating to the S&P
500 Index. Although the Fund's modeling techniques are intended to produce
performance that approximates that of the S&P 500 Index (before expenses),
there can be no assurance that these techniques will reduce "tracking error"
(i.e., the difference between the Fund's investment results (before expenses)
and the S&P 500 Index's). Tracking error may arise as a result of brokerage
costs, fees and operating expenses and a lack of correlation between the Fund's
investments and the S&P 500 Index.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
EQUITY FUNDS
2
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class B shares of the
Fund in each of the last ten calendar years. It should give you a general idea
of the risks of investing in the Fund by showing how the Fund's return has
varied from year-to-year. This table includes the effects of Fund expenses, but
not sales charges. Returns would be lower if sales charges were included.
Year-by-Year Total Return for Class B Shares (%)*
[GRAPH]
1990 -4.05
1991 29.18
1992 6.77
1993 9.32
1994 0.29
1995 36.62
1996 22.86
1997 32.54
1998 27.49
1999 19.48
Best Quarter: 4th Quarter 1998 +21.11%*
Worst Quarter: 3rd Quarter 1990 -13.60%*
Year-to-date total return through 9/30/2000 was -2.33%.
The next table lists the Fund's average annual total return by class over the
past one, five and ten years and since inception (through 12/31/1999),
including applicable sales charges. This table is intended to provide you with
some indication of the risks of investing in the Fund by comparing its
performance with the S&P 500 Index (S&P 500). S&P 500 is an unmanaged market
value-weighted index measuring the performance of 500 U.S. stocks chosen for
market size, liquidity, and industry group representation. An index does not
include transaction costs associated with buying and selling securities or any
mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return (for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date Since
of Class 1 year 5 year 10 year 2/14/1985
<S> <C> <C> <C> <C> <C>
Class A 11/4/1998 14.66% 26.63% 16.80% 16.90%
Class B 11/3/1998 14.48% 27.50% 17.26% 17.22%
Class C 4/30/1999 17.85% 27.77% 17.32% 17.26%
S&P 500 21.04% 28.56% 18.21% 18.44%
</TABLE>
* Historical performance shown for Classes A, B and C prior to their inception
is based on the performance of (1) the Fund's Institutional shares from
7/27/1998 to the inception of Classes A, B and C; (2) the Class Y shares of
the Fund's predecessor, CoreFund Equity Index Fund, from 6/1/1991 through
7/27/1998; and (3) the Class Y shares of the CoreFund Equity Index Fund's
predecessor, Viking Index Fund, from 2/14/1985 through 5/31/1991. These
historical returns for Classes A, B and C have not been adjusted to reflect
the effect of each Class' 12b-1 fees. The 12b-1 fees are 0.25% for Class A
and 1.00% for Classes B and C. Neither Class Y nor Institutional shares pay
12b-1 fees. If these fees had been reflected, returns would have been lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses Class A Class B Class C
<S> <C> <C> <C>
Maximum sales 4.75% None None
charge imposed
on Purchases (as
a % of offering
price)
Maximum deferred None* 5.00% 2.00%
sales charge (as
a % of either
the redemption
amount or
initial
investment,
whichever is lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Class A 0.32% 0.25% 0.27% 0.84%
Class B 0.32% 1.00% 0.27% 1.59%
Class C 0.32% 1.00% 0.27% 1.59%
</TABLE>
+Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The annual operating expenses do not
reflect fee waivers and expense reimbursements. Including current fee waivers
and expense reimbursements and restated to reflect current fees, Total Fund
Operating Expenses were 0.55% for Class A shares and 1.30% for Classes B and C
shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three- five- and ten- year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption At Assuming
End of Period No Redemption
------------------------------------------------ ------------------------------
After: Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C>
1 year $ 557 $ 662 $ 362 $ 162 $ 162
3 years $ 730 $ 802 $ 502 $ 502 $ 502
5 years $ 919 $1,066 $ 866 $ 866 $ 866
10 years $1,463 $1,594 $1,889 $1,594 $1,889
</TABLE>
EQUITY FUNDS
3
<PAGE>
EVERGREEN
Special Equity Fund
FUND FACTS:
Goal:
. Capital Growth
Principal Investment:
. Equity Securities of Small Companies
Classes of Shares Offered in this Prospectus:
. Class A
. Class B
. Class C
Investment Advisor:
. Meridian Investment Company
Portfolio Managers:
. Eric M. Teal
. Timothy M. Stevenson, CFA
. Mark Thiele, CFA
NASDAQ Symbols:
. ESEAX (Class A)
. ESEBX (Class B)
. ESQCX (Class C)
Dividend Payment Schedule:
. Monthly
................................................................................
INVESTMENT GOAL
The Fund seeks capital growth.
INVESTMENT STRATEGY
The following supplements the investment strategies discussed in the "Overview
of Fund Risks" on page 1.
The Fund invests primarily in common stocks of U.S. companies with small market
capitalizations (i.e., typically having a market capitalization up to $1.5
billion at the time of investment). The Fund's portfolio managers choose
companies which they expect will experience growth in earnings and price. This
style of diversified equity management is best defined
as a blend between growth and value stocks. "Growth" stocks are stocks of
companies which have accelerated earnings while "Value" stocks are stocks
believed to be intrinsically undervalued by the marketplace. The Fund combines
both styles and invests in companies that have been long-term market and sector
leaders. The Fund strives to provide a return greater than stock market indices
such as the Russell 2000 Index. The Fund may purchase stocks in initial public
offerings (IPO).
The Fund may temporarily invest up to 100% of its assets in high quality money
market instruments in response to adverse economic, political or market
conditions. This strategy is inconsistent with the Fund's principal investment
strategy and investment goal, and if employed could result in a lower return
and loss of market opportunity.
RISK FACTORS
Your investment in the Fund is subject to the risks discussed in the "Overview
of Fund Risks" on page 1 under the headings:
.Stock Market Risk
.Market Capitalization Risk
.Investment Style Risk
You should be aware of the risks associated with the Fund purchasing IPOs.
Stocks purchased in IPOs have a tendency to fluctuate in value significantly
shortly after the IPO relative to the price at which they were purchased. These
fluctuations could impact the net asset value and return earned on the Fund's
shares.
For further information regarding the Fund's investment strategy and risk
factors see "Other Fund Practices."
EQUITY FUNDS
4
<PAGE>
EVERGREEN
PERFORMANCE
The following tables show how the Fund has performed in the past. Past
performance is not an indication of future results.
The table below shows the percentage gain or loss for the Class A shares of the
Fund in each calendar year since 3/15/1994. It should give you a general idea
of the risks of investing in the Fund by showing how the Fund's return has
varied from year-to-year. This table includes the effects of Fund expenses.
Year-by-Year Total Return for Class A Shares (%)*
[GRAPH]
1995 34.46%
1996 25.95%
1997 19.10%
1998 5.31%
1999 73.74%
Best Quarter: 4th Quarter 1998 +28.01%*
Worst Quarter: 3rd Quarter 1998 -22.00%*
Year-to-date total return through 9/30/2000 was +10.80%.
The next table lists the Fund's average annual total return by class over the
past one and five years and since inception (through 12/31/1999), including
applicable sales charges. This table is intended to provide you with some
indication of the risks of investing in the Fund by comparing its performance
with the Russell 2000 Index (Russell 2000). Russell 2000 is an unmanaged
market capitalization-weighted index measuring the performance of the 2000
smallest companies in the Russell 3000 Index, representing approximately 10% of
the total market capitalization of the Russell 3000 Index. An index does not
include transaction costs associated with buying and selling securities or any
mutual fund expenses. It is not possible to invest directly in an index.
Average Annual Total Return (for the period ended 12/31/1999)*
<TABLE>
<CAPTION>
Inception Performance
Date of Since
Class 1 year 5 year 10 year 3/15/1994
<S> <C> <C> <C> <C> <C>
Class A 8/30/1999 65.55% 28.59% N/A 22.02%
Class B 8/30/1999 68.51% 29.67% N/A 22.96%
Class C 8/30/1999 71.50% 29.81% N/A 23.03%
Russell 2000 21.26% 16.69% N/A 13.24%
</TABLE>
*Historical performance shown for Classes A, B and C prior to their inception
is based on (1) Institutional Service shares from 7/27/1998 to its inception
(2) the performance of the Class A shares of the Fund's predecessor fund,
CoreFund Special Equity Fund, from 3/15/1994 through 7/26/1998. The performance
has not been adjusted to reflect the differences in the 12b-1 fees applicable
to each class. These fees are 0.25% for Class A and Institutional Service
shares and 1.00% for Classes B and C. If these fees had been reflected returns
for Classes B and C would have been lower.
EXPENSES
This section describes the fees and expenses you would pay if you bought and
held shares of the Fund.
Shareholder Fees (fees paid directly from your investment)
<TABLE>
<CAPTION>
Shareholder
Transaction
Expenses Class A Class B Class C
<S> <C> <C> <C>
Maximum sales 4.75% None None
charge imposed
on Purchases (as
a % of offering
price)
Maximum deferred None* 5.00% 2.00%
sales charge (as
a % of either
the redemption
amount or
initial
investment,
whichever is
lower)
</TABLE>
* Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge of 1.00%
upon redemption within one year after the month of purchase.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)+
<TABLE>
<CAPTION>
Total Fund
Management 12b-1 Other Operating
Fees Fees Expenses Expenses++
<S> <C> <C> <C> <C>
Class A 0.92% 0.25% 0.43% 1.60%
Class B 0.92% 1.00% 0.43% 2.35%
Class C 0.92% 1.00% 0.43% 2.35%
</TABLE>
+Restated for the fiscal year ended 6/30/2000 to reflect current fees.
++From time to time, the Fund's investment advisor may, at its discretion,
reduce or waive its fees or reimburse the Fund for certain of its expenses in
order to reduce expense ratios. The Fund's investment advisor may cease these
waivers or reimbursements at any time. The annual operating expenses do not
reflect fee waivers and expense reimbursements. Including current fee waivers
and expense reimbursements and restated to reflect current fees, Total Fund
Operating Expenses were 1.31% for Class A shares and 2.06% for Classes B and C
shares.
The table below shows the total expenses you would pay on a $10,000 investment
over one-, three-, five- and ten-year periods. The example is intended to help
you compare the cost of investing in this Fund versus other mutual funds and is
for illustration only. The example assumes a 5% average annual return and
reinvestment of all dividends and distributions. Your actual costs may be
higher or lower.
Example of Fund Expenses
<TABLE>
<CAPTION>
Assuming Redemption Assuming
At End Of Period No Redemption
------------------------------------------------ ------------------------------
After: Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C>
1 year $630 $738 $438 $238 $238
3 years $956 $1,033 $733 $733 $733
5 years $1,304 $1,455 $1,255 $1,255 $1,255
10 years $2,285 $2,412 $2,686 $2,412 $2,686
</TABLE>
EQUITY FUNDS
5
<PAGE>
EVERGREEN
THE FUNDS' INVESTMENT ADVISORS
An investment advisor manages a Fund's investments and supervises its daily
business affairs. There are two investment advisors for the Funds. All
investment advisors for the Evergreen Funds are subsidiaries of First Union
Corporation, the sixth largest bank holding company in the United States, with
over $248.8 billion in consolidated assets as of 9/30/2000. First Union
Corporation is located at 301 South College Street, Charlotte, North Carolina
28288-0013.
Evergreen Institutional Asset Management (EIAM) is the investment advisor to:
.Equity Index Fund
EIAM (formerly First Capital Group), a division of First Union National Bank
(FUNB), has been managing money for over 50 years and currently manages $48.3
billion in assets for 27 of the Evergreen Funds. EIAM is located at 201 South
College Street, Charlotte, North Carolina 28288-0630.
Meridian Investment Company (MIC) is the investment advisor to:
.Special Equity Fund
MIC has been managing money for over 15 years and currently manages over $3.0
billion in assets, including $1.7 billion in assets for 2 of the Evergreen
Funds. MIC is located at 55 Valley Stream Parkway, Malvern, Pennsylvania 19355.
For the fiscal year ended 6/30/2000, the aggregate advisory fee paid to the
investment advisor by each Fund was as follows:
<TABLE>
<CAPTION>
% of the Fund's
Fund average net assets*
<S> <C>
Equity Index Fund 0.07%
Special Equity Fund 0.80%
</TABLE>
*As of January 3, 2000, the Funds' contractual advisory fees were reduced in
order to offset an increase in each Fund's administrative services fees to an
annual rate of 0.10% of each Fund's average daily net assets.
THE FUNDS' PORTFOLIO MANAGERS
Equity Index Fund
William E. Zieff has managed the Fund since July 2000. Mr. Zieff joined EIAM in
January 2000 as Managing Director of Global Structured Products. Prior to
joining EIAM, Mr. Zieff was Managing Director and co-Chief Investment Officer of
the Global Asset Allocation Group at Putnam Investments, Inc. from November
1996 to December 1998. From October 1992 until November 1996, Mr. Zieff was
portfolio manager and head of Asset Allocation at Grantham, Mayo, Van Otterloo
& Co. LLC.
Special Equity Fund
Eric M. Teal, Timothy M. Stevenson, CFA and Mark Thiele, CFA, co-manage the
Fund.
Eric M. Teal has co-managed the Fund with Timothy M. Stevenson since October
1999. Mr. Teal joined FUNB in September 1993 as a quantitative equity analyst.
Mr. Teal has been affiliated with MIC as a portfolio manager since October
1999.
Timothy M. Stevenson has co-managed the Fund with Mr. Teal since October 1999.
Mr. Stevenson has been an investment professional since August 1981 and joined
FUNB in November 1994 as a Senior Vice President and portfolio manager. Mr.
Stevenson has been affiliated with MIC as a portfolio manager since October
1999.
Mark Thiele has co-managed the Fund since October 2000. Mr. Thiele joined FUNB
in 1989. He became a senior equity analyst for the FUNB's First Investment
Advisors Group, the investment group at FUNB responsible for managing private
capital portfolios, in March 1996. Mr. Thiele has been affiliated with MIC as a
portfolio manager since October 2000.
CALCULATING THE SHARE PRICE
The value of one share of a Fund, also known as the net asset value, or NAV, is
calculated on each day the New York Stock Exchange is open at 4 p.m. Eastern
time or as of the time the Exchange closes, if earlier. The Fund calculates its
share price for each share by adding up its total assets, subtracting all
liabilities, then dividing the result by the total number of shares
outstanding. Each class of shares is calculated separately. Each security held
by a Fund is valued using the most recent market data for that security. If no
market data is available for a given security, the Fund will price that
security at fair value according to policies established by the Fund's Board of
Trustees. Short-term securities with maturities of 60 days or less will be
valued on the basis of amortized cost.
The price per share you pay for a Fund purchase or the amount you receive for a
Fund redemption is based on the next price calculated after the order is
received and all required information is provided. The value of your
EQUITY FUNDS
6
<PAGE>
EVERGREEN
account at any given time is the latest share price multiplied by the number of
shares you own. Your account balance may change daily because the share price
may change daily.
Certain Funds may invest in foreign securities that are primarily listed on
foreign exchanges that trade on weekends or other days when the Fund does not
price its shares. As a result, the NAV of the Fund may change on days when
investors will not be able to purchase or redeem the Fund's shares.
HOW TO CHOOSE AN EVERGREEN FUND
When choosing an Evergreen Fund, you should:
. Most importantly, read the prospectus to see if the Fund is suitable for you.
. Consider talking to an investment professional. He or she is qualified to
give you investment advice based on your investment goals and financial
situation and will be able to answer questions you may have after reading the
Fund's prospectus. He or she can also assist you through all phases of
opening your account.
. Request any additional information you want about the Fund, such as the
Statement of Additional Information (SAI), Annual Report or Semi-annual
Report by calling 1-800-343-2898. In addition, any of these documents, with
the exception of the SAI, may be downloaded off our website at www.evergreen-
funds.com.
HOW TO CHOOSE THE SHARE CLASS THAT BEST SUITS YOU
After choosing a Fund, you select a share class. Each Fund offered in this
prospectus offers five different share classes: Institutional, Institutional
Service, Class A, Class B and Class C. Both Institutional and Institutional
Service shares are offered in a separate prospectus. Each class except
Institutional and Institutional Service shares has its own sales charge. Pay
particularly close attention to the fee structure so you know how much you will
be paying before you invest.
Class A
If you select Class A shares, you may pay a front-end sales charge of up to
4.75%, but you do not pay a deferred sales charge. In addition, Class A shares
are subject to 12b-1 fees. The front-end sales charge is deducted from your
investment before it is invested. The actual charge depends on the amount
invested, as shown below:
<TABLE>
<CAPTION>
As a % of As a % Dealer
NAV excluding of your commission
Your Investment sales charge investment as a % of NAV
<S> <C> <C> <C>
Up to $49,999 4.75% 4.99% 4.25%
$50,000-$99,999 4.50% 4.71% 4.25%
$100,000-$249,999 3.75% 3.90% 3.25%
$250,000-$499,999 2.50% 2.56% 2.00%
$500,000-$999,999 2.00% 2.04% 1.75%
$1,000,000 and over 0.00% 0.00% 1.00% to 0.25%
</TABLE>
Although no front-end sales charge applies to purchases of $1 million and over,
you will pay a 1.00% deferred sales charge if you redeem any such shares within
one year after the month of purchase.
Three ways you can reduce
your Class A sales charges:
1. Rights of Accumulation. You may add the value of all of your existing
Evergreen Fund investments in all share classes, excluding Evergreen money
market funds, to determine the initial sales charge to be applied to your
current Class A purchase.
2. Letter of Intent. You may reduce the sales charge on a current purchase if
you agree to invest at least $50,000 in Class A shares of an Evergreen Fund
over a 13-month period. You will pay the same sales charge as if you had
invested the full amount all at one time. The Fund will hold a certain
portion of your investment in escrow until your commitment is met.
3. Combined Purchases. You may reduce your initial sales charge if you purchase
Class A shares in multiple Evergreen Funds, excluding Evergreen money market
funds, at the same time. The combined dollar amount invested will determine
the initial sales charge applied to all your current purchases. 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%).
Contact your broker or the Evergreen Service Company at 1-800-343-2898 if you
think you may qualify for any of these services. For more information on these
services see "Sales Charge Waivers and Reductions" in the SAI.
Each Fund may also sell Class A shares at net asset value without a front-end
or deferred sales charge to the Directors, Trustees, officers and employees of
the Fund, and the advisory affiliates of First Union Corporation, and to
members of their immediate families, to registered representatives of firms
with dealer agreements with Evergreen Distributor, Inc. (EDI), and to a bank or
trust company acting as trustee for a single account.
EQUITY FUNDS
7
<PAGE>
EVERGREEN
Class B
If you select Class B shares, you do not pay a front-end sales charge, so the
entire amount of your purchase is invested in the Fund. However, your shares
are subject to an expense, known as 12b-1 fees. In addition, you may
pay a deferred sales charge if you redeem your shares within six years after
the month of purchase.
The amount of the deferred sales charge depends on the length of time the shares
were held, as shown below:
<TABLE>
<CAPTION>
Maximum Deferred
Time Held Sales Charge
<S> <C>
Month of Purchase + First 12 Month Period 5.00%
Month of Purchase + Second 12 Month Period 4.00%
Month of Purchase + Third 12 Month Period 3.00%
Month of Purchase + Fourth 12 Month Period 3.00%
Month of Purchase + Fifth 12 Month Period 2.00%
Month of Purchase + Sixth 12 Month Period 1.00%
Thereafter 0.00%
After 7 Years Converts to Class A
Dealer Allowance 4.00%
</TABLE>
The maximum deferred sales charge and dealer allowance may be reduced for
certain investors. For further information on how the deferred sales charge is
calculated at the time of redemption see "Calculating the Deferred Sales Charge"
below.
Class C
Like Class B shares, you do not pay a front-end sales charge on Class C shares.
However, you may pay a deferred sales charge if you redeem your shares within
two years after the month of purchase. Also, these shares do not convert to
Class A shares and so the higher 12b-1 fees paid by the Class C shares continue
for the life of the account.
The amount of the maximum deferred sales charge depends on the length of time
the shares were held, as shown below:
<TABLE>
<CAPTION>
Maximum
Deferred
Time Held Sales Charge
<S> <C>
Month of Purchase + First 12 Month Period 2.00%
Month of Purchase + Second 12 Month Period 1.00%
Thereafter 0.00%
Dealer Allowance 2.00%
</TABLE>
The maximum deferred sales charge and dealer allowance may be reduced for
certain investors. For further information on how the deferred sales charge is
calculated at the time of redemption see "Calculating the Deferred Sales Charge"
below.
Waiver of Class B or Class C Sales Charges
You will not be assessed a deferred sales charge for Class B or Class C shares
if you redeem shares in the following situations:
. When the shares were purchased through reinvestment of dividends/capital
gains
. Death or disability
. Lump-sum distribution from a 401(k) plan or other benefit plan qualified
under ERISA
. Systematic withdrawals of up to 1.00% of the account balance per month
. Loan proceeds and financial hardship distributions from a retirement plan
. Returns of excess contributions or excess deferral amounts made to a
retirement plan participant
Calculating the Deferred Sales Charge
If imposed, the Fund deducts the deferred sales charge from the redemption
proceeds you would otherwise receive. The deferred sales charge is a percentage
of the lesser of (i) the net asset value of the shares at the time of
redemption or (ii) the shareholder's original net cost for such shares. Upon
request for redemption, to keep the deferred sales charge a shareholder must
pay as low as possible, the Fund will first seek to redeem shares not subject
to the deferred sales charge and/or shares held the longest, in that order. The
deferred sales charge on any redemption is, to the extent permitted by the
National Association of Securities Dealers, Inc. paid to EDI or its
predecessor.
EQUITY FUNDS
8
<PAGE>
HOW TO BUY SHARES
Evergreen Funds' low investment minimums make investing easy. Once you decide
on an amount and a share class, simply fill out an application and send in your
payment, or talk to your investment professional.
Minimum Investments
<TABLE>
<CAPTION>
Initial Additional
<S> <C> <C>
Regular Accounts $1,000 None
IRAs $250 None
Systematic Investment Plan $50 $25
</TABLE>
<TABLE>
<CAPTION>
Method Opening an Account Adding to an Account
<C> <S> <C>
. Complete and sign the . Make the check payable to Evergreen Funds.
By Mail or account application. Cash, credit . Write a note specifying:
through an cards, third party checks, credit
card checks or money orders will
not be accepted.
. Make the check payable - the Fund name
Investment to Evergreen Funds. - share class
Professional . Mail the application - your account number
and your check to the - the name(s) in which the account is
address below: registered or deliver to
Postal Service Address: . Mail to the address below or deliver to your
Evergreen Service Company investment professional.
P.O. Box 2121
Boston, MA 02106-9970
Overnight Address:
Evergreen Service Company
200 Berkley St.
Boston, MA 02106-5034
. Or deliver them to
your investment
professional (provided
he or she has a broker-
dealer arrangement
with EDI).
By Phone . Call 1-800-343-2898 to . Call the Evergreen Express Line at 1-800-346-3858
set up an account 24 hours a day or 1-800-343-2898 between 8 a.m.
number and get and 6 p.m. Eastern time, on any business day.
Wiring instructions
(call before 12 noon if . If your bank account is set up on file, you can
you want wired request either:
funds to be credited - Federal Funds Wire (offers immediate
that day). access to funds) or
. Instruct your bank to - Electronic transfer through the Automated
wire or transfer your Clearing House which avoids wiring fees.
purchase (they may
charge a wiring fee).
. Complete the account
application and mail
to:
Postal Service Address:
Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-9970
Overnight Address:
Evergreen Service Company
200 Berkeley St.
Boston, MA 02106-5034
. Wires received after 4
p.m. Eastern time on
market trading
days will receive the
next market day's
closing price.*
By Exchange . You can make an additional investment by exchange from an existing
Evergreen Funds account by contacting your investment professional or
calling the Evergreen Express Line at 1-800-346-3858.**
. You can only exchange shares within the same class and accounts with the
same registration.
. There is no sales charge or redemption fee when exchanging funds within
the Evergreen Funds family.***
. Orders placed before 4 p.m. Eastern time on market trading days will
receive that day's closing share price (if not, you will receive the next
market day's closing price).*
. Exchanges are limited to three per calendar quarter, but in no event more
than five per calendar year.
. Exchanges between accounts which do not have identical ownership must be
made in writing with a signature guarantee (see "Exceptions: Redemption
Requests That Require A Signature Guarantee" on the next page) and
accounts with the same registration.
Systematic . You can transfer money . To establish automatic investing for an
Investment automatically from your existing account, call 1-800-343-2898 for an
Plan (SIP)+ bank account application.
into your Fund account . The minimum is $25 per month or $75
on a monthly basis. per quarter.
. Initial investment . You can also establish an investing program
minimum is $50 if you through direct deposit from your paycheck.
invest at least $25 per Call 1-800-343-2898 for details.
month with this service.
. To enroll, check off
the box on the account
instructions and
provide:
- your bank account
information
- the amount and date of
your monthly investment
</TABLE>
*The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
**Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded and/or
monitored for verification, recordkeeping and quality-assurance purposes.
The Evergreen Funds reserve the right to terminate the exchange privilege
of any shareholder who exceeds the listed maximum number of exchanges, as
well as to reject any large dollar exchange if placing it would, in the
judgment of the portfolio manager, adversely affect the price of the Fund.
***This does not apply to exchanges from Class A shares of an Evergreen
money market fund on shares on which a commission was not previously paid.
+Evergreen Investment Services, Inc. (EIS) will fund a $50 initial
investment in Class A shares of the Evergreen Funds for employees of First
Union Corporation (First Union) and its affiliates when the employee enrolls in
a new Evergreen SIP and agrees to subsequent monthly investments of $50. EIS
will fund a $100 initial investment in Class A shares of the Evergreen Funds
for employees of First Union when the employee enrolls in a new Evergreen SIP
through a CAP account and agrees to subsequent monthly investments of $100.
To be eligible for either of these offers, the employee must open an account
with First Union Securities, Inc. to execute the transactions. If the employee
redeems his shares within 12 months after the month of purchase, EIS
reserves the right to reclaim its $50 or $100 initial investment.
EQUITY FUNDS
9
<PAGE>
HOW TO REDEEM SHARES
We offer you several convenient ways to redeem your shares in any of the
Evergreen Funds:
<TABLE>
<CAPTION>
Methods Requirements
<C> <S>
Call Us . Call the Evergreen Express Line at 1-800-346-3858 24 hours a day or 1-800-
343-2898 between 8 a.m. and 6 p.m.
Eastern time, on any business day.
. This service must be authorized ahead of time, and is only available for
regular accounts.*
. All authorized requests made before 4 p.m. Eastern time on market trading
days will be processed at that day's closing price. Requests made after 4
p.m. will be processed the following business day.**
. We can either:
-wire the proceeds into your bank account (service charges may apply)
-electronically transmit the proceeds into your bank account via the
Automated Clearing House service
-mail you a check.
. All telephone calls are recorded and/or monitored for your protection. We
are not responsible for acting on telephone orders we believe are genuine.
. See "Exceptions: Redemption Requests That Require A Signature Guarantee"
below for requests that must be made in writing with your signature
guarantee.
Write Us . You can mail a Postal Service Address: Overnight Address:
redemption request Evergreen Service Company Evergreen Service Company
to: P.O. Box 2121 200 Berkeley St.
Boston, MA 02106-9970 Boston, MA 02106-5034
. Your letter of instructions must:
-list the Fund name and the account number
-indicate the number of shares or dollar value you wish to redeem
-be signed by the registered owner(s).
. See "Exceptions: Redemption Requests That Require A Signature Guarantee"
below for requests that must be signature guaranteed.
. To redeem from an IRA or other retirement account, call 1-800-343-2898 for
special instructions.
Redeem Your . You may also redeem your shares through participating broker-dealers by
Shares in delivering a letter as described above to
Person your broker-dealer.
. A fee may be charged for this service.
Systematic . You can transfer money automatically from your Fund account on a monthly
Withdrawal or quarterly basis--without redemption
Plan (SWP) fees.
. The withdrawal can be mailed to you, or deposited directly into your bank
account.
. The minimum is $75 per month.
. The maximum is 1.00% of your account per month or 3.00% per quarter.
. To enroll, call 1-800-343-2898 for instructions.
</TABLE>
* Once you have authorized either the telephone exchange or redemption
service, anyone with a Personal Identification Number (PIN) and the
required account information (including your broker) can request a
telephone transaction in your account. All calls are recorded and/or
monitored for verification, recordkeeping and quality-assurance purposes.
The Evergreen Funds reserve the right to terminate the exchange privilege
of any shareholder who exceeds the listed maximum number of exchanges, as
well as to reject any large dollar exchange if placing it would, in the
judgment of the portfolio manager, adversely affect the price of the Fund.
** The Fund's shares may be made available through financial service firms
which are also investment dealers and which have a service agreement with
EDI. The Fund has approved the acceptance of purchase and repurchase
request orders effective as of the time of their receipt by certain
authorized financial intermediaries.
Timing of Proceeds
Normally, we will send your redemption proceeds on the next business day after
we receive your request; however, we reserve the right to wait up to seven
business days to redeem any investments made by check and five business days
for investments made by Automated Clearing House transfer. We also reserve the
right to redeem in kind, under certain circumstances by paying you the proceeds
of a redemption in securities rather than in cash, and to redeem the remaining
amount in the account if your redemption brings the account balance below the
initial minimum of $1,000.
Exceptions: Redemption Requests That Require A Signature Guarantee
To protect you and the Evergreen Funds against fraud, certain redemption
requests must be made in writing with your signature guaranteed. A signature
guarantee can be obtained at most banks and securities dealers. A notary public
is not authorized to provide a signature guarantee. The following circumstances
require signature guarantees:
.You are redeeming more than $50,000. Who Can Provide A
.You want the proceeds transmitted into a bank Signature Guarantee:
account not listed on the account .Commercial Bank
.You want the proceeds payable to anyone other than .Trust Company
the registered owner(s) of the account .Savings Association
.Either your address or the address of your bank .Credit Union
account has been changed within 30 days .Member of a U.S. stock
.The account is registered in the name of a exchange
fiduciary corporation or any other organization.
.In these cases, additional documentation is
required:
corporate accounts: certified copy of corporate
resolution
fiduciary accounts: copy of the power of attorney
or other governing document
EQUITY FUNDS
10
<PAGE>
EVERGREEN
OTHER SERVICES
Evergreen Express Line 1-800-346-3858
Use our automated, 24-hour service to check the value of your investment in a
Fund; purchase, redeem or exchange Fund shares; find a Fund's price, yield or
total return; order a statement or duplicate tax form; or hear market
commentary from Evergreen portfolio managers.
Automatic Reinvestment of Dividends
For the convenience of investors, all dividends and capital gains distributions
are automatically reinvested, unless you request otherwise. Distributions can
be made by check or electronic transfer through the Automated Clearing House to
your bank account. The details of your dividends and other distributions will
be included on your statement.
Payroll Deduction
If you want to invest automatically through your paycheck, call us to find out
how you can set up direct payroll deductions. The amounts deducted will be
invested in your Fund account using the Electronic Funds Transfer System. We
will provide the Fund account number. Your payroll department will let you know
the date of the pay period when your investment begins.
Telephone Investment Plan
You may make additional investments electronically in an existing Fund account
at amounts of not less than $100 or more than $10,000 per investment. Telephone
requests received by 4 p.m. Eastern time will be invested the day the request
is received.
Dividend Exchange
You may elect on the application to reinvest capital gains and/or dividends
earned in one Evergreen Fund into an existing account in another Evergreen Fund
in the same share class -- automatically. Please indicate on the application
the Evergreen Fund(s) into which you want to invest the distributions.
Reinstatement Privileges
Within 90 days of redemption you may reestablish your investment at the
current NAV by reinvesting some, or all, of your redemption proceeds into
the same share class of any Evergreen Fund. If a deferred sales charge was
deducted from your redemption proceeds, the full amount of the deferred
sales charge will be credited to your account and your deferred sales
charge schedule will resume from the time of the original redemption.
THE TAX CONSEQUENCES OF INVESTING IN THE FUNDS
You may be taxed in two ways:
. On Fund distributions (dividends and capital gains)
. On any profit you make when you sell any or all of your shares.
Fund Distributions
A mutual fund passes along to all of its shareholders the net income or profits
it receives from its investments. The shareholders of the fund then pay any
taxes due, whether they receive these distributions in cash or elect to have
them reinvested. The Funds will distribute two types of taxable income to you:
. Dividends. To the extent that regular dividends are derived from investment
income that is not tax-exempt, or from short-term capital gains, you will
have to include them in your federal taxable income. Each Fund pays a monthly
dividend from the dividends, interest and other income on the securities in
which it invests.
. Capital Gains. When a mutual fund sells a security it owns for a profit, the
result is a capital gain. The Funds generally distribute capital gains, if
any, at least once a year, near the end of the calendar year. Short-term
capital gains reflect securities held by the Fund for a year or less and are
considered ordinary income just like dividends. Profits on securities held
longer than 12 months are considered long-term capital gains and are taxed at
a special tax rate (20% for most taxpayers).
Dividend and Capital Gain Reinvestment
Unless you choose otherwise on the account application, all dividend and
capital gain payments will be reinvested to buy additional shares. Distribution
checks that are returned and distribution checks that are uncashed when the
shareholder has failed to respond to mailings from the shareholder servicing
agent may automatically be reinvested to buy additional shares. No interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
EQUITY FUNDS
11
<PAGE>
EVERGREEN
We will send you a statement each January with the federal tax status of
dividends and distributions paid by the Fund during the previous calendar year.
Profits You Realize When You Redeem Shares
When you sell shares in a mutual fund, whether by redeeming or exchanging, you
have created a taxable event. You must report any gain or loss on your tax
return unless the transaction was entered into by a tax-deferred retirement
plan. Investments in money market funds typically do not generate capital
gains. It is your responsibility to keep accurate records of your mutual fund
transactions. You will need this information when you file your income tax
return, since you must report any capital gain or loss you incur when you sell
shares. Remember, an exchange is a purchase and a sale for tax purposes.
Tax Reporting
Evergreen Service Company provides you with a tax statement of your dividend
and capital gains distributions for each calendar year on Form 1099 DIV.
Proceeds from a sale are reported on Form 1099B. You must report these on your
tax return. Since the IRS receives a copy as well, you could pay a penalty if
you neglect to report them.
Evergreen Service Company will send you a tax information guide each year
during tax season, which may include a cost basis statement detailing the gain
or loss on taxable transactions you had during the year. Please consult your
own tax advisor for further information regarding the federal, state and local
tax consequences of an investment in the Funds.
Retirement Plans
You may invest in each Fund through various retirement plans, including IRAs,
401(k) plans, Simplified Employee Plans (SEPs), IRAs, 403(b) plans, 457 plans
and others. For special rules concerning these plans, including applications,
restrictions, tax advantages, and potential sales charge waivers, contact your
broker-dealer. To determine if a retirement plan may be appropriate for you,
consult your tax advisor.
FEES AND EXPENSES OF THE FUNDS
Every mutual fund has fees and expenses that are assessed either directly or
indirectly. This section describes each of those fees.
Management Fee
The management fee pays for the normal expenses of managing the Fund, including
portfolio manager salaries, research costs, corporate overhead expenses and
related expenses.
12b-1 Fees
The Trustees of the Evergreen Funds have approved a policy to assess 12b-1 fees
for Class A, Class B and Class C shares. Up to 0.75% of the average daily net
assets of Class A shares and up to 1.00% of the average daily net assets of
Class B and Class C shares may be payable as 12b-1 fees. However, currently the
12b-1 fees for Class A shares are limited to 0.25% of the average daily net
assets of the class. These fees increase the cost of your investment. The
higher 12b-1 fees imposed on Class B and Class C shares may, over time, cost
more than the initial sales charge of Class A shares. The purpose of the 12b-1
fees is to promote the sale of more shares of the Funds to the public. The
Funds may use the 12b-1 fees for advertising and marketing and as a "service
fee" to the broker-dealer for additional shareholder services.
Other Expenses
Other expenses include miscellaneous fees from affiliated and outside service
providers. These may include legal, audit, custodial and safekeeping fees, the
printing and mailing of reports and statements, automatic reinvestment of
distributions and other conveniences for which the shareholder pays no
transaction fees.
Total Fund Operating Expenses
The total cost of running the Fund is called the expense ratio. As a
shareholder, you are not charged these fees directly; instead they are taken
out before the Fund's net asset value is calculated, and are expressed as a
percentage of the Fund's average daily net assets. The effect of these fees is
reflected in the performance results for that share class. Because these fees
are "invisible," investors should examine them closely in the prospectus,
especially when comparing one fund with another fund in the same investment
category. There are three things to remember about expense ratios: 1) your
total return in the Fund is reduced in direct proportion to the fees; 2)
expense ratios can vary greatly between funds and fund families, from under
0.25% to over 3.00%; and 3) a Fund's advisor may waive a portion of the Fund's
expenses for a period of time, reducing its expense ratio.
EQUITY FUNDS
12
<PAGE>
FINANCIAL HIGHLIGHTS
This section looks in detail at the results for one share in each share class
of the Funds--how much income it earned, how much of this income was passed
along as a distribution and how much the return was reduced by expenses. The
following tables have been derived from financial information audited by KPMG
LLP, the Funds' independent auditors. For a more complete picture of the Funds'
financial statements, please see the Funds' Annual Report as well as the SAI.
EVERGREEN (formerly,
Equity Index Fund Evergreen
Select
Equity Index
Fund)
<TABLE>
<CAPTION>
Year Ended June
30,
----------------
1999
2000 (a)
<S> <C> <C>
CLASS A SHARES
Net asset value, beginning of period $ 52.03 $ 45.23
======= =======
Income from investment operations
Net investment income 0.40 0.29
Net realized and unrealized gains on securities and futures
contracts 3.09 9.87
------- -------
Total from investment operations 3.49 10.16
------- -------
Distributions to shareholders from
Net investment income (0.43) (0.27)
Net realized gains (0.36) (3.09)
------- -------
Total distributions to shareholders (0.79) (3.36)
------- -------
Net asset value, end of period $ 54.73 $ 52.03
======= =======
Total return* 6.76% 24.08%
Ratios and supplemental data
Net assets, end of period (thousands) $79,991 $38,203
Ratios to average net assets
Expenses++ 0.55% 0.55%+
Net investment income 0.78% 0.96%+
Portfolio turnover rate 12% 21%
</TABLE>
<TABLE>
<CAPTION>
Year Ended June
30,
------------------
2000 1999 (b)
<S> <C> <C>
CLASS B SHARES
Net asset value, beginning of period $ 52.00 $ 45.26
======== ========
Income from investment operations
Net investment income 0.03 0.08
Net realized and unrealized gains on securities and
futures contracts 3.05 9.83
-------- --------
Total from investment operations 3.08 9.91
-------- --------
Distributions to shareholders from
Net investment income (0.10) (0.08)
Net realized gains (0.36) (3.09)
-------- --------
Total distributions to shareholders (0.46) (3.17)
-------- --------
Net asset value, end of period $ 54.62 $ 52.00
======== ========
Total return* 5.95% 23.44%
Ratios and supplemental data
Net assets, end of period (thousands) $203,984 $107,334
Ratios to average net assets
Expenses++ 1.30% 1.31%+
Net investment income 0.03% 0.21%+
Portfolio turnover rate 12% 21%
</TABLE>
(a) For the period from November 4, 1998 (commencement of class operations) to
June 30, 1999.
(b) For the period from November 3, 1998 (commencement of class operations) to
June 30, 1999.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
* Excluding applicable sales charges.
EQUITY FUNDS
13
<PAGE>
EVERGREEN (formerly,
Equity Index Fund Evergreen
Select
Equity Index
Fund)
<TABLE>
<CAPTION>
Year Ended June
30,
-----------------
2000 1999 (a)
<S> <C> <C>
CLASS C SHARES
Net asset value, beginning of period $ 52.06 $50.95
======= ======
Income from investment operations
Net investment income 0.06 0.02
Net realized and unrealized gains on securities and futures
contracts 3.03 1.11
------- ------
Total from investment operations 3.09 1.13
------- ------
Distributions to shareholders from
Net investment income (0.10) (0.02)
Net realized gains (0.36) 0
------- ------
Total distributions to shareholders (0.46) (0.02)
------- ------
Net asset value, end of period $ 54.69 $52.06
======= ======
Total return* 5.97% 2.22%
Ratios and supplemental data
Net assets, end of period (thousands) $54,707 $3,489
Ratios to average net assets
Expenses++ 1.31% 1.31%+
Net investment income 0.01% 0.27%+
Portfolio turnover rate 12% 21%
</TABLE>
(a) For the period from April 30, 1999 (commencement of class operations) to
June 30, 1999.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
* Excluding applicable sales charges.
EQUITY FUNDS
14
<PAGE>
EVERGREEN (formerly,
Special Equity Fund Evergreen
Select
Special
Equity Fund)
<TABLE>
<CAPTION>
Period Ended
June 30, 2000 (a)
<S> <C>
CLASS A SHARES
Net asset value, beginning of period $ 13.97
=======
Income from investment operations
Net investment loss (0.04)
Net realized and unrealized gains on securities 3.93
-------
Total from investment operations 3.89
-------
Distributions to shareholders from
Net realized gains (2.19)
-------
Total distributions to shareholders (2.19)
-------
Net asset value, end of period $ 15.67
=======
Total return* 31.20%
Ratios and supplemental data
Net assets, end of period (thousands) $35,390
Ratios to average net assets
Expenses++ 1.31%+
Net investment loss (0.61%)+
Portfolio turnover rate 172%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
June 30, 2000 (a)
<S> <C>
CLASS B SHARES
Net asset value, beginning of period $ 13.97
=======
Income from investment operations
Net investment loss (0.08)
Net realized and unrealized gains on securities 3.89
-------
Total from investment operations 3.81
-------
Distributions to shareholders from
Net realized gains (2.19)
-------
Total distributions to shareholders (2.19)
-------
Net asset value, end of period $ 15.59
=======
Total return* 30.54%
Ratios and supplemental data
Net assets, end of period (thousands) $40,898
Ratios to average net assets
Expenses++ 2.06%+
Net investment loss (1.36%)+
Portfolio turnover rate 172%
</TABLE>
(a) For the period from August 30, 1999 (commencement of class operations) to
June 30, 2000.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
* Excluding applicable sales charges.
EQUITY FUNDS
15
<PAGE>
EVERGREEN (formerly,
Special Equity Fund Evergreen
Select
Special
Equity Fund)
<TABLE>
<CAPTION>
Period Ended
June 30, 2000 (a)
<S> <C>
CLASS C SHARES
Net asset value, beginning of period $ 13.97
=======
Income from investment operations
Net investment loss (0.09)
Net realized and unrealized gains on securities 3.90
-------
Total from investment operations 3.81
-------
Distributions to shareholders from
Net realized gains (2.19)
-------
Total distributions to shareholders (2.19)
-------
Net asset value, end of period $ 15.59
=======
Total return* 30.53%
Ratios and supplemental data
Net assets, end of period (thousands) $25,769
Ratios to average net assets
Expenses++ 2.06%+
Net investment loss (1.36%)+
Portfolio turnover rate 172%
</TABLE>
(a) For the period from August 30, 1999 (commencement of class operations) to
June 30, 2000.
+ Annualized.
++ Ratio of expenses to average net assets includes fee waivers and excludes
expense reductions.
* Excluding applicable sales charges.
EQUITY FUNDS
16
<PAGE>
EVERGREEN
OTHER FUND PRACTICES
A Fund's investment in non-U.S. securities could expose it to certain unique
risks of foreign investing. For example, political turmoil and economic
instability in the countries in which the Fund invests could adversely affect
the value of your investment. In addition, if the value of any foreign currency
in which the Fund's investments are denominated declines relative to the U.S.
dollar, the value of and total return earned on your investment in the Fund may
decline as well. Certain foreign countries have less developed and less
regulated securities markets and accounting systems than the U.S. This may make
it harder to get accurate information about a security or company, and increase
the likelihood that an investment will not perform as well as expected.
The Funds may invest in a variety of derivative instruments including options
and futures. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate. Small price movements in the underlying
asset can result in immediate and substantial gains or losses in the value of
derivatives.
Options and futures can be used to increase return and to hedge a Fund's
portfolio against changes in the market value of securities owned or intended
to be purchased. Although this is intended to increase returns, these practices
may actually reduce returns or increase volatility. Evergreen Equity Index Fund
may also use options and futures as a substitute for the sale or purchase of
securities in the S&P 500 Index.
Please consult the Statement of Additional Information for more
information regarding these and other investment practices used by the
Funds, including risks.
EQUITY FUNDS
17
<PAGE>
EVERGREEN
Notes
EQUITY FUNDS
18
<PAGE>
EVERGREEN
Evergreen Funds
Money Market Funds
Florida Municipal Money Market Fund
Money Market Fund
Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Treasury Money Market Fund
State Municipal Bond Funds
Connecticut Municipal Bond Fund
Florida High Income Municipal Bond Fund
Florida Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
New Jersey Municipal Bond Fund
North Carolina Municipal Bond Fund
Pennsylvania Municipal Bond Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
National Municipal Bond Funds
High Grade Municipal Bond Fund
High Income Municipal Bond Fund
Municipal Bond Fund
Short-Intermediate Municipal Bond Fund
Short and Intermediate
Bond Funds
Intermediate Term Bond Fund
Select Adjustable Rate Fund
Short-Duration Income Fund
Intermediate and Long Term
Bond Funds
Diversified Bond Fund
High Yield Bond Fund
Quality Income Fund
Strategic Income Fund
U.S. Government Fund
Balanced Funds
Balanced Fund
Foundation Fund
Tax Strategic Foundation Fund
Growth & Income Funds
Blue Chip Fund
Equity Income Fund
Equity Index Fund
Growth and Income Fund
Small Cap Value Fund
Utility Fund
Value Fund
Domestic Growth Funds
Aggressive Growth Fund
Capital Growth Fund
Evergreen Fund
Growth Fund
Large Company Growth Fund
Masters Fund
Omega Fund
Small Company Growth Fund
Special Equity Fund
Stock Selector Fund
Tax Strategic Equity Fund
Sector Funds
Health Care Fund
Technology Fund
Global & International Funds
Emerging Markets Growth Fund
Global Leaders Fund
Global Opportunities Fund
International Growth Fund
Latin America Fund
Perpetual Global Fund
Perpetual International Fund
Precious Metals Fund
Express Line
800.346.3858
Investor Services
800.343.2898
www.evergreen-funds.com
EQUITY FUNDS
19
<PAGE>
QUICK REFERENCE GUIDE
Evergreen Express Line
1 Call 1-800-346-3858
24 hours a day to
. check your account
. order a statement
. get a Fund's current price, yield and total return
. buy, redeem or exchange Fund shares
Investor Services
2 Call 1-800-343-2898
Monday through Friday, 8 a.m. to 6 p.m. Eastern time to
. buy, redeem or exchange shares
. order applications
. get assistance with your account
Information Line for Hearing and Speech
3 Impaired (TTY/TDD) Call 1-800-343-2888
Monday through Friday, 8 a.m. to 6 p.m. Eastern time
Write us a letter
4 Evergreen Service Company
P.O. Box 2121
Boston, MA 02106-9970
. to buy, redeem or exchange shares
. to change the registration on your account
. for general correspondence
For express, registered or certified mail
5 Evergreen Service Company
200 Berkeley St.
Boston, MA 02116-5034
Visit us on-line
6 www.evergreen-funds.com
Regular communications you will receive
7 Account Statements -- You will receive quarterly statements for each
Fund you invest in.
Confirmation Notices -- We send a confirmation of any transaction you
make within five days of the transaction.
Annual and Semi-annual Reports -- You will receive a detailed financial
report on each Fund you invest in twice a year.
Tax Forms -- Each January you will receive any Fund tax information you
need to include with your tax returns as well as the Evergreen Tax
Information Guide.
<PAGE>
For More Information About the Evergreen Equity Funds, Ask for:
The Funds' most recent Annual or Semi-annual Report, which contains a
complete financial accounting for each Fund and a complete list of the
Fund's portfolio holdings as of a specific date, as well as commentary from
the Fund's portfolio manager. This Report discusses the market conditions
and investment strategies that significantly affected the Fund's performance
during the most recent fiscal year or period.
The Statement of Additional Information (SAI), which contains more detailed
information about the policies and procedures of the Funds. The SAI has been
filed with the Securities and Exchange Commission (SEC) and its contents are
legally considered to be part of this prospectus.
For questions, other information, or to request a copy, without charge, of
any of the documents, call 1-800-343-2898 or ask your investment
professional. We will mail material within three business days. In addition,
any of these documents, with the exception of the SAI, may be downloaded off
our website at www.evergreen-funds.com.
Information about these Funds (including the SAI) is also available on the
SEC's Internet website at http://www.sec.gov. Copies of this material may be
obtained, for a duplication fee, by writing the SEC Public Reference
Section, Washington D.C. 20549-6009, or by electronic request at the
following e-mail address: [email protected]. This material can also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
For information about the operation of the Public Reference Room, call the
SEC at 1-800-SEC-0330.
Evergreen Distributor, Inc.
90 Park Avenue
New York, New York 10016
SEC File No.: 811-08363
16701 550927 RV1
-------------
PRSRT STD
U.S. POSTAGE
PAID
LANCASTER, PA
PERMIT NO. 11
-------------
[LOGO OF EVERGREEN FUNDS]
401 South Tryon Street
Charlotte, NC 28288
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
EVERGREEN SELECT EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
STATEMENT OF ADDITIONAL INFORMATION
November 1, 2000
Evergreen Equity Index Fund ("Equity Index Fund")
Evergreen Select Balanced Fund ("Balanced Fund")
Evergreen Select Core Equity Fund ("Core Equity Fund")
Evergreen Select Secular Growth Fund ("Secular Growth Fund")
Evergreen Select Small Cap Growth Fund ("Small Cap Growth Fund")
Evergreen Select Strategic Growth Fund ("Strategic Growth Fund")
Evergreen Strategic Value Fund ("Strategic Value Fund")
Evergreen Special Equity Fund ("Special Equity Fund")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of Evergreen Select
Equity Trust (the "Trust").
This statement of additional information ("SAI") pertains to all
classes of shares of the Funds listed above. It is not a prospectus but should
be read in conjunction with the prospectus dated November 1, 2000 for the Fund
in which you are interested. The Funds are offered through two separate
prospectuses: one offering both Institutional and Institutional Service shares
of each Fund (except for Small Cap Growth Fund which offers Institutional shares
only), and one offering Class A, Class B and Class C shares of the Equity Index
Fund and the Special Equity Fund. You may obtain a copy of the prospectus
without charge by calling (800) 343-2898 or by downloading it off our website at
www.evergreen-funds.com. The information in Part 1 of this SAI is specific
information about the Funds described in the prospectus. The information in Part
2 of this SAI contains more general information about the Funds described in the
prospectus that may or may not apply to the Fund or Class of shares in which you
are interested.
Certain information may be incorporated by reference to the Funds'
Annual Report dated June 30, 2000. You may obtain a copy of the Annual Report
without charge by calling (800) 343-2898 or downloading it off our website at
www.evergreen-funds.com.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY............................................................1-1
INVESTMENT POLICIES......................................................1-1
OTHER SECURITIES AND PRACTICES...........................................1-3
PRINCIPAL HOLDERS OF FUND SHARES.........................................1-3
EXPENSES.................................................................1-8
PERFORMANCE.............................................................1-13
SERVICE PROVIDERS.......................................................1-16
FINANCIAL STATEMENTS....................................................1-17
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES........... 2-1
PURCHASE AND REDEMPTION OF SHARES ......................................2-14
PRICING OF SHARES.......................................................2-19
SALES CHARGE WAIVERS AND REDUCTIONS.....................................2-16
PERFORMANCE CALCULATIONS................................................2-20
PRINCIPAL UNDERWRITER...................................................2-21
DISTRIBUTION EXPENSES UNDER RULE 12b-1..................................2-22
TAX INFORMATION.........................................................2-25
BROKERAGE...............................................................2-28
ORGANIZATION............................................................2-29
INVESTMENT ADVISORY AGREEMENT...........................................2-30
MANAGEMENT OF THE TRUST.................................................2-32
CORPORATE AND MUNICIPAL BOND RATINGS....................................2-35
ADDITIONAL INFORMATION..................................................2-46
<PAGE>
PART 1
TRUST HISTORY
The Trust is an open-end management investment company, which was
organized as a Delaware business trust on September 18, 1997. Each Fund is a
diversified series of the Trust. A copy of the Declaration of Trust is on file
as an exhibit to the Trust's Registration Statement, of which this SAI is a
part. On July 24, 2000 Evergreen Equity Index Fund (formerly Evergreen Select
Equity Index Fund) and Evergreen Special Equity Fund (formerly Evergreen Select
Special Equity Fund) changed their names.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Fund's practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
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.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as a Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or U.S. government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections in
Part 2 of this SAI under "Additional Information on Securities and Investment
Practices." Information provided in the sections listed below expands upon and
supplements information provided in the Funds' prospectus. The list below
applies to all Funds unless noted otherwise:
Securities Lending
Convertible Securities
Options and Futures Strategies
Obligations of Foreign Branches of U.S. Banks
Obligations of U.S. Branches of Foreign Banks
Foreign Securities
Foreign Currency
Illiquid and Restricted Securities
Investment in Other Investment Companies
Master Demand Notes
Corporate Bond Ratings (Balanced Fund Only)
PRINCIPAL HOLDERS OF FUND SHARES
As of September 30, 2000 the officers and Trustees of the Trust owned
as a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as of September 30, 2000.
--------------------------------------------------------------------------
Balanced Fund
Institutional shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
First Union National Bank 62.83%
401K Accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 34.69%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
<PAGE>
--------------------------------------------------------------------------
Balanced Fund
Institutional Service shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
Leslie Kalnajs 40.79%
P.O. Box 713
Abington, PA 19001-0713
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Clearing Corp. 10.55%
F/B/O George Bull
201 S. College Street
Charlotte, NC 28288-1167
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Clearing Corp. 10.38%
Gwendolyn L. Shapiro Ugma-NJ
410 S. First Avenue
Highland Park, NJ 08904-2122
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 9.57%
Trust Accounts
401 S. Tryon Street, 3rd Floor
CMG-1151-2
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
Bradley T. Girard 8.29%
6513 Darwin Road
Laurel, MD 20707
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
Patricia McIntire 7.00%
Trust
9 Hickory Lane
Darien, CT 06820-3211
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Core Equity Fund
Institutional shares
-------------------------------------------------------- -----------------
First Union National Bank 98.96%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Core Equity Fund
Institutional Service shares
--------------------------------------------------------------------------
None
--------------------------------------------------------------------------
Equity Index Fund
Institutional shares
--------------------------------------------------------- ----------------
First Union National Bank 41.86%
401K Accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288
--------------------------------------------------------- ----------------
--------------------------------------------------------- ----------------
First Union National Bank 29.52%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------- ----------------
--------------------------------------------------------- ----------------
First Union National Bank 21.22%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------- ----------------
--------------------------------------------------------------------------
Equity Index Fund
Institutional Service shares
-------------------------------------------------------- -----------------
First Union National Bank 7.50%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Equity Index Fund
Class A shares
--------------------------------------------------------------------------
None
--------------------------------------------------------------------------
Equity Index Fund
Class B shares
-------------------------------------------------------- -----------------
None
--------------------------------------------------------------------------
Equity Index Fund
Class C shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
MLPF&S for the Sole Benefit 15.52%
Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 322466-6484
--------------------------------------------------------------------------
Secular Growth Fund
Institutional shares
-------------------------------------------------------- -----------------
First Union National Bank 90.10%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 8.89%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Secular Growth Fund
Institutional Service shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
Donaldson Lufkin Jenrette 11.54%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
The Fulton Co. 9.49%
Richard Hoffman Jr.
C/o Fulton Bank Trust Department
P.O. Box 3215
Lancaster, PA 17604-3215
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
Paine Webber, Inc. 8.50%
P.O. Box 321
Weehawken, NJ 07087-8154
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
Legg Mason Wood Walker Inc. 8.26%
P.O. Box 1476
Baltimore, MD 21202
-------------------------------------------------------- -----------------
<PAGE>
-------------------------------------------------------- -----------------
DLJ 7.59%
Securities Corp. Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Clearing Corp. 6.75%
201 S. College Street
Charlotte, NC 28288
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Clearing Corp. 5.16%
FBO Dorothy E. Parr Living Trust
201 S. College Street
Charlotte, NC 28288
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Small Cap Growth Fund
Institutional shares
-------------------------------------------------------- -----------------
First Union National Bank 58.57%
Re-invest Account
Trust Accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288-1076
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 26.94%
Cash Account
Trust Accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288-1076
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
Worcester County 13.07%
Retirement System
Attn: Michael J. Donaghue
Chairman & Treasurer
2 Main Street, Room 3 Courthouse
Worcester, MA 0168-1116
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Special Equity Fund
Class A shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
Charles Schwab & Co. Inc. 7.69%
Special Custody Account FBO
Exclusive Benefit of Customers
Reinvest Account Attn: Mutual Fund
101 Montgomery Street
San Francisco, CA 94104-4122
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
MLPF&S For the Sole Benefit of 5.36%
Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Special Equity Fund
Class B shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
MLPF&S For the Sole Benefit 8.67%
Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
-------------------------------------------------------- -----------------
<PAGE>
--------------------------------------------------------------------------
Special Equity Fund
Class C shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
MLPF&S For the Sole Benefit 8.87%
Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Special Equity Fund
Institutional shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
First Union National Bank 59.02%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 31.10%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Special Equity Fund
Institutional Service shares
--------------------------------------------------------------------------
First Union National Bank 17.14%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
MLPF&S For the Sole Benefit 10.42%
Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. 2nd Floor
Jacksonville, FL 32246-6484
-------------------------------------------------------- -----------------
Strategic Growth Fund
Institutional shares
--------------------------------------------------------- ----------------
First Union National Bank 70.74%
Cash Accounts
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------- ----------------
--------------------------------------------------------- ----------------
First Union National Bank 20.88%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------- ----------------
--------------------------------------------------------- ----------------
First Union National Bank 6.90%
401K accounts
1525 West Wt Harris Boulevard
Charlotte, NC 28288
--------------------------------------------------------- ----------------
<PAGE>
--------------------------------------------------------------------------
Strategic Growth Fund
Institutional Service shares
-------------------------------------------------------- -----------------
First Union National Bank 17.94%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
First Union National Bank 6.86%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
--------------------------------------------------------------------------
Strategic Value Fund
Institutional shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
First Union National Bank 52.25%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------
-------------------------------------------------------- -----------------
First Union National Bank 44.41%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
--------------------------------------------------------
--------------------------------------------------------------------------
Strategic Value Fund
Institutional Service shares
--------------------------------------------------------------------------
-------------------------------------------------------- -----------------
First Union National Bank 31.15%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
-------------------------------------------------------- -----------------
First Union National Bank 5.42%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon Street, 3rd Floor, CMG-1151
Charlotte, NC 28202-1911
-------------------------------------------------------- -----------------
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Institutional Asset Management (EIAM (formerly First Capital
Group), a division of First Union National Bank ("FUNB"), is the Investment
Advisor to each of the Funds except Small Cap Growth Fund and Special Equity
Fund. FUNB is located at 201 South College Street, Charlotte, North Carolina
28288-0630. Forefront Capital Advisors, LLC (Forefront Capital) acts as
sub-advisor to Secular Growth Fund. EIAM is entitled to receive from each Fund
except Balanced Fund and Equity Index Fund an annual fee equal to 0.62% of the
average daily net assets of each Fund. EIAM is entitled to receive from Balanced
an annual fee equal to 0.52% of the average daily net assets of the Fund. EIAM
is entitled to receive from Equity Index Fund an annual fee equal to 0.32% of
the average daily net assets of the Fund. FUNB will pay Forefront Capital an
annual contractual advisory fee as follows:
------------------------ ---------------------
Average Daily Net Fee
Assets
------------------------ ---------------------
------------------------ ---------------------
First $1billion 0.12%
------------------------ ---------------------
------------------------ ---------------------
Over$1 billion 0.30%
------------------------ ---------------------
Evergreen Investment Management Company ("EIMC") is the Investment
Advisor to Small Cap Growth Fund. EIMC is located at 200 Berkeley Street,
Boston, Massachusetts 02116-5034. EIMC is entitled to receive from the Fund an
annual fee that is computed and paid daily based on the average daily net assets
of the Fund in accordance with the following schedule:
------------------------ ---------------------
Average Daily Net Fee
Assets
------------------------ ---------------------
------------------------ ---------------------
First $100 million 0.71%
------------------------ ---------------------
------------------------ ---------------------
Next $150 million 0.66%
------------------------ ---------------------
------------------------ ---------------------
Over $250 million 0.56%
------------------------ ---------------------
Meridian Investment Company ("MIC") is the Investment Advisor to
Special Equity Fund. Meridian is located at 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355. MIC is entitled to receive from the Fund an annual fee equal
to 0.90% of the average daily net assets of the Fund.
Advisory Fees Paid
Below are the advisory fees paid or accrued by each Fund for the last
three fiscal years or periods.
<TABLE>
------------------------------------- ----------------------- -------------------------
Fiscal Period/Fund Advisory Fees Paid or Advisory Fees Waived
Accrued
<S> <C> <C>
------------------------------------- ----------------------- -------------------------
---------------------------------------------------------------------------------------
Year Ended June 30, 2000
---------------------------------------------------------------------------------------
------------------------------------- ----------------------- -------------------------
Balanced Fund $3,639,055 $523,595
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Core Equity Fund $16,939,023 $2,031,773
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Equity Index Fund $2,984,990 $2,403,203
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Secular Growth Fund $5,502,067 $736,074
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Small Cap Growth Fund $812,680 $0
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Special Equity Fund $2,123,588 $508,842
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Growth Fund $4,435,042 $494,372
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Value Fund $4,821,525 $298,913
------------------------------------- ----------------------- -------------------------
---------------------------------------------------------------------------------------
Year Ended June 30, 1999
---------------------------------------------------------------------------------------
------------------------------------- ----------------------- -------------------------
Balanced Fund $4,136,760 $689,460
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Core Equity Fund $12,923,968 $1,848,228
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Equity Index Fund $1,802,977 $1,159,599
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Secular Growth Fund $36,383 36,383
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Small Cap Growth Fund $500,432 $0
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Special Equity Fund $1,181,647 $551,194
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Growth Fund $3,224,101 $478,980
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Value Fund $2,384,266 $340,610
------------------------------------- ----------------------- -------------------------
---------------------------------------------------------------------------------------
Year Ended June 30, 1998
---------------------------------------------------------------------------------------
------------------------------------- ----------------------- -------------------------
Balanced Fund $1,954,563 $325,761
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Core Equity Fund (a) $8,171,550 $1,350,561
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Equity Index Fund $1,139,000 $686,000
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Small Cap Growth Fund (b) $166,954 $0
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Special Equity Fund $1,208,000 $518,000
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Growth Fund (a) $1,235,649 $210,851
------------------------------------- ----------------------- -------------------------
------------------------------------- ----------------------- -------------------------
Strategic Value Fund $930,128 $132,876
------------------------------------- ----------------------- -------------------------
</TABLE>
(a) For the period from November 24, 1997 (commencement of operations) to June
30, 1998.
(b) 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.
12b-1 Fees
Below are the 12b-1 service fees paid by the Institutional Service
shares of each Fund for the fiscal period ended June 30, 2000. The Institutional
shares do not pay 12b-1 fees. For more information, see "Distribution Expenses
Under Rule 12b-1" in Part 2 of this SAI.
-------------------------------------- -----------------------------------------
Institutional Service Shares
Fund/Period
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Service Fees
-------------------------------------- -----------------------------------------
--------------------------------------------------------------------------------
Year Ended June 30, 2000
--------------------------------------------------------------------------------
-------------------------------------- -----------------------------------------
Balanced Fund $2,089
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Core Equity Fund $104,602
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Equity Index Fund $71,258
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Secular Growth Fund $975
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Small Cap Growth Fund N/A
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Special Equity Fund $16,695
-------------------------------------- -----------------------------------------
-------------------------------------- -----------------------------------------
Strategic Growth Fund $43,065
-------------------------------------- -----------------------------------------
Strategic Value Fund $8,544
-------------------------------------- -----------------------------------------
Below are the 12b-1 fees paid by the retail shares of Equity Index Fund
and Special Equity Fund for the fiscal year or period ended June 30, 2000. For
more information, see "Distribution Expenses Under Rule 12b-1" in Part 2 of this
SAI.
<TABLE>
---------------------- ---------------- --------------------------------------- ============================================
Class A Class B Class C
Fund
----------------------
---------------------- ---------------- ---------------- ---------------------- ------------------- ========================
Service Fees Distribution Service Fees Distribution Fees Service Fees
Fees
<S> <C> <C> <C> <C> <C>
---------------------- ---------------- ---------------- ---------------------- ------------------- ========================
Equity Index Fund $147,211 $1,225,801 $408,601 $191,353 $63,784
---------------------- ---------------- ---------------- ---------------------- ------------------- ========================
---------------------- ---------------- ---------------- ---------------------- ------------------- ========================
Special Equity Fund $36,871 $116,240 $38,747 $78,006 $26,002
---------------------- ---------------- ---------------- ---------------------- ------------------- ========================
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
for the twelve months ended June 30, 2000 and by the Trust and the eleven other
trusts in the Evergreen Fund Complex for the twelve months ended December 31,
1999. The Trustees do not receive pension or retirement benefits from the Funds.
For more information, see "Management of the Trust" in Part 2 of this SAI.
<TABLE>
------------------------------- ------------------------------ -----------------------------
Total Compensation from the
Evergreen Fund Complex for
Aggregate Compensation from the calendar year ended
Trustee Trust for the fiscal year 12/31/1999*
ended 6/30/2000
<S> <C> <C>
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,943 $75,000
Laurence B. Ashkin
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,903 $75,000
Charles A. Austin, III
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$3,515 $0
Arnold H. Dreyfuss
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$7,091 $75,000
K. Dun Gifford
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,064 $97,000
James S. Howell**
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,943 $75,000
Leroy Keith, Jr.
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,982 $75,000
Gerald M. McDonnell
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$7,861 $85,000
Thomas L. McVerry
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$3,514 $0
Louis W. Moelchert, Jr.
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,943 $75,000
William Walt Pettit
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,982 $75,000
David M. Richardson
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$7,633 $77,000
Russell A. Salton, III
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$9,251 $102,000
Michael S. Scofield
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$6,982 $75,000
Richard J. Shima
------------------------------- ------------------------------ -----------------------------
------------------------------- ------------------------------ -----------------------------
$3,514 $0
Richard K. Wagoner
------------------------------- ------------------------------ -----------------------------
</TABLE>
* Certain Trustees have elected to defer all or part of their total
compensation for the twelve months ended December 31, 1999. The
amounts listed below will be payable in later years to the
respective Trustees:
Austin $11,250
Howell $77,600
McDonnell $75,000
McVerry $85,000
Pettit $75,000
Salton $77,000
Scofield $61,200
** As of January 1, 2000, James S. Howell retired and became
Trustee Emeritus.
Brokerage Commission Paid
The table below shows for each Fund the total amounts paid in brokerage
commissions during the fiscal period specified.
-------------------------------------------------- -----------------------------
Total Brokerage Commissions Paid
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Year or Period Ended June 30, 2000
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Balanced Fund $1,696,644
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Core Equity Fund $2,129,518
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Secular Growth Fund $ 913,474
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Small Cap Growth Fund $ 475,552
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Growth Fund $1,202,411
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Value Fund $ 784,532
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Fiscal Period Ended June 30, 1999
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Balanced Fund $ 419,607
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Core Equity Fund $ 3,384,398
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Secular Growth Fund $ 11,833
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Small Cap Growth Fund $ 174,134
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Growth Fund $ 955,109
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Value Fund $ 519,440
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Year or Period Ended June 30, 1998
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Balanced Fund $ 281,280
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Core Equity Fund $1,063,426
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Small Cap Growth Fund $ 61,462
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Growth Fund $ 464,814
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Strategic Value Fund $ 145,302
-------------------------------------------------- -----------------------------
The table below shows the brokerage commissions paid by the Equity
Index Fund and Special Equity Fund for the fiscal years ended June 30, 2000,
1999 and 1998.
-------------------------------------------------- -----------------------------
Total Brokerage Commissions Paid
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Fiscal Period Ended June 30, 2000
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Equity Index Fund $103,944
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Special Equity Fund $948,715
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Fiscal Period Ended June 30, 1999
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Equity Index Fund $155,575
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Special Equity Fund $200,235
-------------------------------------------------- -----------------------------
--------------------------------------------------------------------------------
Fiscal Period Ended June 30, 1998
--------------------------------------------------------------------------------
-------------------------------------------------- -----------------------------
Equity Index Fund $102,434
-------------------------------------------------- -----------------------------
-------------------------------------------------- -----------------------------
Special Equity Fund $116,052
-------------------------------------------------- -----------------------------
PERFORMANCE
Total Return
Below are the average annual total returns for each class of shares of
the Funds (including applicable sales charges) as of June 30, 2000. For more
information, see "Total Return" under "Performance Calculations" in Part 2 of
this SAI.
<TABLE>
--------------------------- ----------------- ------------------ -------------------- --------------------
Ten Years or Since Inception Date
Fund/Class One Year Five Years Inception of Class
<S> <C> <C> <C> <C>
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
1-Balanced Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 19.52% 15.32% 13.12% 1/22/98
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 19.23% 15.24% 13.07% 4/9/98
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
2-Core Equity Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 7.71% 19.17% 13.75% 11/24/97
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 7.45% 18.88% 13.48% 2/4/98
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
3-Equity Index Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 7.02% 23.31% 17.09% 2/14/85
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 6.74% 23.15% 17.01% 10/9/96
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class A 1.70% 22.00% 16.47% 11/4/98
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class B 0.97% 22.72% 16.89% 11/3/98
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class C 3.99% 23.02% 16.95% 4/30/99
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
4-Secular Growth Fund
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 50.60% 34.23% 35.06% 2/26/99
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 50.19% 33.89% 34.71% 2/26/99
--------------------------- ----------------- ------------------ -------------------- --------------------
Small Cap Growth Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 66.74% N/A 21.44% 12/28/95
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
5-Special Equity Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 30.89% 27.82% 22.53% 3/15/94
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 30.70% 27.52% 22.31% 3/15/1994
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class A 24.26% 26.24% 21.33% 8/30/1999
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class B 24.88% 27.19% 22.17% 8/30/1999
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Class C 27.82% 27.34% 22.17% 8/30/1999
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
6-Strategic Growth Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional 52.26% 31.44% 32.75% 11/24/97
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service 51.87% 31.10% 32.40% 2/27/98
--------------------------- ----------------- ------------------ -------------------- --------------------
----------------------------------------------------------------------------------------------------------
7-Strategic Value Fund
----------------------------------------------------------------------------------------------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional -7.33% 14.50% 13.33% 11/24/97
--------------------------- ----------------- ------------------ -------------------- --------------------
--------------------------- ----------------- ------------------ -------------------- --------------------
Institutional Service -7.56% 14.23% 13.05% 03/11/98
--------------------------- ----------------- ------------------ -------------------- --------------------
</TABLE>
1- Historical performance shown for Institutional shares prior to its inception
is based on the performance of the Class Y Shares of Evergreen Balanced Fund II,
from 4/1/1991 through 1/22/1998, the inception of Institutional shares. On
1/22/1998, substantially all of the assets of the Class Y shares of Evergreen
Balanced Fund II were transferred through a redemption in-kind transaction to
the Fund's Institutional shares. Performance from 1/23/1998 through the
inception of Institutional Service shares reflects that of Institutional shares.
Performance prior to inception of Institutional Service shares does not include
this class' 0.25% 12b-1 fees. Institutional shares do not pay a 12b-1 fee. If
these fees were reflected, returns would have been lower.
2- Historical performance shown for Institutional Service shares from 11/24/1997
to its inception 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 fees. If these
fees had been reflected, returns would have been lower. Prior to 11/24/1997, the
returns for Institutional 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 Investment Company
Act of 1940 ("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 CTF was
converted to a mutual fund. If fee waivers and expense reimbursements in
existence at the time of conversion had been calculated into the mutual fund
class expense ratio, the total returns would be as follows: Institutional shares
- 5 years = 19.23% and 10 years = 13.84%; Institutional Service shares - 5 years
= 18.94% and 10 years = 13.56%.
3- Historical performance shown for Institutional Service prior to its inception
is based on the performance of (1) the Class A shares of the Fund's predecessor
CoreFund Equity Index Fund from 10/9/1996 to 7/27/1997 (2) the Class Y shares of
the Fund's predecessor , CoreFund Equity Index Fund, from 6/1/1991 to 10/8/1996
and (3) the Class Y shares of the Fund's predecessor, Viking Index Fund, from
2/14/1985 through 5/31/1991. Performance of Class Y for CoreFund Equity Index
Fund and Class Y for Viking Index Fund has not been adjusted to reflect the
effect of the 0.25% 12b-1 fee applicable to Institutional Service. Class Y pays
no 12b-1 fee. If these fees had been reflected, returns would have been lower.
Historical performance shown for Classes A , B and C prior to their inception is
based on the performance of (1) the Fund's Institutional shares from 7/27/1998
to the inception of Classes A , B and C (2) the Class Y Shares of the Fund's
predecessor, CoreFund Equity Index Fund, from 6/1/1991 through 7/27/1998 and (3)
the Class Y Shares of the CoreFund Equity Index Fund's predecessor, Viking Index
Fund, from 2/14/1985 through 5/31/1991. These historical returns for Classes A ,
B and C have not been adjusted to reflect the effect of each Class' 12b-1 fees.
The 12b-1 fees for Class A are 0.25%, for Class B are 1.00% and for Class C are
.00%. Neither Class Y nor Institutional shares pay 12b-1 fees. If these fees had
been reflected, returns would have been lower.
4- Historical performance shown for the Institutional and Institutional Service
shares, prior to 7/12/1999 is 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 CTF
was converted to a mutual fund. If fee waivers and expense reimbursements in
existence at the time of the conversion had been calculated into the mutual fund
class expense ratio, the total returns would be as follows: Institutional - 5
years = 34.34% and since 12/31/1994 = 35.20%; Institutional Service - 5 years =
34.00% and since 12/31/1994 = 34.86%.
5- Historical performance shown for the Institutional shares prior to 7/27/2998
is based on (1) the performance of the Class Y shares of the Fund's predecessor
fund, CoreFund Special Equity Fund, from 2/21/1995 to 7/26/1998 and (2) the
Class A shares of the Fund's predecessor fund from 3/15/1994 to 2/20/1995.
Historical performance shown for the Institutional Service shares prior to
7/27/1998 is based on the Class A shares of the Fund's predecessor fund and
reflects the same 0.25% 12b-1 fee applicable to Institutional Service shares.
Historical performance shown for Classes A, B and C prior to their inception is
based on (1) Institutional Service shares from 7/27/1998 to their inception, (2)
the performance of the Class A shares of the Fund's predecessor, CoreFund
Special Equity Fund, from 3/15/1994 through 7/26/1998. The performance has not
been adjusted to reflect the differences in the 12b-1 fees applicable to each
class. These fees are for Class A 0.25%, Class B 1.00%, Class C 1.00% and
Institutional Service shares 0.25%. If these fees had been reflected returns for
Classes B and C would have been lower.
6- Historical performance shown for Institutional Service shares from 11/24/1997
to its inception 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 11/24/1997, the
returns for Institutional 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 CTF was converted to a mutual fund. If fee waivers and
expense reimbursements in existence at the time of the conversion had been
calculated into the mutual fund class expense ratio, the total returns would be
as follows: Institutional shares - 5 years = 31.51% and since 11/24/1997 =
32.82%; Institutional Service shares - 5 years = 31.16% and since 2/27/1998 =
32.47%.
7- Historical performance shown for Institutional Service shares from 11/24/1997
to its inception 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 11/24/1997, the
returns for Institutional 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 CTF was converted to a mutual fund. If fee waivers and
expense reimbursements in existence at the time of the conversion had been
calculated into the mutual fund class expense ratio, the total returns would be
as follows: Institutional shares - 5 years = 14.55% and 10 years = 13.41%;
Institutional Service shares - 5 years = 14.28% and 10 years = 13.14%.
Current Yield
Below are the current yields for each class of shares of the Balanced
Fund and Equity Index Fund as of June 30, 2000. For more information, see
"30-day Yield under Performance Calculation in Part 2 of this SAI.
<TABLE>
----------------------------------------------------------------------------------------------------------
30-Day Yield
----------------------------------------------------------------------------------------------------------
========================== ===================
Fund Institutional Institutional Service Class A Class B Class C
<S> <C> <C> <C> <C> <C>
==========================
------------------- ----------------------- ----------- ----------- -----------
Balanced Fund 3.01% 2.78% N/A N/A N/A
-------------------
-------------------------- ----------------------- ----------- ----------- -----------
Equity Index Fund 0.89% 0.64% 0.61% -0.10% -1.10%
-------------------------- ------------------- ----------------------- ----------- ----------- -----------
</TABLE>
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS"), 200 Berkeley Street,
Boston, Massachusetts 02116-5034, serves as administrator to each of the Funds,
subject to the supervision and control of the Trust's Board of Trustees. EIS
provides the Funds with facilities, equipment and personnel and is entitled to
receive a fee from the Fund. The current fee as of 1/3/2000 is 0.10% of each
Fund's average net assets.
Transfer Agent
Evergreen Service Company ("ESC"), P.O. Box 2121, Boston, Massachusetts
02106-9970, a subsidiary of First Union Corporation, is the Funds' transfer
agent. ESC issues and redeems shares, pays dividends and performs other duties
in connection with the maintenance of shareholder accounts. The Fund pays ESC
annual fees as follows:
----------------------------- -------------------- ------------------
Annual Fee Per Annual Fee Per
Fund Type Open Account Closed Account
----------------------------- -------------------- ------------------
----------------------------- -------------------- ------------------
Monthly Dividend Funds $25.50 $9.00
----------------------------- -------------------- ------------------
----------------------------- -------------------- ------------------
Quarterly Dividend Funds $24.50 $9.00
----------------------------- -------------------- ------------------
----------------------------- -------------------- ------------------
Semiannual Dividend Funds $23.50 $9.00
----------------------------- -------------------- ------------------
----------------------------- -------------------- ------------------
Annual Dividend Funds $23.50 $9.00
----------------------------- -------------------- ------------------
----------------------------- -------------------- ------------------
Money Market Funds $25.50 $9.00
----------------------------- -------------------- ------------------
*For shareholder accounts only. The Fund pays ESC cost plus
15% for broker accounts ** Closed account are maintained on
the system in order to facilitate historical and tax
information.
Distributor
Evergreen Distributor, Inc. (EDI), 90 Park Avenue, New York, NY 10016
markets the Funds through broker-dealers and other financial representatives.
Independent Auditors
KPMG LLP, 99 High Street, Boston, Massachusetts 02110, audits the
financial statements of each Fund.
Custodian
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, keeps custody of each Fund's securities and cash and
performs other related duties.
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W., Washington,
D.C. 20036, provides legal advice to the Funds.
FINANCIAL STATEMENTS
The audited financial statements and the reports thereon are hereby
incorporated by reference to the Funds' Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-9970 or by calling (800) 343-2898, or by downloading it off our website at
www.evergreen-funds.com.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund or the Class in which you are
interested. See the list under Other Securities and Practices in Part 1 of this
SAI to determine which of the sections below are applicable.
Money Market Instruments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the investment advisor, market conditions warrant a temporary
defensive investment strategy.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives,
Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii)Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and Student Loan Marketing
Association.
Securities Issued by the Government National Mortgage Association ("GNMA"). The
Fund may invest in securities issued by the GNMA, a corporation wholly-owned by
the U.S. Government. GNMA securities or "certificates" represent ownership in a
pool of underlying mortgages. The timely payment of principal and interest due
on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
<PAGE>
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Dollar Roll Transactions
The Fund may enter into dollar rolls in which the Fund sells securities
and simultaneously contracts to repurchase substantially similar securities on a
specified future date. In the case of dollar rolls involving mortgage-related
securities, the mortgage-related securities that are purchased typically will be
of the same type and will have the same or similar interest rate and maturity as
those sold, but will be supported by different pools of mortgages. The Fund
forgoes principal and interest paid during the roll period on the securities
sold in a dollar roll, but it is compensated by the difference between the
current sales price and the price for the future purchase as well as by any
interest earned on the proceeds of the securities sold. The Fund could also be
compensated through receipt of fee income.
Dollar rolls may be viewed as a borrowing by the Fund, secured by the
security which is the subject of the agreement. In addition to the general risks
involved in leveraging, dollar rolls are subject to the same risks as repurchase
and reverse repurchase agreements.
Securities Lending
The Fund may lend portfolio securities to brokers, dealers and other
financial institutions to earn additional income for the Fund. These
transactions must be fully collateralized at all times with cash or short-term
debt obligations, but involve some risk to the Fund if the other party should
default on its obligation and the Fund is delayed or prevented from exercising
its rights in respect of the collateral. Any investment of collateral by the
Fund would be made in accordance with the Fund's investment objective and
policies described in the prospectus.
Convertible Securities
The Fund may invest in convertible securities. Convertible securities
include fixed-income securities that may be exchanged or converted into a
predetermined number of shares of the issuer's underlying common stock at the
option of the holder during a specified period. Convertible securities may take
the form of convertible preferred stock, convertible bonds or debentures, bonds
with warrants attached or bonds with a combination of the features of several of
these securities. The investment characteristics of each convertible security
vary widely, which allow convertible securities to be employed for a variety of
investment strategies.
The Fund will exchange or convert convertible securities into shares of
underlying common stock when, in the opinion of its investment advisor, the
investment characteristics of the underlying common shares will assist the Fund
in achieving its investment objective. The Fund may also elect to hold or trade
convertible securities. In selecting convertible securities, the investment
advisor evaluates the investment characteristics of the convertible security as
a fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the investment advisor considers numerous
factors, including the economic and political outlook, the value of the security
relative to other investment alternatives, trends in the determinants of the
issuer's profits, and the issuer's management capability and practices.
Preferred Stocks
The Fund may purchase preferred stock. Preferred stock, unlike common
stock, has a stated dividend rate payable from the corporation's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. "Cumulative" dividend provisions require all or a portion of prior
unpaid dividends to be paid.
If interest rates rise, the fixed dividend on preferred stocks may be
less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, which can be a negative feature when interest
rates decline. Preferred stock also generally has a preference over common stock
on the distribution of a corporation's assets in the event of liquidation of the
corporation. Preferred stock may be "participating" stock, which means that it
may be entitled to a dividend exceeding the stated dividend in certain cases.
The rights of preferred stock on distribution of a corporation's assets in the
event of a liquidation are generally subordinate to the rights associated with a
corporation's debt securities.
Warrants
The Fund may invest in warrants. Warrants are options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than one year to twenty years, or
they may be perpetual. However, most warrants have expiration dates after which
they are worthless. In addition, a warrant is worthless if the market price of
the common stock does not exceed the warrant's exercise price during the life of
the warrant. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
Swaps, Caps, Floors and Collars
The Fund may enter into interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund would use these transactions as hedges and not as speculative
investments and would not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Fund may be
obligated to pay. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. The Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poor's Ratings Services
("S&P") or Moody's Investors Service, Inc. ("Moody's") or has an equivalent
rating from another nationally recognized securities rating organization or is
determined to be of equivalent credit quality by the Fund's investment advisor.
If there is a default by the counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction.
As a result, the swap market has become relatively liquid. Caps, floors and
collars are more recent innovations for which standardized documentation has not
yet been fully developed and, accordingly, they are less liquid than swaps.
Indexed Securities
The Fund may invest in indexed securities, the values of which are
linked to currencies, interest rates, commodities, indices or other financial
indicators ("reference instruments"). Most indexed securities have maturities of
three years or less.
Indexed securities differ from other types of debt securities in which
the Fund may invest in several respects. First, the interest rate or, unlike
other debt securities, the principal amount payable at maturity of an indexed
security may vary based on changes in one or more specified reference
instruments, such as an interest rate compared with a fixed interest rate or the
currency exchange rates between two currencies (neither of which need be the
currency in which the instrument is denominated). The reference instrument need
not be related to the terms of the indexed security. For example, the principal
amount of a U.S. dollar denominated indexed security may vary based on the
exchange rate of two foreign currencies. An indexed security may be positively
or negatively indexed; that is, its value may increase or decrease if the value
of the reference instrument increases. Further, the change in the principal
amount payable or the interest rate of an indexed security may be a multiple of
the percentage change (positive or negative) in the value of the underlying
reference instrument(s).
Investment in indexed securities involves certain risks. In addition to
the credit risk of the security's issuer and the normal risks of price changes
in response to changes in interest rates, the principal amount of indexed
securities may decrease as a result of changes in the value of reference
instruments. Further, in the case of certain indexed securities in which the
interest rate is linked to a reference instrument, the interest rate may be
reduced to zero, and any further declines in the value of the security may then
reduce the principal amount payable on maturity. Finally, indexed securities may
be more volatile than the reference instruments underlying indexed securities.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund
is exposed is difficult to hedge or to hedge against the dollar. Proxy hedging
entails entering into a forward contract to sell a currency whose changes in
value are generally considered to be linked to a currency or currencies in which
some or all of the Fund's securities are or are expected to be denominated, and
to buy U.S. dollars. The amount of the contract would not exceed the value of
the Fund's securities denominated in linked currencies. For example, if the
Fund's investment advisor considers that the Austrian schilling is linked to the
German deutschmark (the "D-mark"), the Fund holds securities denominated in
schillings and the investment advisor believes that the value of schillings will
decline against the U.S. dollar, the investment advisor may enter into a
contract to sell D-marks and buy dollars.
Options and Futures Strategies
The Fund may at times seek to hedge against either a decline in the
value of its portfolio securities or an increase in the price of securities
which the investment advisor plans to purchase through the writing and purchase
of options and the purchase or sale of futures contracts and related options.
Expenses and losses incurred as a result of such hedging strategies will reduce
the Fund's current return.
The ability of the Fund to engage in the options and futures strategies
described below will depend on the availability of liquid markets in such
instruments. It is impossible to predict the amount of trading interest that may
exist in various types of options or futures. Therefore, no assurance can be
given that the Fund will be able to utilize these instruments effectively for
the purposes stated below.
Writing Covered Options on Securities. The Fund may write covered call options
and covered put options on optionable securities of the types in which it is
permitted to invest from time to time as the investment advisor determines is
appropriate in seeking to attain the Fund's investment objective. Call options
written by the Fund give the holder the right to buy the underlying security
from the Fund at a stated exercise price; put options give the holder the right
to sell the underlying security to the Fund at a stated price.
The Fund may only write call options on a covered basis or for
cross-hedging purposes and will only write covered put options. A put option
would be considered "covered" if the Fund owns an option to sell the underlying
security subject to the option having an exercise price equal to or greater than
the exercise price of the "covered" option at all time while the put option is
outstanding. A call option is covered if the Fund owns or has the right to
acquire the underlying securities subject to the call option (or comparable
securities satisfying the cover requirements of securities exchanges) at all
times during the option period. A call option is for cross-hedging purposes if
it is not covered, but is designed to provide a hedge against another security
which the Fund owns or has the right to acquire. In the case of a call written
for cross-hedging purposes or a put option, the Fund will maintain in a
segregated account at the Fund's custodian bank cash or short-term U.S.
government securities with a value equal to or greater than the Fund's
obligation under the option. The Fund may also write combinations of covered
puts and covered calls on the same underlying security.
The Fund will receive a premium from writing an option, which increases
the Fund's return in the event the option expires unexercised or is terminated
at a profit. The amount of the premium will reflect, among other things, the
relationship of the market price of the underlying security to the exercise
price of the option, the term of the option, and the volatility of the market
price of the underlying security. By writing a call option, the Fund will limit
its opportunity to profit from any increase in the market value of the
underlying security above the exercise price of the option. By writing a put
option, the Fund will assume the risk that it may be required to purchase the
underlying security for an exercise price higher than its then current market
price, resulting in a potential capital loss if the purchase price exceeds
market price plus the amount of the premium received.
The Fund may terminate an option which it has written prior to its
expiration, by entering into a closing purchase transaction in which it
purchases an option having the same terms as the option written. The Fund will
realize a profit (or loss) from such transaction if the cost of such transaction
is less (or more) than the premium received from the writing of the option.
Because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option may be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
Purchasing Put and Call Options on Securities. The Fund may purchase put options
to protect its portfolio holdings in an underlying security against a decline in
market value. This protection is provided during the life of the put option
since the Fund, as holder of the put, is able to sell the underlying security at
the exercise price regardless of any decline in the underlying security's market
price. For the purchase of a put option to be profitable, the market price of
the underlying security must decline sufficiently below the exercise price to
cover the premium and transaction costs. By using put options in this manner,
any profit which the Fund might otherwise have realized on the underlying
security will be reduced by the premium paid for the put option and by
transaction costs.
The Fund may also purchase a call option to hedge against an increase
in price of a security that it intends to purchase. This protection is provided
during the life of the call option since the Fund, as holder of the call, is
able to buy the underlying security at the exercise price regardless of any
increase in the underlying security's market price. For the purchase of a call
option to be profitable, the market price of the underlying security must rise
sufficiently above the exercise price to cover the premium and transaction
costs. By using call options in this manner, any profit which the Fund might
have realized had it bought the underlying security at the time it purchased the
call option will be reduced by the premium paid for the call option and by
transaction costs.
The Fund may enter into financial futures contracts and write options
on such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures
contract is sold by the Fund, the value of the contract will tend to rise when
the value of the underlying securities declines and to fall when the value of
such securities increases. Thus, the Fund sells futures contracts in order to
offset a possible decline in the value of its securities. If a futures contract
is purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
"Margin" in Futures Transactions. Unlike the purchase or sale of a security, the
Fund does not pay or receive money upon the purchase or sale of a futures
contract. Rather the Fund is required to deposit an amount of "initial margin"
in cash or U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is different
from that of margin in securities transactions in that futures contract initial
margin does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance bond or good
faith deposit on the contract which is returned to the Fund upon termination of
the futures contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Limitations. The Fund will not purchase or sell futures contracts or options on
futures contracts if, as a result, the sum of the initial margin deposits on its
existing futures contracts and related options positions and premiums paid for
options on futures contracts would exceed 5% of the net assets of the Fund
unless the transaction meets certain "bona fide hedging" criteria. The Fund will
not maintain open positions in futures contracts it has sold or call options it
has written on futures contracts if, in the aggregate, the value of the open
positions (marked to market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on those open positions,
adjusted for the correlation of volatility between the hedged securities and the
futures contracts. If this limitation is exceeded at any time, the Fund will
take prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
Risks of Options and Futures Strategies. The effective use of options and
futures strategies depends, among other things, on the Fund's ability to
terminate options and futures positions at times when the investment advisor
deems it desirable to do so. Although the Fund will not enter into an option or
futures position unless the investment advisor believes that a liquid market
exists for such option or future, there can be no assurance that the Fund will
be able to effect closing transactions at any particular time or at an
acceptable price. The investment advisor generally expects that options and
futures transactions for the Fund will be conducted on recognized exchanges. In
certain instances, however, the Fund may purchase and sell options in the
over-the-counter market. The staff of the Securities and Exchange Commission
(SEC) considers over-the-counter options to be illiquid. The Fund's ability to
terminate option positions established in the over-the-counter market may be
more limited than in the case of exchange traded options and may also involve
the risk that securities dealers participating in such transactions would fail
to meet their obligations to the Fund.
The use of options and futures involves the risk of imperfect
correlation between movements in options and futures prices and movements in the
price of the securities that are the subject of the hedge. The successful use of
these strategies also depends on the ability of the Fund's investment advisor to
forecast correctly interest rate movements and general stock market price
movements. The risk increases as the composition of the securities held by the
Fund diverges from the composition of the relevant option or futures contract.
Brady Bonds
The Fund may also invest in Brady Bonds. Brady Bonds are created
through the exchange of existing commercial bank loans to foreign entities for
new obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds have been issued only recently, and, accordingly, do not have a long
payment history. They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
U.S. dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are generally
collateralized in full as to principal due at maturity by U.S. Treasury zero
coupon obligations that have the same maturity as the Brady Bonds. Interest
payments on these Brady Bonds generally are collateralized by cash or securities
in an amount that, in the case of fixed rate bonds, is equal to at least one
year of rolling interest payments based on the applicable interest rate at that
time and is adjusted at regular intervals thereafter. Certain Brady Bonds are
entitled to "value recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments, but generally are not collateralized.
Brady Bonds are often viewed as having up to four valuation components: (1)
collateralized repayment of principal at final maturity, (2) collateralized
interest payments, (3) uncollateralized interest payments, and (4) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These 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 the 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
The Fund may invest in obligations of U.S. branches of foreign banks.
These 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.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
The Fund may also invest in the stocks of companies located in emerging
markets. These countries generally have economic structures that are less
diverse and mature, and political systems that are less stable than those of
developed countries. Emerging markets may be more volatile than the markets of
more mature economies, and the securities of companies located in emerging
markets are often subject to rapid and large price fluctuations; however, these
markets may also provide higher long-term rates of return.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
Premium Securities
The Fund may at times invest in premium securities which are securities
bearing coupon rates higher than prevailing market rates. Such "premium"
securities are typically purchased at prices greater than the principal amount
payable on maturity. Although the Fund generally amortizes the amount of any
such premium into income, the Fund may recognize a capital loss if such premium
securities are called or sold prior to maturity and the call or sale price is
less than the purchase price. Additionally, the Fund may recognize a capital
loss if it holds such securities to maturity.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by S&P or Fitch IBCA, Inc. ("Fitch") or below Baa by Moody's,
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or
perceived adverse economic or political events than is the case for higher
quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond, and
(c) the Fund's ability to obtain accurate market quotations for purposes of
valuing its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% (10% for money market funds) of
its net assets in securities that are illiquid. A security is illiquid when the
Fund cannot dispose of it in the ordinary course of business within seven days
at approximately the value at which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determining the liquidity of Rule 144A securities, the Trustees will consider:
(1) the frequency of trades and quotes for the security; (2) the number of
dealers willing to purchase or sell the security and the number of other
potential buyers; (3) dealer undertakings to make a market in the security; and
(4) the nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
As a result of an exemptive order received from the SEC in January
2000, the Fund may invest cash balances in shares of affiliated money market
funds in amounts up to 25% of total assets.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Securities
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds
are usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends
upon the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
U.S. Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the U.S.
Virgin Islands, Guam and Puerto Rico to the extent such obligations are exempt
from the income or intangibles taxes, as applicable, of the state for which the
Fund is named. The Fund does not presently intend to invest more than (a) 10% of
its net assets in the obligations of each of the U.S. Virgin Islands and Guam or
(b) 25% of its net assets in the obligations of Puerto Rico. Accordingly, the
Fund may be adversely affected by local political and economic conditions and
developments within the U.S. Virgin Islands, Guam and Puerto Rico affecting the
issuers of such obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for high quality commercial paper, i.e., rated A-1 by S&P, Prime-1
by Moody's or F-1 by Fitch.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
-- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accreted interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Interest zero coupon bonds of any series mature periodically from the
date of issue of such series through the maturity date of the securities related
to such series. Principal zero coupon bonds mature on the date specified
therein, which is the final maturity date of the related securities. Each zero
coupon bond entitles the holder to receive a single payment at maturity. There
are no periodic interest payments on a zero coupon bond. Zero coupon bonds are
offered at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or interest zero coupon bonds (either initially or in the secondary
market) is treated as if the buyer had purchased a corporate obligation issued
on the purchase date with an original issue discount equal to the excess of the
amount payable at maturity over the purchase price. The purchaser is required to
take into income each year as ordinary income an allocable portion of such
discounts determined on a "constant yield" method. Any such income increases the
holder's tax basis for the zero coupon bond, and any gain or loss on a sale of
the zero coupon bonds relative to the holder's basis, as so adjusted, is a
capital gain or loss. If the holder owns both principal zero coupon bonds and
interest zero coupon bonds representing an interest in the same underlying issue
of securities, a special basis allocation rule (requiring the aggregate basis to
be allocated among the items sold and retained based on their relative fair
market value at the time of sale) may apply to determine the gain or loss on a
sale of any such zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of related asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
Real Estate Investment Trusts
The Fund may invest in investments related to real estate including
real estate investment trusts ("REITs"). Risks associated with investments in
securities of companies in the real estate industry include: decline in the
value of real estate; risks related to general and local economic conditions,
overbuilding and increased competition; increases in property taxes and
operating expenses; changes in zoning laws; casualty or condemnation losses;
variations in rental income; changes in neighborhood values; the appeal of
properties to tenants; and increases in interest rates. In addition, equity
REITs may be affected by changes in the values of the underlying property owned
by the trusts, while mortgage real estate investment trusts may be affected by
the quality of credit extended. REITs are dependent upon management skills, may
not be diversified and are subject to the risks of financing projects. Such
REITs are also subject to heavy cash flow dependency, defaults by borrowers,
self liquidation and the possibility of failing to qualify for tax-free
pass-through of income under the Internal Revenue Code of 1986, as amended (the
"Code") and to maintain exemption from the 1940 Act. In the event an issuer of
debt securities collateralized by real estate defaults, it is conceivable that
the REITs could end up holding the underlying real estate.
Limited Partnerships
The Fund may invest in limited and master limited partnerships. A
limited partnership is a partnership consisting of one or more general partners,
jointly and severally responsible as ordinary partners, and by whom the business
is conducted, and one or more limited partners who contribute cash as capital to
the partnership and who generally are not liable for the debts of the
partnership beyond the amounts contributed. Limited partners are not involved in
the day-to-day management of the partnership. They receive income, capital gains
and other tax benefits associated with the partnership project in accordance
with terms established in the partnership agreement. Typical limited
partnerships are in real estate, oil and gas and equipment leasing, but they
also finance movies, research and development, and other projects.
For an organization classified as a partnership under the Code, each
item of income, gain, loss, deduction, and credit is not taxed at the
partnership level but flows through to the holder of the partnership unit. This
allows the partnership to avoid double taxation and to pass through income to
the holder of the partnership unit at lower individual rates.
A master limited partnership is a publicly traded limited partnership.
The partnership units are registered with the SEC and are freely exchanged on a
securities exchange or in the over-the-counter market.
PURCHASE AND REDEMPTION OF SHARES
You may buy shares of the Fund through Evergreen Distributor, Inc.
("EDI"), broker-dealers that have entered into special agreements with EDI or
certain other financial institutions. With certain exceptions, the Fund may
offer up to four different classes of shares that differ primarily with respect
to sales charges and distribution fees. Depending upon the class of shares, you
will pay an initial sales charge when you buy the Fund's shares, a contingent
deferred sales charge (a "CDSC") when you redeem the Fund's shares or no sales
charges at all. Each Fund offers different classes of shares. Refer to the
prospectus to determine which classes of shares are offered by each Fund.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. 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 or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) 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; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) 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 the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; and (f) current and
retired employees of First Union National Bank ("FUNB") and its affiliates, EDI
and any broker-dealer with whom EDI has entered into an agreement to sell shares
of the Fund, and members of the immediate families of such employees; and (g)
upon the initial purchase of an Evergreen Fund by investors reinvesting the
proceeds from a redemption within the preceding 30 days of shares of other
mutual funds, provided such shares were initially purchased with a front-end
sales charge or subject to a CDSC. These provisions are generally intended to
provide additional job-related incentives to persons who serve the Fund or work
for companies associated with the Fund and selected dealers and agents of the
Fund. Since these persons are in a position to have a basic understanding of the
nature of an investment company as well as a general familiarity with the Fund,
sales to these persons, as compared to sales in the normal channels of
distribution, require substantially less sales effort. Similarly, these
provisions extend the privilege of purchasing shares at net asset value (NAV) to
certain classes of institutional investors who, because of their investment
sophistication, can be expected to require significantly less than normal sales
effort on the part of the Fund and EDI. In addition, the provisions allow the
Fund to be competitive in the mutual fund industry, where similar allowances are
common.
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 TIME 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 Evergreen Service Company (ESC).
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with EDI. The Fund offers Class C
shares at NAV without an initial sales charge. With certain exceptions, however,
the Fund will charge a CDSC on shares you redeem within 24 months after the
month of your purchase, in accordance with the following schedule:
<TABLE>
REDEMPTION TIME CDSC RATE
<S> <C>
Month of purchase and the first 12-month
period following the month of purchase 2.00%
Second 12-month period following the month of purchase 1.00%
Thereafter 0.00%
</TABLE>
See "Contingent Deferred Sales Charge" below.
Class C shares purchased through an omnibus account with Merrill Lynch
will be charged a 1.00% CDSC if redeemed within 12 months after the month of
purchase. Redemptions made thereafter will not be charged a CDSC.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of an
investment advisor of an Evergreen Fund or the advisor's affiliates. Class Y
shares are offered at NAV without a front-end or back-end sales charge and do
not bear any Rule 12b-1 distribution expenses.
Class S Shares
Class S shares of the Evergreen Money Market Funds are offered at NAV
without an initial or deferred sales charge through certain broker-dealers and
financial institutions who have entered into selling agreements with EDI.
Investors should refer to their broker-dealer or financial institution as
appropriate for instructions and further information.
Institutional Shares, Institutional Service Shares
Each institutional class of shares is sold without a front-end sales
charge or deferred sales charge. Institutional Service shares pay an ongoing
service fee. The minimum initial investment in any institutional class of shares
is $1 million, which may be waived in certain circumstances. There is no minimum
amount required for subsequent purchases.
Contingent Deferred Sales Charge
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 Expenses Under Rule 12b-1,"
below). Institutional and Institutional Service shares do not charge a CDSC. 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 net asset
value 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 National
Association of Securities Dealers, Inc., paid to EDI or its predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Class S, Class Y,
Institutional and Institutional Service shares.
If you are making a large purchase, there are several ways you can
combine multiple purchases of Class A shares in Evergreen Funds and take
advantage of lower sales charges. These are described below.
Combined Purchases
You may reduce your initial sales charge if you purchase Class A shares
in multiple Evergreen Funds, excluding Evergreen money market funds, at the same
time. The combined dollar amount invested will determine the initial sales
charge applied to all your current purchases. 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 may add the value of all of your existing Evergreen Fund
investments in all share classes, excluding Evergreen Money Market funds, to
determine the initial sales charge to be applied to your current Class A
purchase.
Your account, and therefore your rights of accumulation, can be linked
to 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 retirement plans
involving employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You may reduce the sales charge on a current purchase if you agree to
invest at least $50,000 in Class A shares of an Evergreen Fund over a 13-month
period. You will pay the same sales charge as if you had invested the full
amount all at one time. The Fund will hold a certain portion of your investment
in escrow until your commitment is met.
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value 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;
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 the Fund by the broker-dealer;
7. employees of FUNB, its affiliates, EDI, any broker-dealer
with whom EDI has entered into an agreement to sell shares of
the Fund, and members of the immediate families of such
employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen Funds, EDI or their affiliates and to the immediate
families of such persons; or
9. a bank or trust company acting as trustee for a single
account in the name of such bank or trust company if the
initial investment in any of the Evergreen Funds 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 CDSCs
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. a systematic withdrawal from the ERISA plan of a
shareholder who is at least 59 years old;
6. shares in an account that we have closed because the
account has an aggregate net asset value 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;
10. a withdrawal consisting of returns of excess contributions
or excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying
Plan that purchased Class C shares (this waiver is not
available in the event a Qualifying Plan, as a whole, redeems
substantially all of its assets).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen Fund which offers the same class of shares. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen Fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC may automatically reinvest 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. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
PRICING OF SHARES
Calculation of Net Asset Value
The Fund calculates its NAV once daily (or twice daily, for money
market funds) on Monday through Friday, as described in the prospectus. The Fund
will not compute its NAV on the days the New York Stock Exchange is closed: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities
exchange or the over-the-counter National Market System
("NMS") are valued on the basis of the last sales price on the
exchange where primarily traded or on the NMS prior to the
time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or
in the over-the-counter market for which there has been no
sale and other securities traded in the over-the-counter
market are valued at the mean of the bid and asked prices at
the time of valuation.
(3) Short-term investments maturing in more than 60 days, for
which market quotations are readily available, are valued at
current market value.
(4) Short-term investments maturing in sixty days or less
are valued at amortized cost, which approximates market.
(5) Securities, including restricted securities, for which
market quotations are not readily available; listed securities
or those on NMS if, in the investment advisor's opinion, the
last sales price does not reflect an accurate current market
value; and other assets are valued at prices deemed in good
faith to be fair under procedures established by the Board of
Trustees.
(6) Municipal bonds are valued by an independent pricing
service at fair value using a variety of factors which may
include yield, liquidity, interest rate risk, credit quality,
coupon, maturity and type of issue.
Foreign securities are generally valued on the basis of valuations
provided by a pricing service, approved by the Trust's Board of Trustees, which
uses information with respect to transactions in such securities, quotations
from broker-dealers, market transactions in comparable securities, and various
relationships between securities and yield to maturity in determining value.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The following is the formula used to calculate average annual total
return:
[OBJECT OMITTED]
P = initial payment of $1,000 T = average annual total return N =
number of years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
[OBJECT OMITTED] [OBJECT OMITTED]
Where:
a = Dividends and interest earned during the period b = Expenses
accrued for the period (net of reimbursements) c = The average daily
number of shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
[OBJECT OMITTED]
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
[OBJECT OMITTED]
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
EDI is the principal underwriter for the Trust and with respect to each
class of shares of the Fund. The Trust has entered into a Principal Underwriting
Agreement ("Underwriting Agreement") with EDI with respect to each class of the
Fund. EDI is a subsidiary of The BISYS Group, Inc.
EDI, as agent, has agreed to use its best efforts to find purchasers
for the shares. EDI 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 EDI 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 EDI are at the public offering
price of the shares, which is determined in accordance with the provisions of
the Trust's Declaration of Trust, By-Laws, current prospectuses and SAI. All
orders are subject to acceptance by the Fund and the Fund reserves the right, in
its sole discretion, to reject any order received. Under the Underwriting
Agreement, the Fund is not liable to anyone for failure to accept any order.
EDI has agreed that it will, in all respects, duly conform with all
state and federal laws applicable to the sale of the shares. EDI has also agreed
that it will indemnify and hold harmless the Trust 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 EDI or any other person for whose acts EDI 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 Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's 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 EDI's judgment, it could benefit the sales of
shares, EDI may provide to selected broker-dealers promotional materials and
selling aids, including, but not limited to, personal computers, related
software, and data files.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, Class
C, Class S and Institutional Service shares, as applicable, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These 12b-1 fees are indirectly paid by the shareholder, as
shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans")
that the Fund has adopted for its Class A, Class B, Class C, Class S and
Institutional Service shares, as applicable, the Fund may incur expenses for
12b-1 fees up to a maximum annual percentage of the average daily net assets
attributable to a class, as follows:
------------------------------- ---------------
Class A 0.75%*
------------------------------- ---------------
------------------------------- ---------------
Class B 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class C 1.00%
------------------------------- ---------------
------------------------------- ---------------
Class S 0.75%**
------------------------------- ---------------
------------------------------- ---------------
Institutional Service 0.75%*
------------------------------- ---------------
*Currently limited to 0.30% or less on Evergreen Money Market
Funds and 0.25% or less for all other Evergreen Funds. Of this
amount 0.25% is to be used exclusively as a shareholder
service fee. See the expense table in the prospectus of the
Fund in which you are interested.
**Currently limited to 0.60% or less on Evergreen Money Market
Funds. Of this amount 0.25% is to be used exclusively as a
shareholder service fee.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25%, to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts in the chart above.
Amounts paid under the Plans are used to compensate EDI pursuant to
Distribution Agreements (each an "Agreement," together, the "Agreements") that
the Fund has entered into with respect to its Class A, Class B, Class C, Class S
and Institutional Service shares, as applicable. The compensation is based on a
maximum annual percentage of the average daily net assets attributable to a
class, as follows:
----------------------------- --------------
Class A 0.30%*
----------------------------- --------------
----------------------------- --------------
Class B 1.00%
----------------------------- --------------
----------------------------- --------------
Class C 1.00%
----------------------------- --------------
----------------------------- --------------
Class S 0.60%*
----------------------------- --------------
----------------------------- --------------
Institutional Service 0.25%*
----------------------------- --------------
*May be lower. See the expense table in the prospectus of the Fund in
which you are interested.
The Agreements provide that EDI will use the distribution fees received
from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing
Fund shares;
(2) to compensate broker-dealers, depository institutions and
other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's
shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that EDI may use distribution fees to make
interest and principal payments in respect of amounts that have been financed to
pay broker-dealers or other persons for distributing Fund shares. EDI may assign
its rights to receive compensation under the Plans to secure such financings.
FUNB or its affiliates may finance payments made by EDI to compensate
broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to EDI under the Agreements may be paid by EDI to the acquired
fund's distributor or its predecessor.
Since EDI's compensation under the Agreements is not directly tied to
the expenses incurred by EDI, the compensation received by it under the
Agreements during any fiscal year may be more or less than its actual expenses
and may result in a profit to EDI. Distribution expenses incurred by EDI in one
fiscal year that exceed the compensation paid to EDI for that year may be paid
from distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least annually on Class
A, Class B, Class C and Class S shares and are charged as class expenses, as
accrued. The distribution fees attributable to the Class B and Class C 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 EDI to compensate broker-dealers in connection with the
sale of such shares.
Service fees are accrued daily and paid at least annually on Class A,
Class B, Class C, Class S and Institutional Service shares and are charged as
class expenses, as accrued.
Under the Plans, the Treasurer of the Trust reports the amounts
expended under the Plans and the purposes for which such expenditures were made
to the Trustees of the Trust for their review on a quarterly basis. Also, each
Plan provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor 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 to EDI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
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, Class B, Class C,
Class S and Institutional Service shares. The Plans are designed to (i)
stimulate brokers to provide distribution and administrative support services to
the Fund and holders of Class A, Class B, Class C, Class S and Institutional
Service shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B, Class C, Class S
and Institutional Service 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 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, Class B, Class C, Class S
and Institutional Service shares; assisting clients in changing dividend
options, account designations, and addresses; and providing such other services
as the Fund reasonably requests for its Class A, Class B, Class C, Class S and
Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to EDI with respect to that class or classes, and (ii) the Fund
would not be obligated to pay EDI for any amounts expended under the
Distribution Agreement not previously recovered by EDI from distribution
services fees in respect of shares of such class or classes through deferred
sales charges.
All material amendments to any Plan or Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the 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 the Fund may bear pursuant to the 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 the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by EDI. To
terminate any Distribution Agreement, any party must give the other parties 60
days' written notice; to terminate a Plan only, the Fund need give no notice to
EDI. Any Distribution Agreement will terminate automatically in the event of its
assignment. For more information about 12b-1 fees, see "Expenses" in the
prospectus and "12b-1 Fees" under "Expenses" in Part 1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Code, as
amended. (Such qualification does not involve supervision of management or
investment practices or policies by the Internal Revenue Service.) In order to
qualify as a RIC, the Fund must, among other things, (i) derive at least 90% of
its gross income from dividends, interest, payments with respect to proceeds
from securities loans, gains from the sale or other disposition of securities or
foreign currencies and other income (including gains from options, futures or
forward contracts) derived with respect to its business of investing in such
securities; and (ii) diversify its holdings so that, at the end of each quarter
of its taxable year, (a) at least 50% of the market value of the Fund's total
assets is represented by cash, U.S. government securities and other securities
limited in respect of any one issuer, to an amount not greater than 5% of the
Fund's total assets and 10% of the outstanding voting securities of such issuer,
and (b) not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities and
securities of other regulated investment companies). By so qualifying, the Fund
is not subject to federal income tax if it timely distributes its investment
company taxable income and any net realized capital gains. A 4% nondeductible
excise tax will be imposed on the Fund to the extent it does not meet certain
distribution requirements by the end of each calendar year. The Fund anticipates
meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond or municipal money market fund,
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 net asset value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond, municipal money market
fund or U.S. Treasury or U.S. Government money market fund, it anticipates that
all or a portion of the ordinary dividends which it pays will qualify for the
70% dividends-received deduction for corporations. The Fund will inform
shareholders of the amounts that so qualify. If the Fund is a municipal bond,
municipal money market fund or U.S. Treasury or U.S. Government money market
fund, none of its income will consist of corporate dividends; therefore, none of
its distributions will qualify for the 70% dividends-received deduction for
corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it 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 the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the 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 the 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.
Special Tax Information for Shareholders of Municipal Bond or Municipal Money
Market Funds
The Fund expects that substantially all of its dividends will be
"exempt interest dividends," which should be treated as excludable from federal
gross income. In order to pay exempt interest dividends, at least 50% of the
value of the Fund's assets must consist of federally tax-exempt obligations at
the close of each quarter. An exempt interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by the Fund with respect to
its net federally excludable municipal obligation interest and designated as an
exempt interest dividend in a written notice mailed to each shareholder not
later than 60 days after the close of its taxable year. The percentage of the
total dividends paid by the Fund with respect to any taxable year that qualifies
as exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined
by the Code, as amended.) of a facility financed with an issue of tax-exempt
obligations or a "related person" to such a user should consult his tax advisor
concerning his qualification to receive exempt interest dividends should the
Fund hold obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
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 not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, 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 distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the 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 the 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 consequences of investing in shares of the Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S. and foreign tax consequences of ownership of shares of the
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Masters Fund may incur higher brokerage costs than would be the case if
a single investment advisor or sub-advisor were managing the entire portfolio.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
First Union Securities, Inc., an affiliate of the Funds' advisors and a
member of the New York and American Stock Exchanges, may, effect portfolio
transactions on those exchanges for the Funds.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
The following is qualified in its entirety by reference to the Trust's
Declaration of Trust.
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV" applicable to such share. Shares generally vote together as one class
on all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
Code of Ethics
The Trust and its various advisors have each adopted a code of ethics
pursuant to the requirements of Rule 17j-1 of the 1940 Act ("Code of Ethics").
Each of these Codes of Ethics permits Fund personnel to invest in securities for
their own accounts and is on file with, and available from, the SEC.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment
advisory agreement with the Fund's investment advisor (the "Advisory
Agreement"). Under the Advisory Agreement, and subject to the supervision of the
Trust's Board of Trustees, the investment advisor furnishes to the Fund (unless
the Fund is Evergreen Masters Fund) investment advisory, management and
administrative services, office facilities, and equipment in connection with its
services for managing the investment and reinvestment of the Fund's assets. The
investment advisor pays for all of the expenses incurred in connection with the
provision of its services.
If the Fund is Evergreen Masters Fund, the Advisory Agreement is
similar to the above except that the investment advisor selects sub-advisors
(hereinafter referred to as "Managers") for the Fund and monitors each Manager's
investment program and results. The investment advisor has primary
responsibility under the multi-manager strategy to oversee the Managers,
including making recommendations to the Trust regarding the hiring, termination
and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (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 the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Evergreen Masters Fund only)
Evergreen Masters Fund's investment program is based upon the
investment advisor's multi-manager concept. The investment advisor allocates the
Fund's portfolio assets on an equal basis among a number of investment
management organizations - currently four in number - each of which employs a
different investment style, and periodically rebalances the Fund's portfolio
among the Managers so as to maintain an approximate equal allocation of the
portfolio among them throughout all market cycles. Each Manager provides these
services under a Portfolio Management Agreement. Each Manager has discretion,
subject to oversight by the Trustees and the investment advisor, to purchase and
sell portfolio assets consistent with the Fund's investment objectives, policies
and restrictions and specific investment strategies developed by the investment
advisor. The Fund's current Managers are EAMC, MFS Institutional Advisors, Inc.,
OppenheimerFunds, Inc. and Putnam Investment Management, Inc.
The Trust and FUNB have received an order from the SEC that permits the
investment advisor to employ a "manager of managers" strategy in connection with
its management of the Fund. The exemptive order permits the investment advisor,
subject to certain conditions, and without shareholder approval, to: (a) select
new Managers who are unaffiliated with the investment advisor with the approval
of the Trust's Board of Trustees; (b) change the material terms of the Portfolio
Management Agreements with the Managers; and (c) continue the employment of a
Manager after an event which would otherwise cause the automatic termination of
a Portfolio Management Agreement. Shareholders would be notified of any Manager
changes. Shareholders have the right to terminate arrangements with a Manager by
vote of a majority of the outstanding shares of the Fund. The order also permits
the Fund to disclose the Managers' fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services.
See "Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, Michael S. Scofield, K. Dun Gifford and Russell Salton, each of whom
is an Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board Meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex.
<TABLE>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant; and
(DOB: 2/28/28) President of Centrum Equities (real estate development) and
Centrum Properties, Inc.(real estate development).
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.(investment
(DOB: 10/23/34) advice); former Director, Executive Vice President and
Treasurer, State Street Research & Management Company
(investment advice); Director, The Andover Companies
(insurance); and Trustee, Arthritis Foundation of New
England.
Arnold H. Dreyfuss Trustee Former Chairman, Eskimo Pie Corporation (food
(DOB: 9/2/28) manufacturer); former Trustee, Mentor Fund Complex; former
Director, Mentor Income Fund, Inc.; Formerly, Chairman and
Chief Executive Officer, Hamilton Beach/Proctor-Silex, Inc.
(small appliance manufacturer).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance Committee,
(DOB: 10/23/38) Cambridge College; Chairman Emeritus and Director, American
Institute of Food and Wine; Chairman and President, Oldways
Preservation and Exchange Trust (education); former Chairman
of the Board, Director, and Executive Vice President, The
London Harness Company (leather goods purveyor); former Managing
Partner, Roscommon Capital Corp.; former Chief Executive
Officer, Gifford Gifts of Fine Foods; former Chairman,
Gifford, Drescher & Associates (environmental consulting).
2-38
<PAGE>
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson
(DOB: 2/14/39) Products Company (manufacturing); Director of Phoenix Total
Return Fund and Equifax, Inc. (worldwide information
management); Trustee of Phoenix Series Fund, Phoenix
Multi-Portfolio Fund, and The Phoenix Big Edge Series Fund;
and former President, Morehouse College.
Gerald M. McDonnell Trustee Sales and Marketing Management with Nucor Steel Company.
(DOB: 7/14/39)
Thomas L. McVerry Trustee Former Vice President and Director of Rexham Corporation
(DOB: 8/2/39) (manufacturing); and Director of Carolina Cooperative
Credit Union.
Louis W. Moelchert, Jr. (DOB: Trustee President, Private Advisors, LLC; Vice President for
12/20/41) Investments, University of Richmond; former Trustee, Mentor
Fund Complex; former Director, Mentor Income Fund, Inc.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee President, Richardson, Runden & Company (new business
(DOB: 9/14/41) development/consulting company); Managing Director, Kennedy
Information (executive recruitment information and research
company); former Vice Chairman, DHR International, Inc.
(executive recruitment); former Senior Vice President,
Boyden International Inc. (executive recruitment);
Director, Commerce and Industry Association of New Jersey,
411 International, Inc. (communications), and J&M Cumming
Paper Co.(paper merchandise).
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health Services;
(DOB: 6/2/47) former Managed Health Care Consultant; and former
President, Primary Physician Care.
Michael S. Scofield Chairman of the Board Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43) of Trustees
Richard J. Shima Trustee Independent Consultant; former Chairman, Environmental
(DOB: 8/11/39) Warranty, Inc. (insurance agency); former Executive
Consultant, Drake Beam Morin, Inc. (executive
outplacement); Director of CTG Resources, Inc. (natural
gas), Hartford Hospital, Old State House Association, and
Enhance Financial Services, Inc.; former Director Middlesex
Mutual Assurance Company; former Chairman, Board of
Trustees, Hartford Graduate Center; Trustee, Greater
Hartford YMCA.
2-39
<PAGE>
Richard K. Wagoner, CFA Trustee Former Chief Investment Officer, Executive Vice President
(DOB: 12/12/37) and Head of Capital Management Group, FUNB ; former
consultant to the Board of Trustees of the Evergreen Funds;
former member, New York Stock Exchange; member, North
Carolina Securities Traders Association; member, Financial
Analysts Society.
William M. Ennis President President and Chief Executive Officer, Evergreen Investment
(DOB: 6/26/60) Company and Chief Operating Officer, Capital Management
Group, FUNB.
Carol Kosel Treasurer Senior Vice President, Evergreen Investment Services, Inc.
(DOB: 12/25/63) and Treasurer, Vestaur Securities, Inc.; former Senior
Manager, KPMG LLP.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant
(DOB: 6/6/63) Assistant Treasurer Vice President, EAMC/FUNB; former Senior Tax
Consulting/Acting Manager, Investment Companies Group,
PricewaterhouseCoopers LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Senior Vice President and General Counsel, Evergreen
Michael H. Koonce Secretary Investment Services, Inc.; Senior Vice President and
(DOB: 4/20/60) Assistant General Counsel, First Union Corporation; former
Senior Vice President and General Counsel, Colonial
Management Associates, Inc.
</TABLE>
* Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to
help determine the credit quality of bonds and other obligations the Fund
intends to purchase or already owns. A rating is an opinion of an issuer's
ability to pay interest and/or principal when due. Ratings reflect an issuer's
overall financial strength and whether it can meet its financial commitments
under various economic conditions.
If a security held by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
<PAGE>
<TABLE>
COMPARISON OF LONG-TERM BOND RATINGS
----------------- ---------------- --------------- =================================================
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aaa AAA AAA Excellent Quality (lowest risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Aa AA AA Almost Excellent Quality (very low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
A A A Good Quality (low risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Baa BBB BBB Satisfactory Quality (some risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Ba BB BB Questionable Quality (definite risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
B B B Low Quality (high risk)
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
----------------- ---------------- --------------- =================================================
----------------- ---------------- --------------- =================================================
D DDD/DD/D In Default
----------------- ---------------- --------------- =================================================
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that
a payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action. An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
<PAGE>
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor's capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
! On the day an interest and/or principal payment is due and is not paid.
An exception is made if there is a grace period and S&P believes that a
payment will be made, in which case the rating can be maintained; or
! Upon voluntary bankruptcy filing or similar action, An exception is
made if S&P expects that debt service payments will continue to be made
on a specific issue. In the absence of a payment default or bankruptcy
filing, a technical default (i.e., covenant violation) is not
sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
<PAGE>
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC,
CC, and C are regarded as having significant speculative characteristics. BB
indicates the least degree of speculation and C the highest. While such
obligations will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
<PAGE>
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met.
Securities rated in this category are not investment grade.
<PAGE>
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
-- Leading market positions in well-established industries.
-- High rates of return on funds employed.
-- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
-- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
<PAGE>
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or EDI,
and no person is entitled to rely on any information or representation not
contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
EVERGREEN SELECT EQUITY TRUST
PART C
OTHER INFORMATION
Item 23. Exhibits
Unless otherwise indicated, each of the Exhibits listed below is filed
herewith.
<TABLE>
Exhibit
Number Description Location
------- ----------- --------
<S> <C> <C>
(a) Declaration of Trust Incorporated by reference to
Registrant's Pre-Effective Amendment No. 2
Filed on November 17, 1997
(b) By-laws Incorporated by reference to
Registrant's Pre-Effective Amendment No. 2
Filed on November 17, 1997
(c) Provisions of instruments defining the rights Incorporated by reference to Exhibits 1 and 2
of holders of the securities being registered of Registrant's Pre-Effective Amendment No. 2
are contained in the Declaration of Trust Filed on November 17, 1997
Articles II, V, VI, VIII, IX and By-laws
Articles II and VI
(d)(1) Investment Advisory Agreement between the Contained herein
Registrant and First Union National Bank
(d)(2) Investment Advisory Agreement between the Contained herein
Registrant and Evergreen Investment Management
Co. (formerly known as Keystone Investment
Management Company)
(d)(3) Investment Advisory Agreement between the Contained herein
Registrant and Evergreen Meridian Investment
Company
(e) Principal Underwriting Agreement between the Incorporated by reference to
Registrant and Evergreen Distributor, Inc. Registrant's Post-Effective Amendment No. 4
Filed on June 30, 1998
(e)(1) Distribution Agreement Class A & C shares Incorporated by reference to Registrant's
(Evergreen Special Equity Fund) Post-Effective Amendment No. 11
Filed on August 30, 1999
(e)(2) Distribution Agreement Class B shares Incorporated by reference to Registrant's
(Evergreen Special Equity Fund) Post-Effective Amendment No. 11
Filed on August 30, 1999
(f) Deferred Compensation Plan Incorporated by reference to
Registrant's Pre-Effective Amendment No. 2
Filed on November 17, 1997
(g) Custodian Agreement between the Registrant Incorporated by reference to
and State Street Bank and Trust Company Registrant's Post-Effective Amendment No. 4
Filed on June 30, 1998
(h)(1) Administration Agreement between Evergreen Contained herein
Investment Services, Inc. and the Registrant
(h)(2) Transfer Agent Agreement between the Incorporated by reference to
Registrant and Evergreen Service Company Registrant's Post-Effective Amendment No. 4
Filed on June 30, 1998
(i) Opinion and Consent of Sullivan & Worcester LLP Incorporated by reference to Registrant's
Pre-Effective Amendment No. 2 filed on
November 17, 1997
(j)(1) Consent of KPMG LLP Contained herein
(k) Not applicable
(l) Not applicable
(m)(1) 12b-1 Distribution Plan Institutional Incorporated by reference to
Service Shares Registrant's Post-Effective Amendment No. 4
Filed on June 30, 1998
(m)(2) Distribution Plan Class A shares Incorporated by reference to
(Evergreen Equity Index Fund) Registrant's Post-Effective Amendment No. 6
Filed on November 30, 1998
(m)(3) Distribution Plan Class A shares Incorporated by reference to Registrant's
(Evergreen Special Equity Fund) Post-Effective Amendment No. 11
Filed on August 30, 1999
(m)(4) Distribution Plan Class B shares Incorporated by reference to
(Evergreen Equity Index Fund) Registrant's Post-Effective Amendment No. 6
Filed on November 30, 1998
(m)(5) Distribution Plan Class B shares Incorporated by reference to Registrant's
(Evergreen Special Equity Fund) Post-Effective Amendment No. 11
Filed on August 30, 1999
(m)(6) Distribution Plan for Class C shares Incorpoated by reference to Registrant's
(Evergreen Special Equity Fund) Post-Effective Amendment No. 11
Filed on August 30, 1999
(n) Not applicable
(o) Multiple Class Plan Incorporated by reference to Registant's
Post-Effective Amendment No. 2 filed on
November 17, 1997
(p) Code of Ethics Contained herein
</TABLE>
Item 24. Persons Controlled by or Under Common Control with Registrant.
None
Item 25. Indemnification.
Registrant has obtained from a major insurance carrier a trustees and
officers liability policy covering certain types of errors and omissions.
Provisions for the indemnification of the Registrant's Trustees and officers are
also contained in the Registrant's Declaration of Trust.
Provisions for the indemnification of the Registrant's Investment Advisors
are contained in their respective Investment Advisory and Management Agreements.
Provisions for the indemnification of Evergreen Distributor, Inc., the
Registrant's principal underwriter, are contained in the Principal Underwriting
Agreement between Evergreen Distributor, Inc. and the Registrant.
Provision for the indemnification of Evergreen Service Company, the
Registrant's transfer agent, are contained in the Master Transfer Agent and
Recordkeeping Agreement between Evergreen Service Company and the Registrant.
Provisions for the indemnification of State Street Bank & Trust Company,
the Registrant's custodian, are contained in the Custodian Agreement between
State Street Bank and Trust Company and the Registrant.
Item 26. Business or Other Connections of Investment Advisors.
The Directors and principal executive officers of First Union National Bank
are:
Edward E. Crutchfield, Jr. Chairman, First Union Corporation and First
Union National Bank
G. Kennedy Thompson Chief Executive Officer, President and
Director, First Union Corporation and First
Union National Bank
Mark C. Treanor Executive Vice President, Secretary &
General Counsel, First Union Corporation;
Secretary and Executive Vice President,
First Union National Bank
Robert T. Atwood Executive Vice President and Chief Financial
Officer, First Union Corporation; Chief
Financial Officer and Executive Vice
President, First Union National Bank
All of the above persons are located at the following address: First Union
National Bank, One First Union Center, Charlotte, NC 28288.
The information required by this item with respect to Evergreen Investment
Management Company (formerly known as Keystone Investment Management Co.) is
incorporated by reference to the Form ADV (File No. 801-5436) of Evergreen
Investment Management Company.
Item 27. Principal Underwriter.
Evergreen Distributor, Inc. acts as principal underwriter for each
registered investment company or series thereof that is a part of the Evergreen
"fund complex" as such term is defined in Item 22(a) of Schedule 14A under the
Securities Exchange Act of 1934.
The Directors and principal executive officers of Evergreen Distributor,
Inc. are:
Lynn C. Mangum Director, Chairman and Chief Executive
Officer
Dennis Sheehan Director, Chief Financial Officer
Maryann Bruce President
Kevin J. Dell Vice President, General Counsel and Secretary
Messrs. Mangum, Sheehan and Dell are located at the follwoing address:
Evergreen Distributor Inc., 90 Park Avenue, New York, NY 10019.
Ms. Bruce is located at 201 South College Street, Charlotte, NC 28288.
Item 28. Location of Accounts and Records.
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Evergreen Investment Services, Inc., Evergreen Service Company and Evergreen
Investment Management Company, all located at 200 Berkeley Street, Boston,
Massachusetts 02110
First Union National Bank, One First Union Center, 301 S. College Street,
Charlotte, North Carolina 28288
Iron Mountain, 3431 Sharp Slot Road, Swansea, Massachusetts 02777
State Street Bank and Trust Company, 2 Heritage Drive, North Quincy,
Massachusetts 02171
Meridian Investment Company, 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355
Item 29. Management Services.
Not Applicable
Item 30. Undertakings.
The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and Commonwealth of Massachusetts, on the
26th day of October, 2000.
EVERGREEN SELECT EQUITY TRUST
By: /s/ Michael H. Koonce
-----------------------------
Name: Michael H. Koonce
Title: Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 26th day of October, 2000.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ William M. Ennis /s/ Michael H. Koonce /s/ Carol A. Kosel
------------------------- ----------------------------- --------------------------------
William M. Ennis Michael H. Koonce Carol A. Kosel
President Secretary Treasurer
(Chief Operating Officer) (Principal Financial and Accounting
Officer)
/s/ Arnold H. Dreyfuss /s/ K. Dun Gifford /s/ Laurence B. Ashkin
---------------------------- ---------------------------- -----------------------------
Arnold H. Dreyfuss* K. Dun Gifford* Laurence B. Ashkin*
Trustee Trustee Trustee
/s/ Charles A. Austin, III /s/ William Walt Pettit
---------------------------- ----------------------------
Charles A. Austin, III* William Walt Pettit*
Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Louis M. Moelchert, Jr.
------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Lois M. Moelchert, Jr.*
Trustee Trustee Trustee
/s/ Michael S. Scofield /s/ David M. Richardson /s/ Russell A. Salton, III MD
------------------------------ ------------------------------- --------------------------------
Michael S. Scofield* David M. Richardson* Russell A. Salton, III MD*
Chairman of the Board Trustee Trustee
and Trustee
/s/ Leroy Keith, Jr. /s/ Richard J. Shima /s/ Richard K. Wagoner*
------------------------------ ------------------------------- --------------------------------
Leroy Keith, Jr.* Richard J. Shima* Richard K. Wagoner*
Trustee Trustee Trustee
</TABLE>
*By: /s/ Maureen E. Towle
-------------------------------
Maureen E. Towle
Attorney-in-Fact
*Maureen E. Towle, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
(d)(1) Investment Advisory Agreement
between the Registrant and
First Union National Bank
(d)(2) Investment Advisory Agreement
between the Registrant and
Evergreen Investment Management
Company
(d)(3) Investment Advisory Agreement
between the Registrant and
Meridian Investment Company
(h)(1) Administration Agreement between
Evergreen Investment Services, Inc.
and the Registrant
(j)(1) Consent of KPMG LLP