PROSPECTUS September 1,
1998
EVERGREEN DOMESTIC GROWTH FUNDS (Evergreen Funds logo
appears here)
EVERGREEN TAX STRATEGIC EQUITY FUND
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Tax Strategic Equity Fund (the "Fund") seeks to maximize
the after-tax total return on a portfolio of equity investments by a strategy of
tax-efficient portfolio management. The Fund's investment objective is long-term
capital growth within a tax-efficient strategy.
This prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information ("SAI") for the Fund dated
February 1, 1998, as amended on August 3, 1998 and September 1, 1998, has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference herein. The SAI provides information regarding certain matters
discussed in this prospectus and other matters which may be of interest to
investors, and may be obtained without charge by calling the Fund at (800)
343-2898. There can be no assurance that the investment objective of the Fund
will be achieved. Investors are advised to read this prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is not insured or otherwise
protected by the U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency and involves risk,
including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
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COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
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TABLE OF CONTENTS
EXPENSE INFORMATION..................................................... 3
FINANCIAL HIGHLIGHTS.................................................... 5
DESCRIPTION OF THE FUND................................................. 5
INVESTMENT OBJECTIVE AND POLICIES.............................. 5
INVESTMENT PRACTICES AND RESTRICTIONS.......................... 6
ORGANIZATION AND SERVICE PROVIDERS.......................................14
ORGANIZATION....................................................14
SERVICE PROVIDERS............................................ 14
DISTRIBUTION PLANS AND AGREEMENTS...............................16
PURCHASE AND REDEMPTION OF SHARES..................................... 18
HOW TO BUY SHARES............................................ 18
HOW TO REDEEM SHARES............................................24
EXCHANGE PRIVILEGE..............................................26
SHAREHOLDER SERVICES............................................28
BANKING LAWS................................................. 30
OTHER INFORMATION........................................................30
DIVIDENDS, DISTRIBUTIONS AND TAXES..............................30
GENERAL INFORMATION.............................................32
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EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES Class A Shares Class B Shares Class C Shares
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases 4.75% None None
(as a % of offering price)
Maximum Contingent Deferred Sales Charge (as a % of original None(1) 5%(2) 1%(2)
purchase price or redemption proceeds, whichever is lower)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending September 30, 1998. The examples show what you would pay if you
invested $1,000 over the periods indicated. The examples assume that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The examples are for illustration purposes only and should not be considered
a representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
ANNUAL OPERATING EXPENSES
Class A Class B Class C
Management Fees 0.95% 0.95% 0.95%
12b-1 Fees (3) 0.25% 1.00% 1.00%
Other Expenses 0.35% 0.35% 0.35%
----- ----- -----
Total 1.55% 2.30% 2.30%
===== ===== =====
Examples
<TABLE>
<CAPTION>
Assuming Redemption at End of Assuming no Redemption
Period
Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C>
After 1 Year $63 $73 $33 $23 $23
After 3 Years $94 $102 $72 $72 $72
</TABLE>
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(1) 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 upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5%
to 1% on amounts redeemed within six years after the month
of purchase. The deferred sales charge on Class C shares is
1% on amounts redeemed within one year after the month of
purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for more
information.
(3) Class A shares of the Fund can pay up to 0.75% of average
daily net assets as a 12b-1 fee. For the
foreseeable future, the Class A 12b-1 fees will be limited
to 0.25% of average daily net assets. Long-term
shareholders may pay more than the economic equivalent
front-end sales charges permitted by the National
Association of Securities Dealers, Inc.
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FINANCIAL HIGHLIGHTS
As of the date of this prospectus, the Fund had not commenced
operations. Therefore, no financial highlights are currently available.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the SAI for more information regarding
the Fund's fundamental investment policies or other related investment policies.
There can be no assurance that the Fund's investment objective will be achieved.
The Fund's objective is long-term capital growth within a
"tax-efficient" strategy. In pursuing its objective of long-term capital growth,
the Fund invests at least 65% of its assets in common stocks of large and medium
capitalization companies (i.e., companies with at least $1 billion in equity
market capitalization) believed by its investment advisor to have above average
earnings growth prospects. The investment advisor uses fundamental research
analysis and valuation techniques in order to identify potential investments for
the Fund. Up to 35% of the Fund's total assets may be invested in a combination
of (i) common stocks or American Depositary Receipts (receipts issued in the
United States by banks or trust companies evidencing ownership of underlying
foreign securities) of non-U.S. companies, (ii) common stocks of small
capitalization companies (i.e., companies with equity market capitalizations of
less than $1 billion) and (iii) interests in limited partnerships including
master limited partnerships. See "Investment Practices and Restrictions."
While the Fund's paramount objective is long-term capital growth, the
investment adviser will, so long as there is no materially negative impact on
the
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Fund's total return, use certain investment techniques designed to reduce the
payment by the Fund of taxable distributions to shareholders, and thereby reduce
the impact of taxes on shareholder returns. Such strategies may include, among
others :
o purchasing low or non- dividend paying stocks - this technique
reduces the amount of the Fund's investment income which, when
distributed to shareholders, is taxable.
o purchasing securities with long-term growth potential
that may enable the Fund to experience a low portfolio
turnover rate - a low portfolio turnover rate
helps to minimize the realization and distribution
to
shareholders of taxable capital gains.
o when selling a portion of the Fund's holding of a security,
sell those shares with the highest cost basis to the Fund in
order to minimize realized capital gains - reducing the amount
of realized capital gains lessens taxable distributions to
shareholders.
o deferring the sale of a security until the realized gain would
qualify as a long-term capital gain rather than short-term -
distributions of long-term capital gains are taxable at lower
rates than short-term capital gains.
Due to the Fund's "tax efficient" investment approach, the Fund may be
expected to provide only a relatively low level of taxable income as compared to
a traditionally managed growth fund. Accordingly, the Fund is designed for
long-term investors with little or no need for investment income.
The Fund may invest, for temporary defensive purposes, up to
100% of its assets in short-term obligations. Such obligations
may include U.S. government securities, master demand notes,
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commercial paper and notes, bank deposits and other financial
obligations.
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
INVESTMENT PRACTICES AND RESTRICTIONS
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker-dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment advisor will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged. The Fund does not intend to purchase when-issued securities
for speculative purposes, but only in furtherance of its investment objective.
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Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 33 1/3% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis,
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may also borrow an additional 5%
of its total assets from banks and others. The Fund may only borrow as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. The Fund may not purchase additional securities when borrowings
exceed 5% of total assets.
The purchase of securities while borrowings are outstanding will have
the effect of leveraging the Fund. Such leveraging or borrowing increases the
Fund's exposure to capital risk and borrowed funds are subject to interest costs
which will reduce net income.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit. The inability of the Fund to dispose of
illiquid investments readily or at a reasonable price could impair its ability
to raise cash for redemptions or other purposes.
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Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the U.S. The Fund's investment
advisor determines the liquidity of Rule 144A securities according to the
guidelines and procedures adopted by Evergreen Equity Trust's Board of Trustees.
The Board of Trustees monitors the investment advisor's application of those
guidelines and procedures. Securities eligible for resale pursuant to Rule 144A,
which the Fund's investment advisor has determined to be liquid or readily
marketable, are not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk. The Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and listed
put options on financial futures contracts for portfolio securities. The Fund
may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its position in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S.
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Treasury bills. The Fund will be considered "covered" with respect to a put
option it writes if, so long as it is obligated as the writer of the put option,
it deposits and maintains with its custodian in a segregated account liquid
assets having a value equal to or greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
The Fund may also enter into currency and other 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, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. 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
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is adjusted to reflect changes in the value of the contract and which remains in
effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the value of its securities or currencies. 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 or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or 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.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's return may
be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contracts and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment
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advisor could be incorrect in its expectations and forecasts about the direction
or extent of market factors, such as interest rates, securities price movements,
and other economic factors. Even if the Fund's 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. In these events, the Fund may lose money on the
financial futures contracts or the options on financial futures contracts. It is
not certain that a secondary market for positions in financial futures contracts
or for options on financial futures contracts will exist at all times. Although
the Fund's investment advisor will consider liquidity before entering into
financial futures contracts or options on financial futures contracts, there is
no assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts, such as those described above,
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.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Investment in Small Companies. Investments in securities of little-known,
relatively small and special situation companies may tend to be speculative and
volatile. A lack of management depth in such companies could increase the risks
associated with the loss of key personnel. Also, the material and financial
resources of such companies may be limited, with the consequence that funds or
external financing necessary for growth may be
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unavailable. Such companies may also be involved in the development or marketing
of new products or services for which there are no established markets. If
projected markets do not materialize or only regional markets develop, such
companies may be adversely affected or may be subject to the consequences of
local events. Moreover, such companies may be insignificant factors in their
industries and may become subject to intense competition from larger companies.
Securities of companies in which the Fund may invest will frequently be traded
only in the over-the-counter market or on regional stock exchanges and will
often be closely held. Securities of this type may have limited liquidity and
may be subject to wide price fluctuations. As a result of the risk factors
described above, the net asset value of the Fund's shares can be expected to
vary significantly. Accordingly, the Fund should not be considered suitable for
investors who are unable or unwilling to assume the associated risks, nor should
investment in the Fund be considered a balanced or complete investment program.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the U.S. because of differences in
the legal systems. Foreign securities may be subject to foreign taxes, which may
reduce yield, and may be less marketable than comparable U.S. securities. All
these factors are considered by the Fund's investment advisor before making any
of these types of investments.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of the Fund's shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, 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
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or 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
strength 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.
Although the Fund does not currently intend to do so, it may also purchase and
sell options related to foreign currencies. The Fund does not intend to enter
into foreign currency transactions for speculation or leverage.
ORGANIZATION AND SERVICE PROVIDERS
ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. The Fund is a diversified series of an open-end,
management investment company called Evergreen Equity Trust (the "Trust"). The
Trust is a Delaware business trust organized on September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of 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.
Shareholder Rights. All shareholders
have equal voting, liquidation and other rights. Each
share is entitled to one vote for each dollar of net asset value
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applicable to such share. Shareholders may exchange shares as described under
"Exchanges," but will have no other preference, conversion, exchange or
preemptive rights. When issued and paid for, shares will be fully paid and
nonassessable. Shares of the Fund are redeemable, transferable and freely
assignable as collateral. The Trust may establish additional classes or series
of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees.
SERVICE PROVIDERS
Investment Advisor. The investment advisor of the Fund is Evergreen Asset
Management Corp. ("Evergreen Asset"), which is located at 2500 Westchester
Avenue, Purchase, New York 10577 and is a wholly-owned subsidiary of First Union
Corporation ("First Union"). Evergreen Asset, with its predecessors, has served
as investment advisor to the Evergreen mutual funds since 1971.
Evergreen Asset is entitled to receive from the Fund an annual fee
equal to 0.95% of average daily net assets of the Fund.
First Union is located at 301 South College Street, Charlotte, North
Carolina 28288-0630. First Union and its subsidiaries including First Union
National Bank ("FUNB") provide a broad range of financial services to
individuals and businesses throughout the U.S.
Portfolio Manager. The portfolio manager for the Fund is Stephen A. Lieber, who
is Chairman and Co-Chief Executive of Evergreen Asset. Mr. Lieber is the founder
of Evergreen Asset and has been associated with Evergreen Asset and its
predecessor since 1971.
Sub- advisor. Evergreen Asset has entered into a sub- advisory agreement with
Lieber & Company, an indirect wholly-owned subsidiary of First Union, which
provides that Lieber & Company's research department and staff will furnish
Evergreen
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Asset with information, investment recommendations, advice and assistance, and
will generally be available for consultation on the portfolio of the Fund.
Lieber & Company will be reimbursed by Evergreen Asset in connection with the
rendering of services on the basis of the direct and indirect costs of
performing such services. There is no additional charge to the Fund for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides the Fund with facilities,
equipment and personnel. For its services as administrator, EIS is entitled to
receive a fee based on the aggregate average daily net assets of the Fund at a
rate based on the total assets of all mutual funds administered by EIS for which
any affiliate of FUNB serves as investment advisor. The administration fee is
calculated in accordance with the following schedule.
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
DISTRIBUTION PLANS AND AGREEMENTS
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Distribution Plans. The Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which are based upon a maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the class, as
follows:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment advisor or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or services fee during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Plans are used to compensate the Fund's distributor pursuant to the Distribution
Agreements entered into by the Fund.
The Plans are in compliance with the Conduct Rules of the National
Association of Securities Dealers, Inc. which effectively limit the annual
asset-based sales charges and service fees that a mutual fund may pay on a class
of shares to an annual rate of 0.75% and 0.25%, respectively, of the average
aggregate annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee to
6.25% of cumulative gross sales of shares of that class, plus interest on the
unpaid amount at the prime rate plus 1% per annum.
Distribution Agreements. The Fund has also entered into distribution agreements
(each a "Distribution Agreement" or collectively the "Distribution Agreements")
with EDI. Pursuant to the Distribution Agreements, the Fund will compensate EDI
for its services as distributor based upon the maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the class, as
follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
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The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Distribution Agreements to secure such financings), (2)
to otherwise promote the sale of shares of the Fund, and (3) to compensate
broker-dealers, depository institutions and other financial intermediaries for
providing administrative, accounting and other services with respect to the
Fund's shareholders. FUNB or its affiliates may finance the 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 other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any 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 level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o ESC, P.O. Box 2121,
Boston, Massachusetts 02106- 2121, a completed application and a check payable
to the Fund. You may also telephone 1-800-343-2898 to obtain the number of an
account to which you can wire or electronically transfer funds and then send in
a completed application. The minimum initial investment is $1,000, which may be
waived in certain situations. Subsequent investments in any amount may be made
by check, by wiring federal funds, by direct deposit or by an electronic funds
transfer.
There is no minimum amount for subsequent investments.
Investments of $25 or more are allowed under the Systematic
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Investment Plan. See the application for more information. Only Class A, Class B
and Class C shares are offered through this prospectus. (See "General
Information - Other Classes of Shares.")
Class A Shares - Front-End Sales Charge Alternative. You may purchase Class A
shares at net asset value plus an initial sales charge on purchases under
$1,000,000. You may purchase $1,000,000 or more of Class A shares without a
front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
<TABLE>
<CAPTION>
Amount of Purchase As a % of As a % of Commission to
the Net the Dealer/Agent
Amount Offering as a % of
Invested Price Offering Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,999 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
$1,000,000 or more None None 1.00% of the
amount
invested up to
$2,999,999;
.50% of the
amount
invested over
$2,999,999, up
to $4,999,999;
and .25% of
the excess
over
$4,999,999
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank
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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; (f) current and retired
employees of 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; (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; and (h)
all qualified plan customers holding Evergreen Class Y shares in connection with
a rollover into an individual retirement account. Certain broker-dealers or
other financial institutions may impose a fee on transactions in shares of the
Fund.
Class A shares may also be purchased at net asset value by corporate or
certain other qualified retirement plans or a non-qualified deferred
compensation plan, or a Title I tax sheltered annuity or TSA plan sponsored by
an organization having 100 or more eligible employees, or a TSA plan sponsored
by a public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
Certain employer-sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares at net asset value provided
that such plans meet certain required minimum number of eligible employees or
required amount of
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assets. Additional information concerning the waiver of sales
charges is set forth in the SAI.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letters of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the application for additional information concerning these
reduced sales charges.
Class B Shares - Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
<TABLE>
<CAPTION>
CDSC
Redemption Timing Imposed
<S> <C>
Month of purchase and the first twelve-month period following the month of purchase............... 5.00%
Second twelve-month period following the month of purchase........................................ 4.00%
Third twelve-month period following the month of purchase......................................... 3.00%
Fourth twelve-month period following the month of purchase........................................ 3.00%
Fifth twelve-month period following the month of purchase......................................... 2.00%
Sixth twelve-month period following the month of purchase......................................... 1.00%
No CDSC is imposed on amounts redeemed thereafter.
</TABLE>
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). The higher fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
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<PAGE>
At the end of the period ending seven years after the end of the
calendar month in which the shareholder's purchase order was accepted, Class B
shares will automatically convert to Class A shares and will no longer be
subject to the higher distribution and service fees imposed on Class B shares.
Such conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares - Level-Load Alternative. Class C shares are only offered through
broker-dealers who have special distribution agreements with EDI. You may
purchase Class C shares at net asset value without any initial sales charge and,
therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC if you redeem shares during the month
of purchase and the 12-month period following the month of purchase. No CDSC is
imposed on amounts redeemed thereafter. Class C shares incur higher distribution
and/or shareholder service fees than Class A shares but, unlike Class B shares,
do not convert to any other class of shares of the Fund. The higher fees mean a
higher expense ratio, so Class C shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares. The Fund will not normally
accept any purchase of Class C shares in the amount of $500,000 or more. No CDSC
will be imposed on Class C shares purchased by institutional investors and
through employee benefit and savings plans eligible for the exemption from
front-end sales charges described under "Class A Shares - Front-End Sales Charge
Alternative" above. Broker-dealers and other financial intermediaries whose
clients have purchased Class C shares may receive a service fee equal to 0.75%
of the average daily net asset value of such shares on an annual basis held by
their clients more than one year from the date of purchase. Service fees will
commence immediately with respect to shares eligible for exemption from the CDSC
normally applicable to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which the Fund
did not pay a commission on issuance, including shares obtained from dividend or
distribution reinvestment, are not subject to a CDSC. Any CDSC imposed upon the
redemption of Class A, Class B or Class C shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net asset value at
the time of purchase of such shares.
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<PAGE>
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000;
(5) automatic withdrawals under the Systematic Withdrawal Plan of up to 1.00%
per month of the shareholder's initial account balance; (6) withdrawals
consisting of loan proceeds to a retirement plan participant; (7) financial
hardship withdrawals made by a retirement plan participant; or (8) withdrawals
consisting of returns of excess contributions or excess deferral amounts made to
a retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, FUNB, Keystone Investment Management Company
("Keystone"), Meridian Investment Company ("Meridian"), Evergreen Asset, First
International Advisors, Inc. ("First International"), EDI and certain of their
affiliates, and to members of the immediate families of such persons, to
registered representatives of firms with dealer agreements with EDI, and to a
bank or trust company acting as a trustee for a single account.
How the Fund Values Its Shares. The net asset value of each class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value.
General. The decision as to which class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
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<PAGE>
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the U.S.
Such a dealer may elect to receive cash incentives of equivalent amount in lieu
of such payments. EDI may also limit the availability of such incentives to
certain specified dealers. EDI from time to time sponsors promotions involving
First Union Brokerage Services, Inc., an affiliate of the Fund's investment
advisor, and select broker-dealers, pursuant to which incentives are paid,
including gift certificates and payments in amounts up to 1% of the dollar
amount of shares of the Fund sold. Awards may also be made based on the opening
of a minimum number of accounts. Such promotions are not being made available to
all broker-dealers. Certain broker-dealers may also receive payments from EDI or
the Fund's investment advisor over and above the usual trail commissions or
shareholder servicing payments applicable to a given class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or its investment advisor
incurs. If such investor is an existing shareholder, the Fund may redeem shares
from an investor's account to reimburse the Fund or its investment advisor for
any loss. In addition, such investor may be prohibited or restricted from making
further purchases in any of the Evergreen funds. The Fund will not accept third
party checks other than those payable directly to a shareholder whose account
has been in existence at least 30 days.
HOW TO REDEEM SHARES
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<PAGE>
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to 15 days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(eastern time).
Redeeming Shares Directly by Mail or Telephone. You may redeem by mail by
sending a signed letter of instruction or stock power form to the Fund, c/o ESC
(the registrar, transfer agent and dividend-disbursing agent for the Fund).
Stock power forms are available from your financial intermediary, ESC, and many
commercial banks. Additional documentation is required for the sale of shares by
corporations, financial intermediaries, fiduciaries and surviving joint owners.
Signature guarantees are required for all redemption requests for shares with a
value of more than $50,000. Currently, the requirement for a signature guarantee
has been waived on redemptions of $50,000 or less when the account address of
record has been the same for a minimum period of 30 days. The Fund and ESC
reserve the right to withdraw this waiver at any time. A signature guarantee
must be provided by a bank or trust company (not a Notary Public), a member firm
of a domestic stock exchange or by other financial institutions whose guarantees
are acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
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<PAGE>
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line (described
below), or by telephone. ESC will employ reasonable procedures to confirm that
instructions received over the Evergreen Express Line or by telephone are
genuine. The Fund, ESC, and EDI will not be liable when following instructions
received over the Evergreen Express Line or by telephone that ESC reasonably
believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the
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<PAGE>
Evergreen Express Line by dialing toll free 1-800-346-3858 on any touch-tone
telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
SEC so orders. The Fund reserves the right to close an account that through
redemption has fallen below $1,000 and has remained so for 30 days. Shareholders
will receive 60 days' written notice to increase the account value to at least
$1,000 before the account is closed. The Fund has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's total
net assets, during any 90 day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in other Evergreen funds through your financial intermediary,
by calling or writing to ESC or by using the Evergreen Express Line as described
above. If the shares being tendered for exchange are still subject to a CDSC or
are eligible for conversion in a specified time, such remaining charge or
remaining time will carry over to the shares being acquired in the exchange
transaction. Once an exchange request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled. Exchanges will be made on the
basis of the relative net asset values of the shares exchanged next determined
after an exchange request is received. An exchange which represents an initial
investment in another Evergreen fund is subject to the minimum investment and
suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For more information, a prospectus of the fund into which an exchange
will be made should be read prior to the exchange. An exchange order must comply
with the requirement for a redemption or repurchase order and must specify the
dollar value or number of shares to be exchanged. An exchange is treated for
federal income tax purposes as a redemption and purchase of shares and may
result in the realization of a capital gain or loss. Shareholders are limited to
five exchanges per calendar year, with a maximum of three per
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<PAGE>
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
prospectus. Some services are described in more detail in the application.
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<PAGE>
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified employee benefit and savings plans may make shares of the Fund and
other Evergreen funds available to their participants. Investments made by such
employee benefit plans may be exempt from front-end sales charges if they meet
the criteria set forth under "Class A Shares - Front-End Sales Charge
Alternative." Evergreen Asset, Keystone, Meridian or FUNB may provide
compensation to organizations providing administrative and recordkeeping
services to plans which make shares of the Evergreen funds available to their
participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when
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the selected fund's net asset value is relatively low and fewer shares being
purchased when the fund's net asset value is relatively high and may result in a
lower average cost per share than a less systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit-Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. FUNB and
its affiliates are subject to and in compliance with the aforementioned laws and
regulations.
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Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB or its affiliates were prevented from
continuing to provide the services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve, a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute its investment company taxable income
annually and net capital realized gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales charge, while Class B, when
applicable, and Class C shares bear such expenses through a higher annual
distribution fee, expenses attributable to Class B shares and Class C shares
will generally be higher than those of Class A shares, and income distributions
paid by the Fund with respect to Class A shares will generally be greater than
those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
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The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
U.S. may reduce or eliminate such taxes. Shareholders of the Fund who are
subject to U.S. federal income tax may be entitled, subject to certain rules and
limitations, to claim a federal income tax credit or deduction for foreign
income taxes paid by the Fund. See the SAI for additional details. The Fund's
transactions in options, futures and forward contracts may be subject to special
tax rules. These rules can affect the amount, timing and characteristics of
distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
A shareholder who acquires Class A shares of the Fund and sells or
otherwise disposes of such shares within 90 days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
The Fund intends to distribute its net capital gains as
capital gains dividends. Shareholders should treat such
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dividends as long-term capital gains. The Fund will designate capital gains
distributions as such by a written notice mailed to each shareholder no later
than 60 days after the close of the Fund's taxable year. If a shareholder
receives a capital gain dividend and holds his shares for six months or less,
then any allowable loss on disposition of such shares will be treated as a
long-term capital loss to the extent of such capital gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax advisor as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover and Brokerage. The estimated annual portfolio turnover rate
for the Fund is not expected to exceed 50%. A portfolio turnover rate of 50%
would occur if one half of the Fund's portfolio securities were replaced in one
year. The portfolio turnover rate experienced by the Fund directly affects the
transaction costs relating to the purchase and sale of securities which the Fund
bears directly. A high rate of portfolio turnover will increase such costs. It
is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a
member of the New York and American Stock Exchanges will, to the extent
practicable, effect substantially all of the portfolio transactions for the Fund
effected on those exchanges. See the SAI for further information regarding the
practices of the Fund affecting portfolio turnover and brokerage allocation
practices.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this prospectus and are only available to (1)
persons who at
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or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset, (2) certain institutional investors and (3) investment advisory clients
of FUNB, Evergreen Asset, Keystone, Meridian, First International or their
affiliates. The dividends payable with respect to Class A, Class B and Class C
shares will be less than those payable with respect to Class Y shares due to the
distribution and shareholder servicing-related expenses borne by Class A, Class
B and Class C shares and the fact that such expenses are not borne by Class Y
shares. Investors should telephone (800) 343-2898 to obtain more information on
other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B, Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or
sales literature of the Fund. These advertisements may quote
performance rankings or ratings of the Fund by financial
publications or independent organizations such as Lipper
Analytical Services, Inc. and Morningstar, Inc. or may compare
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<PAGE>
the Fund's performance to various indices. The Fund may also advertise in items
of sales literature an "actual distribution rate" which is computed by dividing
the total ordinary income distributed (which may include the excess of
short-term capital gains over losses) to shareholders for the latest 12-month
period by the maximum public offering price per share on the last day of the
period. Investors should be aware that past performance may not be indicative of
future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. EDI
may also reprint, and use as advertising and sales literature, articles from
Evergreen Events, a quarterly magazine provided free of charge to Evergreen fund
shareholders.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Fund's investment advisor and the
Fund's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund's investment advisor is
taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by the Fund's other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Fund.
Additional Information. This prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the 1933 Act.
Copies of the Registration Statement may be obtained at a reasonable charge
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<PAGE>
from the SEC or may be examined, without charge, at the offices
of the SEC in Washington, D.C.
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<PAGE>
Investment Advisor
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
PricewaterhouseCoopers LLP, 1177 Avenue of the
Americas, New York, New York 10036
Distributor
Evergreen Distributor, Inc. 125 W. 55th Street, New York, New
York 10019
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<PAGE>
PROSPECTUS September 1,
1998
EVERGREEN DOMESTIC GROWTH FUNDS [EVERGREEN LOGO APPEARS
HERE]
EVERGREEN TAX STRATEGIC EQUITY FUND
CLASS Y SHARES
The Evergreen Tax Strategic Equity Fund (the "Fund") seeks to maximize
the after-tax total return on a portfolio of equity investments by a strategy of
tax-efficient portfolio management. The Fund's investment objective is long-term
capital growth within a tax-efficient strategy.
This prospectus provides information regarding the Class Y shares
offered by the Fund. The Fund is a diversified series of an open-end, management
investment company. This prospectus sets forth concise information about the
Fund that a prospective investor should know before investing. The address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information ("SAI") for the Fund dated
February 1, 1998, as amended on August 3, 1998 and September 1, 1998, has been
filed with the Securities and Exchange Commission ("SEC") and is incorporated by
reference herein. The SAI provides information regarding certain matters
discussed in this prospectus and other matters which may be of interest to
investors, and may be obtained without charge by calling the Fund at (800)
343-2898. There can be no assurance that the investment objective of the Fund
will be achieved. Investors are advised to read this prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is not insured or otherwise
protected by the U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency and involves risk,
including the possible loss of principal.
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<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
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<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION......................................................4
FINANCIAL HIGHLIGHTS.....................................................5
DESCRIPTION OF THE FUND..................................................5
INVESTMENT OBJECTIVE AND POLICIES...............................5
INVESTMENT PRACTICES AND RESTRICTIONS......................... 7
ORGANIZATION AND SERVICE PROVIDERS................................... 14
ORGANIZATION................................................ 14
SERVICE PROVIDERS........................................... 15
PURCHASE AND REDEMPTION OF SHARES.................................... 16
HOW TO BUY SHARES........................................... 16
HOW TO REDEEM SHARES........................................ 17
EXCHANGE PRIVILEGE.......................................... 20
SHAREHOLDER SERVICES........................................ 21
BANKING LAWS...................................................22
OTHER INFORMATION.................................................... 23
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 23
GENERAL INFORMATION......................................... 25
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EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Charge Imposed on Purchases None
Sales Charge on Dividend Reinvestments None
Contingent Deferred Sales Charge None
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management and other fees. The table below shows
the Fund's estimated annual operating expenses for the fiscal period ending
September 30, 1998. The examples show what you would pay if you invested $1,000
over the periods indicated. The examples assume that you reinvest all of your
dividends and that the Fund's average annual return will be 5%. The examples are
for illustration purposes only and should not be considered a representation of
past or future expenses or annual return. The Fund's actual expenses and returns
will vary. For a more complete description of the various costs and expenses
borne by the Fund see "Organization and Service Providers."
Annual Operating
Expenses
---------------------
Management Fees 0.95%
Other Expenses 0.35%
=====
Total 1.30%
Example
---------
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After 1 Year $13
After 3 Years $41
FINANCIAL HIGHLIGHTS
As of the date of this prospectus, the Fund had not commenced
operations. Therefore, no financial highlights are currently available.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the SAI for more information regarding
the Fund's fundamental investment policies or other related investment policies.
There can be no assurance that the Fund's investment objective will be achieved.
The Fund's objective is long-term capital growth within a
"tax-efficient" strategy. In pursuing its objective of long-term capital growth,
the Fund invests at least 65% of its assets in common stocks of large and medium
capitalization companies (i.e., companies with at least $1 billion in equity
market capitalization) believed by its investment advisor to have above average
earnings growth prospects. The investment advisor uses fundamental research
analysis and valuation techniques in order to identify potential investments for
the Fund. Up to 35% of the Fund's total assets may be invested in a combination
of (i) common stocks or American Depositary Receipts (receipts issued in the
United States by banks or trust companies evidencing ownership of underlying
foreign securities) of non-U.S. companies, (ii) common stocks of small
capitalization companies (i.e., companies with equity market capitalizations of
less than $1 billion) and (iii) interests in limited partnerships including
master limited partnerships. See "Investment Practices and Restrictions."
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<PAGE>
While the Fund's paramount objective is long-term capital growth, the
investment adviser will, so long as there is no materially negative impact on
the Fund's total return, use certain investment techniques designed to reduce
the payment by the Fund of taxable distributions to shareholders, and thereby
reduce the impact of taxes on shareholder returns. Such strategies may include,
among others :
o purchasing low or non-dividend paying stocks - this technique
reduces the amount of the Fund's investment income which, when
distributed to shareholders, is taxable.
o purchasing securities with long-term growth potential
that may enable the Fund to experience a low portfolio
turnover rate - a low portfolio turnover rate
helps to minimize the realization and distribution
to
shareholders of taxable capital gains.
o when selling a portion of the Fund's holding of a security,
sell those shares with the highest cost basis to the Fund in
order to minimize realized capital gains - reducing the amount
of realized capital gains lessens taxable distributions to
shareholders.
o deferring the sale of a security until the realized gain would
qualify as a long-term capital gain rather than short-term -
distributions of long-term capital gains are taxable at lower
rates than short-term capital gains.
Due to the Fund's "tax efficient" investment approach, the Fund may be
expected to provide only a relatively low level of taxable income as compared to
a traditionally managed growth fund. Accordingly, the Fund is designed for
long-term investors with little or no need for investment income.
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<PAGE>
The Fund may invest, for temporary defensive purposes, up to 100% of
its assets in short-term obligations. Such obligations may include U.S.
government securities, master demand notes, commercial paper and notes, bank
deposits and other financial obligations.
In addition to the investment policies detailed above, the Fund may
employ certain additional investment strategies which are discussed in
"Investment Practices and Restrictions."
INVESTMENT PRACTICES AND RESTRICTIONS
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker-dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment advisor will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to consummate the transaction; if the other party fails to do so,
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<PAGE>
the Fund may be disadvantaged. The Fund does not intend to purchase when-issued
securities for speculative purposes, but only in furtherance of its investment
objective.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 33 1/3% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis,
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may also borrow an additional 5%
of its total assets from banks and others. The Fund may only borrow as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. The Fund may not purchase securities when borrowings exceed 5%
of total assets.
The purchase of securities when borrowings are outstanding will have the
effect of leveraging the Fund. Such leveraging or borrowing increases the Fund's
exposure to capital risk and borrowed funds are subject to interest costs which
will reduce net income.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit. The inability of the Fund to dispose of
illiquid investments readily or at a reasonable price could impair its ability
to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest in restricted securities, including
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933 (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the
registration requirements of the 1933 Act for resale by large institutional
investors of securities not publicly traded in the U.S. The Fund's investment
advisor determines the liquidity of Rule 144A securities according to the
guidelines and procedures adopted by Evergreen Equity Trust's Board of Trustees.
The Board of Trustees monitors the investment advisor's application of those
guidelines and procedures. Securities eligible for resale pursuant to Rule 144A,
which the Fund's investment advisor has determined to be liquid or readily
marketable, are not subject to the 15% limit on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk. The Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and listed
put options on financial futures contracts for portfolio securities. The Fund
may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its position in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain, through
a receipt of premiums, a greater current return than would be realized on the
underlying securities alone. The Fund receives a premium from writing a call or
put option which it retains whether or not the option is exercised. By writing a
call option, the Fund might lose the potential for gain on the underlying
security while the option is open, and by writing a put option the Fund might
become obligated to purchase the underlying securities for more than their
current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
The Fund may also enter into currency and other 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, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. 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 remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the value of its securities or currencies. 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 or currencies increases and
to fall when the value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or 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.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's return may
be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contracts and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment advisor could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's 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. In these events, the Fund may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Fund's
investment advisor will consider liquidity before entering into financial
futures contracts or options on financial futures contracts, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose money on the
futures contract or option, and the losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts, such as those described above,
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.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
Investment in Small Companies. Investments in securities of little-known,
relatively small and special situation companies may tend to be speculative and
volatile. A lack of management depth in such companies could increase the risks
associated with the loss of key personnel. Also, the material and financial
resources of such companies may be limited, with the consequence that funds or
external financing necessary for growth may be unavailable. Such companies may
also be involved in the development or marketing of new products or services for
which there are no established markets. If projected markets do not materialize
or only regional markets develop, such companies may be adversely affected or
may be subject to the consequences of local events. Moreover, such companies may
be insignificant factors in their industries and may become subject to intense
competition from larger companies. Securities of companies in which the Fund may
invest will frequently be traded only in the over-the-counter market or on
regional stock exchanges and will often be closely held. Securities of this type
may have limited liquidity and may be subject to wide price fluctuations. As a
result of the risk factors described above, the net asset value of the Fund's
shares can be expected to vary significantly. Accordingly, the Fund should not
be considered suitable for investors who are unable or unwilling to assume the
associated risks, nor should investment in the Fund be considered a balanced or
complete investment program.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the U.S. because of differences in
the legal systems. Foreign securities may be subject to foreign taxes, which may
reduce yield, and may be less marketable than comparable U.S. securities. All
these factors are considered by the Fund's investment advisor before making any
of these types of investments.
Foreign Currency Transactions. As discussed above, the Fund may invest in
securities of foreign issuers. When the Fund invests in foreign securities, they
usually will be denominated in foreign currencies, and the Fund temporarily may
hold funds in foreign currencies. Thus, the value of the Fund's shares will be
affected by changes in exchange rates.
As one way of managing exchange rate risk, in addition to entering into
currency futures contracts, 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 or 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
strength 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.
Although the Fund does not currently intend to do so, it may also purchase and
sell options related to foreign currencies. The Fund does not intend to enter
into foreign currency transactions for speculation or leverage.
ORGANIZATION AND SERVICE PROVIDERS
ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. The Fund is a diversified series of an open-end,
management investment company called Evergreen Equity Trust (the "Trust"). The
Trust is a Delaware business trust organized on September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of 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.
Shareholder Rights. All shareholders have equal voting, liquidation and other
rights. Each share is entitled to one vote for each dollar of net asset value
applicable to such share. Shareholders may exchange shares as described under
"Exchanges," but will have no other preference, conversion, exchange or
preemptive rights. When issued and paid for, shares will be fully paid and
nonassessable. Shares of the Fund are redeemable, transferable and freely
assignable as collateral. The Trust may establish additional classes or series
of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in communicating with one
another for the purpose of convening a meeting to elect Trustees.
SERVICE PROVIDERS
Investment Advisor. The investment advisor of the Fund is Evergreen Asset
Management Corp. ("Evergreen Asset"), which is located at 2500 Westchester
Avenue, Purchase, New York 10577 and is a wholly-owned subsidiary of First Union
Corporation ("First Union"). Evergreen Asset, with its predecessors, has served
as investment advisor to the Evergreen mutual funds since 1971.
Evergreen Asset is entitled to receive from the Fund an annual fee
equal to 0.95% of average daily net assets of the Fund.
First Union is located at 301 South College Street, Charlotte, North
Carolina 28288-0630. First Union and its subsidiaries including First Union
National Bank ("FUNB") provide a broad range of financial services to
individuals and businesses throughout the U.S.
Portfolio Manager. The portfolio manager for the Fund is Stephen A. Lieber, who
is Chairman and Co-Chief Executive of Evergreen Asset. Mr. Lieber is the founder
of Evergreen Asset and has been associated with Evergreen Asset and its
predecessor since 1971.
Sub- advisor. Evergreen Asset has entered into a sub-advisory agreement with
Lieber & Company, an indirect wholly-owned subsidiary of First Union, which
provides that Lieber & Company's research department and staff will furnish
Evergreen Asset with information, investment recommendations, advice and
assistance, and will generally be available for consultation on the portfolio of
the Fund. Lieber & Company will be reimbursed by Evergreen Asset in connection
with the rendering of services on the basis of the direct and indirect costs of
performing such services. There is no additional charge to the Fund for the
services provided by Lieber & Company. The address of Lieber & Company is 2500
Westchester Avenue, Purchase, New York 10577.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827, acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides the Fund with facilities,
equipment and personnel. For its services as administrator, EIS is entitled to
receive a fee based on the aggregate average daily net assets of the Fund at a
rate based on the total assets of all mutual funds administered by EIS for which
any affiliate of FUNB serves as investment advisor. The administration fee is
calculated in accordance with the following schedule.
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of $30 billion
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Evergreen Asset, Keystone Investment
Management Company ("Keystone"), Meridian Investment Company ("Meridian"), First
International Advisors, Inc. ("First International") or their affiliates.
Eligible investors may purchase Class Y shares of the Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EDI. In addition, you may purchase Class Y shares of the Fund by mailing to the
Fund, c/o ESC, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
application and a check payable to the Fund. You may also telephone
1-800-343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the application
for more information. Only Class Y shares are offered through this prospectus.
(See "General Information -- Other Classes of Shares.")
How the Fund Values Its Shares. The net asset value of each class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or its investment advisor
incurs. If such investor is an existing shareholder, the Fund may redeem shares
from an investor's account to reimburse the Fund or its investment advisor for
any loss. In addition, such investor may be prohibited or restricted from making
further purchases in any of the Evergreen funds. The Fund will not accept third
party checks other than those payable directly to a shareholder whose account
has been in existence at least 30 days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your Class Y shares in the Fund to the
Fund for cash at their net redemption value on any day the Exchange is open,
either directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (eastern time).
Redeeming Shares Directly by Mail or Telephone. You may redeem by mail by
sending a signed letter of instruction or stock power form to the Fund, c/o ESC
(the registrar, transfer agent and dividend-disbursing agent for the Fund).
Stock power forms are available from your financial intermediary, ESC, and many
commercial banks. Additional documentation is required for the sale of shares by
corporations, financial intermediaries, fiduciaries and surviving joint owners.
Signature guarantees are required for all redemption requests for shares with a
value of more than $50,000. Currently, the requirement for a signature guarantee
has been waived on redemptions of $50,000 or less when the account address of
record has been the same for a minimum period of 30 days. The Fund and ESC
reserve the right to withdraw this waiver at any time. A signature guarantee
must be provided by a bank or trust company (not a Notary Public), a member firm
of a domestic stock exchange or by other financial institutions whose guarantees
are acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
application and choose
how the redemption proceeds are to be paid. Redemption proceeds will either (1)
be mailed by check to the shareholder at the address in which the account is
registered or (2) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line (described
below), or by telephone. ESC will employ reasonable procedures to confirm that
instructions received over the Evergreen Express Line or by telephone are
genuine. The Fund, ESC, and EDI will not be liable when following instructions
received over the Evergreen Express Line or by telephone that ESC reasonably
believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
SEC so orders. The Fund reserves the right to close an account that through
redemption has fallen below $1,000 and has remained so for 30 days. Shareholders
will receive 60 days' written notice to increase the account value to at least
$1,000 before the account is closed. The Fund has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash, up to the lesser of $250,000 or 1% of the Fund's total
net assets, during any 90 day period for any one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same class in other Evergreen funds through your financial
intermediary, by calling or writing to ESC or by using the Evergreen Express
Line as described above. Once an exchange request has been telephoned or mailed,
it is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For more information, a prospectus of the fund into which an exchange
will be made should be read prior to the exchange. An exchange order must comply
with the requirement for a redemption or repurchase order and must specify the
dollar value or number of shares to be exchanged. An exchange is treated for
federal income tax purposes as a redemption and purchase of shares and may
result in the realization of a capital gain or loss. Shareholders are limited to
five exchanges per calendar year, with a maximum of three per calendar quarter.
This exchange privilege may be modified or discontinued at any time by the Fund
upon 60 days' notice to shareholders and is only available in states in which
shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
prospectus. Some services are described in more detail in the application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit-Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations,
a Member Bank or an affiliate thereof may act as investment advisor, transfer
agent or custodian to a registered open-end investment company and may also act
as agent in connection with the purchase of shares of such an investment company
upon the order of its customer. FUNB and its affiliates are subject to and in
compliance with the aforementioned laws and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB or its affiliates were prevented from
continuing to provide the services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve, a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute its investment company taxable income
annually and net capital realized gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent they do not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
U.S. may reduce or eliminate such taxes. Shareholders of the Fund who are
subject to U.S. federal income tax may be entitled, subject to certain rules and
limitations, to claim a federal income tax credit or deduction for foreign
income taxes paid by the Fund. See the SAI for additional details. The Fund's
transactions in options, futures and forward contracts may be subject to special
tax rules. These rules can affect the amount, timing and characteristics of
distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is correct and that the investor is
not currently subject to backup withholding or is exempt from backup
withholding.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences
is based on tax laws and regulations in effect on the date of this prospectus
and is subject to change by legislative or administrative action. As the
foregoing discussion is for general information only, you should also review the
discussion of "Additional Tax Information" contained in the SAI. In addition,
you should consult your own tax advisor as to the tax consequences of
investments in the Fund, including the
application of state and local taxes which may be different from the federal
income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover and Brokerage. The estimated annual portfolio turnover rate
for the Fund is not expected to exceed 50%. A portfolio turnover rate of 50%
would occur if one half of the Fund's portfolio securities were replaced in one
year. The portfolio turnover rate experienced by the Fund directly affects the
transaction costs relating to the purchase and sale of securities which the Fund
bears directly. A high rate of portfolio turnover will increase such costs. It
is contemplated that Lieber & Company, an affiliate of Evergreen Asset and a
member of the New York and American Stock Exchanges, will to the extent
practicable, effect substantially all of the portfolio transactions for the Fund
effected on those exchanges. See the SAI for further information regarding the
practices of the Fund affecting portfolio turnover and brokerage allocation
practices.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this prospectus and are
only available to (1) persons who at or prior to December 31, 1994 owned shares
in a mutual fund advised by Evergreen Asset, (2) certain institutional investors
and (3) investment advisory clients of FUNB, Evergreen Asset, Keystone,
Meridian, First International or their affiliates. The dividends payable with
respect to Class A, Class B and Class C shares will be less than those payable
with respect to Class Y shares due to the distribution and shareholder
servicing-related expenses borne by Class A, Class B and Class C shares and the
fact that such expenses are not borne by Class Y shares. Investors should
telephone (800) 343-2898 to obtain more information on other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B, Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or may compare the
Fund's performance to various indices. The Fund may also advertise in items of
sales literature an "actual distribution rate" which is computed by dividing the
total ordinary income distributed (which may include the excess of short-term
capital gains over losses) to shareholders for the latest 12-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment
goals and explore various financial strategies. Such information may include
publications describing general principles of investing, such as asset
allocation, diversification, risk tolerance, and goal setting; a questionnaire
designed to help create a personal financial profile; and an action plan
offering investment alternatives. The information provided to investors may also
include discussions of other Evergreen funds, products, and services, which may
include: retirement investing; brokerage products and services; the effects of
periodic investment plans and dollar cost averaging; saving for college; and
charitable giving. In addition, the information provided to investors may quote
financial or business publications and periodicals, including model portfolios
or allocations, as they relate to fund management, investment philosophy, and
investment techniques. EDI may also reprint, and use as advertising and sales
literature, articles from Evergreen Events, a quarterly magazine provided free
of charge to Evergreen fund shareholders.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Fund's investment advisor and the
Fund's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Fund's investment advisor is
taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by the Fund's other major service providers. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Fund.
Additional Information. This prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the 1933 Act.
Copies of the Registration Statement may be obtained at a reasonable charge from
the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
-8-
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Investment Advisor
Evergreen Asset Management Corp., 2500 Westchester Avenue,
Purchase, New York 10577
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New
York, New York 10036
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
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<PAGE>
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
DOMESTIC GROWTH FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998, as amended
August 3, 1998 and
September 1, 1998
Evergreen Fund ("Evergreen")
Evergreen Micro Cap Fund ("Micro")
Evergreen Aggressive Growth Fund ("Aggressive")
Evergreen Omega Fund ("Omega")
Evergreen Small Company Growth Fund ("Small")
Evergreen Strategic Growth Fund ("Strategic")
Evergreen Stock Selector Fund ("Stock")
Evergreen Tax Strategic Equity Fund ("Tax")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end
management investment company known as
Evergreen Equity Trust (the "Trust").
This Statement of Additional Information as amended ("SAI") pertains to
all classes of shares of the Funds listed above. It is not a prospectus and
should be read in conjunction with the prospectuses of Evergreen, Micro,
Aggressive, Omega, Small , Strategic and Stock dated February 1, 1998 as amended
August 3, 1998 and the prospectuses of Tax dated September 1, 1998, as
supplemented from time to time. The Funds are offered through two separate
prospectuses: one offering Class A, Class B and Class C shares of each Fund and
one offering Class Y shares of all but Strategic. You may obtain any of these
prospectuses from Evergreen Distributor, Inc.
<PAGE>
TABLE OF CONTENTS
INVESTMENT POLICIES......................................................4
FUNDAMENTAL INVESTMENT POLICIES..............................4
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT
PRACTICES..................................................................5
MANAGEMENT OF THE TRUST...................................................11
PRINCIPAL HOLDERS OF FUND SHARES..........................................14
INVESTMENT ADVISORY AND OTHER SERVICES..................................... 18
INVESTMENT ADVISORS..............................................18
INVESTMENT ADVISORY AGREEMENTS................................... 19
DISTRIBUTOR...................................................... 20
DISTRIBUTION PLANS AND AGREEMENTS................................ 20
ADDITIONAL SERVICE PROVIDERS..................................... 21
BROKERAGE................................................................. 22
BROKERAGE COMMISSIONS............................................ 22
SELECTION OF BROKERS................................................22
SIMULTANEOUS TRANSACTIONS........................................ 23
TRUST ORGANIZATION...........................................................23
FORM OF ORGANIZATION................................................23
DESCRIPTION OF SHARES............................................ 24
VOTING RIGHTS.................................................... 24
LIMITATION OF TRUSTEES' LIABILITY................................ 24
PURCHASE, REDEMPTION AND PRICING OF SHARES................................ 24
HOW THE FUNDS OFFER SHARES TO THE PUBLIC......................... 24
CONTINGENT DEFERRED SALES CHARGE....................................25
SALES CHARGE WAIVERS OR REDUCTIONS............................... 26
EXCHANGES........................................................ 28
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV") .................28
VALUATION OF PORTFOLIO SECURITIES................................ 28
SHAREHOLDER SERVICES................................................28
PRINCIPAL UNDERWRITER..................................................... 29
ADDITIONAL TAX INFORMATION...................................................29
REQUIREMENTS FOR QUALIFICATION AS A REGULATED INVESTMENT
COMPANY....................................................29
TAXES ON DISTRIBUTIONS........................................... 30
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES..................... 31
OTHER TAX CONSIDERATIONS............................................31
FINANCIAL INFORMATION........................................................31
EXPENSES ...........................................................31
BROKERAGE COMMISSIONS PAID..........................................33
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COMPUTATION OF CLASS A OFFERING PRICE............................ 34
PERFORMANCE.........................................................34
ADDITIONAL INFORMATION.......................................................
37
APPENDIX A..................................................................A-1
3
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INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). Where necessary, an explanation beneath a fundamental policy
describes a Fund's practices with respect to that policy, as allowed by current
law. If the law governing a policy changes, the Fund's practices may change
accordingly without a shareholder vote. Unless otherwise stated, all references
to the assets of the Fund are in terms of current market value.
1. DIVERSIFICATION
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
FURTHER EXPLANATION OF DIVERSIFICATION POLICY
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. CONCENTRATION
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S.
government or its agencies or instrumentalities).
FURTHER EXPLANATION OF CONCENTRATION POLICY
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. ISSUING SENIOR SECURITIES
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. 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 in an amount up to 33 1/3% of its total
assets, taken at market value. Each Fund may also borrow up to an additional 5%
of its total assets from banks or others. Each Fund may borrow only as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. Each Fund other than Tax may not purchase
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securities while borrowings are outstanding except to exercise prior commitments
and to exercise subscription rights (as defined in the 1940 Act) or enter into
reverse repurchase agreements, in amounts up to 33 1/3% of its total assets
(including the amount borrowed). Tax may not purchase additional securities when
borrowings exceed 5% of its total assets. Each Fund may obtain such short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities. Each Fund may purchase securities on margin and engage in short
sales to the extent permitted by applicable law.
5. UNDERWRITING
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed to be an underwriter in connection with the
disposition of its portfolio securities.
6. REAL ESTATE
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. COMMODITIES
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that each Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. LENDING
Each Fund may not make loans to other persons, except that each Fund
may lend its portfolio securities in accordance with applicable law. The
acquisition of investment securities or other investment instruments shall not
be deemed to be the making of a loan.
FURTHER EXPLANATION OF LENDING POLICY
To generate income and offset expenses, each Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay a Fund any income accruing on the security. Each
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect a Fund and its shareholders.
When a Fund lends it securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. A Fund has the right to call a
loan and obtain the securities lent at any time on notice of not more than five
business days. A Fund may pay reasonable fees in connection with such loans.
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
U.S. Government Securities
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Each Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds 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
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The Funds 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 Funds 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, a 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, a 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 are a form of leveraging and 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. Leverage may cause any gains or losses of a Fund to be
magnified. In addition, when a 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.
Loans of Securities
To generate income, each Fund may lend to broker-dealers and other
financial institutions portfolio securities valued at up to 33 1/3% of a Fund's
total assets. A Fund will require borrowers to provide collateral in cash or
government securities at least equal to the value of the securities loaned. A
Fund may invest such collateral in additional portfolio securities, such as U.S.
Treasury notes, certificates of deposit, other high-grade, short-term
obligations or interest-bearing cash equivalents. While securities are on loan,
the borrower will pay a Fund any income accruing on the security.
Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. If a borrower fails financially, a Fund may have difficulty
recovering the securities lent or may lose its right to the collateral.
Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.
Repurchase Agreements
The Funds 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
Advisor (as defined later) to be creditworthy. In a repurchase agreement, a 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.
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A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Each Fund's 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
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the Advisor
to be creditworthy pursuant to guidelines established by the Board of Trustees.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options
The Funds may buy or sell (i.e., write) put and call options on
securities they hold or intend to acquire. The Funds may also buy and sell
options on financial futures contracts. The Funds will use options as a hedge
against decreases or increases in the value of securities they hold or intends
to acquire. The Funds may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions (Evergreen, Omega, Small, Strategic, Stock and Tax)
Each Fund may enter into financial futures contracts and write options
on such contracts. Each Fund intends to enter into such contracts and related
options for hedging purposes. Each Fund will enter into futures contracts on
securities or indices 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
8
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settlement based on changes in the securities index. A 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.
Each Fund may sell or purchase futures contracts. When a futures
contract is sold by a 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, each Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by a 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. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Advisor to be a favorable price and rate of
return for securities the Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a 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 a Fund to pay a premium. In exchange for the premium, a 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, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each 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. A 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 a Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable a Fund
to manage market or interest 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 Advisor correctly predicts interest rate
movements, a hedge could be unsuccessful if changes in the value of a Fund's
futures position did not correspond to changes in the value of its investments.
This lack of correlation between a Fund's futures and securities positions may
be caused by differences between the futures and securities markets or by
differences between the securities underlying a Fund's futures position and the
securities held by or to be purchased for a Fund. Each Fund's Advisor will
attempt to minimize these risks through careful selection and monitoring of the
Fund's futures and options positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund.
Each Fund will not change these policies without supplementing the information
in the prospectus and SAI.
The Funds will not maintain open positions in futures contracts they
have 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 their 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, each Fund will
9
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take prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather, each 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 a 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 a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a 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 a 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, a Fund
will mark-to-market its open futures positions. The Funds are also required to
deposit and maintain margin when they write call options on futures contracts.
Foreign Securities (Omega, Small, Strategic, Stock and Tax)
Each Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may 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, and investments in Canadian commercial paper, foreign securities and
Europaper. These instruments may subject a Fund to investment risks that differ
in some respects from those related to investments in obligations of U.S.
issuers. Such risks include future adverse political and economic developments;
the possible imposition of withholding taxes on interest or other income; the
possible seizure, nationalization, or expropriation of foreign deposits; the
possible establishment of exchange controls or taxation at the source; greater
fluctuations in value due to changes in exchange rates; or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Foreign Currency Transactions (Omega, Small, Strategic and Tax)
As one way of managing exchange rate risk, each 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 a Fund will deliver and receive when the contract is
completed) is fixed when a Fund enters into the contract. A Fund usually will
enter into these contracts to stabilize the U.S. dollar value of a security it
has agreed to buy or sell. Each Fund intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if a Fund expects
a decrease in the value of the currency in which the foreign security is
denominated. Although each Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the Advisor's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of a Fund's investments
10
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denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and a 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 each Fund. Each Fund may
also purchase and sell options related to foreign currencies in connection with
hedging strategies.
11
<PAGE>
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
Each Fund may invest in "restricted securities," i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In 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.
12
<PAGE>
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding voting stock 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, each 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 each Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
MANAGEMENT OF THE TRUST
Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen fund complex.
<TABLE>
<CAPTION>
Position with
Name Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management
Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus
and
Director,
American
Institute
of Food and
Wine;
Chairman
and
President,
Oldways
Preservation
and
Exchange
Trust
(education);
former
Chairman of
the Board,
Director,
and
Executive
Vice
President,
The London
Harness
Company;
former
Managing
Partner,
Roscommon
Capital
Corp.;
former
Chief
Executive
Officer,
Gifford
Gifts of
Fine Foods;
and former
Chairman,
Gifford,
Drescher &
Associates
(environmental
consulting).
13
<PAGE>
Position with
Name Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix
Total
Return Fund
and
Equifax,
Inc.;
Trustee of
Phoenix
Series
Fund,
Phoenix
Multi-Portfolio
Fund, and
The Phoenix
Big Edge
Series
Fund; and
former
President,
Morehouse
College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin,
Inc.
(executive
outplacement);
Director of
Connecticut
Natural Gas
Corporation,
Hartford
Hospital,
Old State
House
Association,
Middlesex
Mutual
Assurance
Company,
and Enhance
Financial
Services,
Inc.;
Chairman,
Board of
Trustees,
Hartford
Graduate
Center;
Trustee,
Greater
Hartford
YMCA;
former
Director,
Vice
Chairman
and Chief
Investment
Officer,
The
Travelers
Corporation;
former
Trustee,
Kingswood-
Oxford
School; and
former
Managing
Director
and
Consultant,
Russell
Miller,
Inc.
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB: 8/30/58) Treasurer BYSIS Fund Services.
14
<PAGE>
Position with
Name Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, Evergreen Asset
Management
Corp./First
Union
National
Bank;
former
Senior Tax
Consulting/Acting
Manager,
Investment
Companies
Group,
PricewaterhouseCoopers,
LLP, New
York.
Bryan Haft * Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund
(DOB: 3/30/59) Services.
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
Listed below is the Trustee compensation for the twelve-month period
ended September 30, 1997.
<TABLE>
<CAPTION>
Compensation from Deferred
Compensation from Trust and Fund Compensation of
Trustee Trust Complex Trustees
<S> <C> <C> <C>
Laurence B. Ashkin $61,272 ---
$29,526
Charles A. Austin III $14,709 $38,225 ---
K. Dun Gifford $34,532 ---
$13,102
James S. Howell $99,124 $69,950
$39,012
Leroy Keith Jr. $13,504 $34,932 ---
Gerald M. McDonnell $91,550 $91,550
$35,164
Thomas L. McVerry $95,600 $95,600
$36,588
William Walt Pettit $88,594 $88,594
$35,838
David M. Richardson $14,709 $38,225 ---
Russell A. Salton, III $96,300 $96,300
$35,136
Michael S. Scofield $88,303 $54,240
$34,785
15
<PAGE>
Compensation from Deferred
Compensation from Trust and Fund Compensation of
Trustee Trust Complex Trustees
Richard J. Shima $21,849 $57,949 ---
Robert J. Jefferies* $7,631 $13,144 ---
Foster Bam* $24,134 $48,627 ---
</TABLE>
* Former Trustee; retired as of December 31, 1997
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust
owned as a group less than 1% of the outstanding of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of a
Fund's outstanding shares as of June 30, 1998.
Evergreen Class A
None
Evergreen Class B
None
Evergreen Class C
Turtle & Co
P.O. Box 9427 9.132%
Boston, MA 02209-9427
MLPF&S for the sole benefit of its
customers 6.110%
Attn: Fund Administration #97JB1
4800 Deer Lake Dr E . 2nd Fl.
Jacksonville, FL 32246-6484
Evergreen Class Y
First Union National Bank/EB/INT
Cash Account 23.919%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG
1151
Charlotte, NC 28202-1911
16
<PAGE>
First Union National Bank/EB/INT
Cash Account 9.432%
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl. CMG
1151
Charlotte, NC 28202-1911
Micro Class A
Charles Schwab & Company Inc. 5.240%
Special Custody Account
FBO Exclusive Benefit of
Customers
Reinvest Account, Attn: Mutual
Fund
101 Montgomery Street
San Francisco, CA 94104-4122
First Union Brokerage Services 5.215%
Vince Vitti and Susan Vitti
JTWROS LN Account
Attn: Bob Lemaire
266 Harridstown Road,
3rd Fl.
NJ 07452
Micro Class B
MLPF&S for the sole
benefit of its customers. 6.399%
Attn: Fund Administration #97H76
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Micro Class C
MLPF&S for the sole benefit 5.306%
of its customers
Attn: Fund Administration #97H76
4800 Deer Lake Dr. E. 2nd Fl.
Jacksonville, FL 32246-6484
Micro Class Y
Stephen A. Lieber
1210 Greacen Point Rd. 12.223%
Mamaroneck, NY 10543-4693
Charles Schwab & Company Inc. 9.354%
Special Custody Account
FBO Exclusive Benefit of
Customers
Reinvest Account, Attn: Mutual
Fund
101 Montgomery Street
San Francisco, CA 94104-4122
Constance E. Lieber
1210 Greacen Point Rd. 8.744%
Mamaroneck, NY 10543-4693
17
<PAGE>
Citibank NA 7.764%
Delta Airlines Master Trust 308235
Joe Villella Citicorp Services
1410 N. Westshore Blvd. Fl. 5
Tampa, FL 33607-4519
Omega Class A
None
Omega Class B
MLPF&S for the sole
benefit of its customers. 26.77%
Attn: Fund Administration #97BP1
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Omega Class C
MLPF&S for the sole
benefit of its customers. 26.77%
Attn: Fund Administration #97BP5
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Omega Class Y
Juliana Guazzo 38.84%
38 Bath St.
Lido Beach, NY 11561-5007
Timothy L. Bell
Retha M. Bell Co- Trustees
Kristiana N. Bell IRR Trust 15.16%
U/A Dated 2-27-98
9914 McGee St.
Elberta, AL 36530
18
<PAGE>
State Street Bank & Trust Co.
Cust.
SEP IRA FBO 12.56%
John T. Rosner
P.O. Box 3403
Thomasville, GA 31799
State Street Bank & Trust Co. 9.06%
Cust.
IRA FBO
Nancy A. LaValley
2048 Clairmont Terrace
Atlanta, GA 30345-
2001
Hobert Z. Cross & Hazel H. Cross 6.46%
Trust/Cross Family REV Trust
U/A/D 3-8-88
5335 Fidler Avenue
Lakewood, CA 90712-2001
Strategic Class A
None
Strategic Class B
None
Strategic Class C
State Street Bank and Trust
Co. Cust.
Edward W. Sparrow Hosp. TSA
FBO
Dennis Allen Swan 34.24%
3741 Chippendale
Okemos, MI 48864-3861
Douglas M. Ellingson 14.89%
1833 East Carver St.
Tempe, AZ 85284-2509
Bear Stearns Securities Corp. 13.77%
1 Metrotech Center North
Brooklyn, NY 11201-3859
Ronald J. Stark
1617 32nd St. SE 7.90%
Rio Rancho, NM 87124-1745
Aggressive Class A
19
<PAGE>
MLPF&S for the sole
benefit of its customers. 10.77%
Attn: Fund Administration #97212
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Aggressive Class B
None
Aggressive Class C
MLPF&S for the sole
benefit of its customers. 22.02%
Attn: Fund Administration #97JA1
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Lavedna Ellingson
Douglas Ellingson JT 9.40%
WROS
8510 McClintock
Tempe, AZ 85284-2527
Smith Barney Inc.
5.68%
388 Greenwich Street
New York, NY 10013
Aggressive Class Y
First Union National Bank
Trust Accounts 81.13%
Attn: Ginny Batten
11th Floor, CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
Small Class A
ROFE & Company
C/O State Street Bank & Trust Co. 5.73%
For Sub Account
Kokusai Securities Co. LTD.
P.O. Box 5061
Boston, MA 02206-5061
Small Class B
MLPF&S for the sole benefit of its
customers 22.18%
Attn: Fund Administration #98302
4800 Deer Lake Dr. E
. 2nd Fl.
Jacksonville, FL 32246-6484
Small Class C
20
<PAGE>
MLPF&S for the sole benefit of its
customers 67.07%
Attn: Fund Administration #97TU0
4800 Deer Lake Dr. E . 2nd Fl.
Jacksonville, FL 32246-6484
Small Class Y
First Union National Bank
Cash Account
Attn: Trust Operations %
Fund Group
401 South Tryon St. 3rd Fl.
Charlotte, NC 28202-1911
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORS
The investment advisor to each Fund (the "Advisor") is a subsidiary of
First Union Corporation ("First Union"). First Union is a bank holding company
headquartered at 301 South College Street, Charlotte, North Carolina 28288.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States.
The Advisor to Evergreen, Micro and Tax is Evergreen Asset Management
Corp. ("Evergreen Asset"), 2500 Westchester Avenue, Purchase, New York 10577.
Evergreen Asset is entitled to receive from Evergreen and Micro an annual fee
based on each Fund's average daily net assets, as follows: 1.00% of the first
$750 million; plus 0.90% of the next $250 million; plus 0.80% of assets over $1
billion. Evergreen Asset is entitled to receive from Tax an annual fee equal to
0.95% of the Fund's average daily net assets. Under an agreement with Evergreen
Asset, Lieber & Company, a First Union subsidiary at the same address as
Evergreen Asset, serves as subadvisor to each Fund at no additional cost to
either Fund. Lieber & Company is paid for its services by Evergreen Asset.
The Advisor to Aggressive is the Capital Management Group ("CMG") of
First Union National Bank ("FUNB"). CMG is entitled to receive from Aggressive
an annual fee equal to 0.60% of the Fund's average daily net assets.
The Advisor to Omega, Small and Strategic is Keystone Investment
Management Company ("Keystone"), 200 Berkeley Street, Boston, Massachusetts
02116. Keystone is entitled to receive from Omega an annual fee based on the
aggregate net asset value of the Fund's shares, as follows: 0.75% of the first
$250 million; plus 0.675% of the next $250 million; plus 0.60% of the next $500
million; plus 0.50% of assets over $1 billion, all computed as of the close of
business each business day and payable monthly. Keystone is entitled to receive
from Small and Strategic an annual fee based on the aggregate net asset value of
each Fund's shares, as follows: 0.70% of the first $100 million; plus 0.65% of
the next $100 million; plus 0.60% of the next $100 million; plus 0.55% of the
next $100 million; plus 0.50% of the next $100 million; plus 0.45% of the next
$500 million; plus 0.40% of the next $500 million; plus 0.35% of assets over
$1.5 billion, all computed as of the close of business each business day and
payable monthly.
The Advisor to Stock is Meridian Investment Company ("Meridian"), 550
Valley Stream Parkway, Malvern, Pennsylvania 19355. Meridian is entitled to
receive from Stock an annual fee equal to 0.74% of the Fund's average daily net
assets.
21
<PAGE>
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an
investment advisory agreement with the Advisor (the "Advisory Agreements") .
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Advisor furnishes to the appropriate 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 Advisor pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Advisor, including, but not limited to, (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees (Trustees
who are not interested persons of a Fund as defined in the 1940 Act); (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable) (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 such Fund and
its shares with the Securities and Exchange Commission ("SEC") or under state or
other securities laws; (11) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of each
Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges and
expenses of legal counsel for each Fund and for the Independent Trustees of the
Trust on matters relating to such 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 such Fund. (See also the section entitled
"Financial Information.")
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
each 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 Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
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 a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union is an investment advisor. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment advisor. The Funds may engage in such transactions
if they are equitable to each participant and consistent with each participant's
investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution
22
<PAGE>
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 the Distributor
to compensate broker-dealers in connection with the sale of such shares. In this
regard, the purpose and function of the combined contingent deferred sales
charge and distribution services fee on the Class B shares are the same as those
of the front-end sales charge and distribution fee with respect to the Class A
shares in that in each case the sales charge and/or distribution fee provide for
the financing of the distribution of the Fund's shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of the Trust reports the
amounts expended under the Plans for each Fund 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.
Each 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 the Distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-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 who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
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 and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C 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 and Class C shares; assisting clients in changing dividend options,
account
23
<PAGE>
designations, and addresses; and providing such other services as the Fund
reasonably requests for its Class A, Class B and Class C shares, as applicable.
FUNB or its affiliates may finance the payments made by the Distributor
to compensate broker-dealers or other persons for distributing shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that class or classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such class or classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of 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 a 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 a 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 the Distributor. 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 the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment. (See also the section
entitled "Financial Information.")
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Aggressive , Stock and Tax, subject to the supervision and control of the
Trust's Board of Trustees. EIS provides each Fund with facilities, equipment and
personnel and is entitled to receive a fee from the Fund based on the total
assets of all mutual funds administered by EIS for which any affiliate of FUNB
serves as investment advisor, as follows: 0.050% of the first $7 billion; 0.035%
of the next $3 billion; 0.030% of the next $5 billion; 0.020% of the next $10
billion; 0.015% of the next $5 billion and 0.010% of assets in excess of $30
billion.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union, is the
Funds' transfer agent. The transfer agent issues and redeems shares, pays
dividends and performs other duties in
24
<PAGE>
connection with the maintenance of shareholder accounts. The transfer agent's
address is Box 2121, Boston, Massachusetts 02106-2121.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the annual financial statements of Omega, Small, Strategic and Tax.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York, 10036, audits the annual financial statements of Evergreen, Micro,
Aggressive and Stock.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
Due to regulatory developments affecting the securities exchanges and
brokerage practices, the Board of Trustees may modify or eliminate any of the
following policies.
BROKERAGE COMMISSIONS
Generally, each Fund expects to purchase and sell its equity securities
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.
Each Fund expects to buy and sell its fixed income securities directly
from the issuer or an underwriter or market maker for the securities. Generally,
each Fund will not pay brokerage commissions for such purchases. When a 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 a Fund executes transactions in the
over-the-counter market, it will deal with primary market makers unless more
favorable prices are otherwise obtainable.
SELECTION OF BROKERS
When buying and selling portfolio securities, each Advisor seeks
brokers who can provide the most benefit to the Fund or Funds for which a trade
is being made. When selecting a broker, an Advisor primarily will look for the
best price at the lowest commission, but in the context of the broker's:
25
<PAGE>
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
Under each Advisory Agreement, each Fund may pay higher brokerage
commissions to a broker providing it with research services, as defined in item
6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this
practice is permitted if the commission is reasonable in relation to the
brokerage and research services provided. Research services provided by a broker
to an Advisor do not replace, but supplement, the services an Advisor is
required to deliver to a Fund under the Advisory Agreement. It is impracticable
for an Advisor to allocate the cost, value and specific application of such
research services among its clients because research services intended for one
client may indirectly benefit another.
When selecting a broker for portfolio trades, an Advisor may also
consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
Lieber & Company, an affiliate of Evergreen Asset, and a member of the
New York and American Stock Exchanges, will, to the extent practicable, effect
substantially all of the portfolio transactions for Evergreen, Micro and Tax
effected on those exchanges.
SIMULTANEOUS TRANSACTIONS
Each Advisor makes investment decisions for a Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an Advisor
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. Each 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 Funds, but the
ideal price or trading volume may not always be achieved for an individual Fund.
In order to take advantage of the availability of lower purchase prices, the
Funds may occasionally participate in group bidding for the direct purchase from
an issuer of certain securities.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment company,
known as "Evergreen Equity Trust" (the "Trust"). The Trust was formed as a
Delaware business trust on September 18, 1997 pursuant to an Agreement and
Declaration of Trust (the "Declaration of Trust"). A copy of the Declaration of
Trust is on file at the SEC as an exhibit to the Trust's Registration Statement,
of which this SAI is a part. This summary is qualified in its entirety by
reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are
26
<PAGE>
entitled to a pro rata share of the Trust based on the relative net assets of
each series and/or class. Shareholders have no preemptive or conversion rights.
Shares are redeemable and transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each 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, 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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers four classes of shares (except
Strategic, which offers three) 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 a Fund's shares, a contingent deferred
sales charge (a "CDSC") when you redeem a Fund's shares or no sales charges at
all.
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. See also the section in this SAI entitled
"Financial Information" for an example of the method of computing the offering
price of Class A shares.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Contingent Deferred Sales Charge,"
below.
Class B Shares
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<PAGE>
The Funds offer Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Funds will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase..................5.00%
Second twelve-month period following the month of purchase.......4.00%
Third twelve-month period following the month of purchase........3.00%
Fourth twelve-month period following the month of purchase.......3.00%
Fifth twelve-month period following the month of purchase........2.00%
Sixth twelve-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 ESC.)
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Funds
offer Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Funds will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares (Not Offered by Strategic)
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
Evergreen Asset, (2) certain institutional investors and (3) investment advisory
clients of CMG, Evergreen Asset, Keystone, Meridian or their affiliates. Class Y
shares are offered at net asset value without a front-end or back-end sales
charge and do not bear any Rule 12b-1 distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that they have incurred in connection
with the sale of their shares (see "Distribution Plans and Agreements," above).
If imposed, the Funds deduct 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, a 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. ("NASD"), paid to the Distributor or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
28
<PAGE>
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in the Evergreen funds and take advantage
of lower sales charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Funds may sell their 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
the master account of such investment advisors or financial
planners on the books of the broker-dealer through whom shares
are purchased;
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<PAGE>
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor has entered into an
agreement to sell shares of the Funds, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchases are for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCs
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder
who is a least 59 1/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income 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. financial hardship withdrawals 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).
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<PAGE>
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
a Fund's 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.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each class of shares of a Fund is calculated by dividing the
value of a Fund's net assets attributable to that class by the number of all
shares issued for that class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on a national securities exchange
or the over-the-counter National Market System ("NMS") are
valued on the basis of the last sales price on the exchange
where primarily traded or on the NMS prior to the time of the
valuation, provided that a sale has occurred.
(2) Securities traded on a national 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 60 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 a Fund's opinion, the last sales price
does not reflect a current market value; and other assets are
valued at prices deemed in good faith to be fair under
procedures established by the Board of Trustees.
SHAREHOLDER SERVICES
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<PAGE>
As described in the prospectuses, a shareholder may elect to receive
his or her dividends and capital gains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ("Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
The Distributor has agreed that it will, in all respects, duly comply
with all state and federal laws applicable to the sale of the shares. The
Distributor 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 the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the 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 the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
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<PAGE>
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGULATED
INVESTMENT COMPANY
Each Fund other than Tax has qualified and intends to continue to
qualify, and Tax intends to qualify, for and elect the tax treatment applicable
to a regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, a Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies). By so qualifying, a Fund is not subject to federal income tax if it
timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by 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. The Fund anticipates that all or a portion of 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.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its net 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. The Fund
will inform shareholders of the portion, if any, of a capital gain distribution
which qualifies for the new 20% maximum federal rate.
Distributions by a 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.
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<PAGE>
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than
twelve 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
sixty-one-day period beginning thirty days before and ending thirty 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 capital gain dividends on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by 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 a Fund. Each
shareholder who is not a U.S. person should consult his or her tax advisor
regarding the U.S.
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<PAGE>
and foreign tax consequences of ownership of shares of a Fund, including the
possibility that such a shareholder may be subject to a U.S. withholding tax at
a rate of 30% (or at a lower rate under a tax treaty) on amounts treated as
income from U.S. sources under the Code.
FINANCIAL INFORMATION
The financial information below pertains to each Fund that has
commenced operating as of the date of this SAI except Stock. A separate section
entitled "Financial Information for Stock" follows this section.
EXPENSES
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. For more information on
specific expenses, see "Investment Advisory and Other Services," "Distribution
Plans and Agreements," "Principal Underwriter" and "Purchase, Redemption and
Pricing of Shares."
<TABLE>
<CAPTION>
1997 Fund Expenses
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fund Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
===================== ================ ================ ================= ================ =============== ================
<S> <C> <C> <C> <C> <C> <C>
Evergreen (1) $13,089,112 $299,430 $3,629,968 $72,777 $1,464,361 $129,417
Aggressive (1) $1,013,344 $251,302 $289,795 $19,048 $278,145 $21,472
Micro (1) $428,047 $3,314 $13,933 $400 $2,223 $300
Omega (2) $1,480,178 $153,219 $739,237 $120,064 $254,113 $19,806
Small (3a) $2,387,425 N/A $4,928,079* N/A $878,274 $22,796
=========
Small (3b) $7,788,033 N/A $16,641,755* N/A $17,885,604 $13,187,854
Strategic (4) $3,205,753 N/A $1,790,675* N/A -- --
===================== ================ ================ ================= ================ =============== ================
(1) Year ended 9/30/97
(2) Nine months ended 9/30/97
(3a) Four months ended 9/30/97
(3b) Year ended 5/31/97
(4) Eleven months ended 9/30/97
* Not multiple class during this period; amount reflects all 12b-1 fees.
1996 Fund Expenses
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fund Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
===================== ================ ================ ================= ================ =============== ================
Evergreen (1) $9,145,287 $149,922 $1,185,957 $10,292 $1,462,012 $157,233
Aggressive (1) $612,492 $197,507 $26,469 $3,308 $185,835 $22,742
35
<PAGE>
1996 Fund Expenses
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fund Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
===================== ================ ================ ================= ================ =============== ================
Evergreen (1) $9,145,287 $149,922 $1,185,957 $10,292 $1,462,012 $157,233
Aggressive (1) $612,492 $197,507 $26,469 $3,308 $185,835 $22,742
Micro (1) $510,421 $2,471 $12,608 $310 $2,963 $188
Omega (2) $1,831,142 $186,596 $814,977 $168,748 $983,621 $759,394
- --------------------- --------------- ----------------
Small (3) $8,473,139 N/A $18,458,861* N/A $15,690,812 ($5,933,719)
Strategic (4) $2,994,500 N/A $4,845,352* N/A $4,093,912 $2,049,519
===================== ================ ================ ================= ================ =============== ================
(1) Year ended 9/30/96
(2) Year ended 12/31/96
(3) Year ended 5/31/96
(4) Year ended 10/31/96
* Not multiple class during this period; amount reflects all 12b-1 fees.
</TABLE>
1995 Fund Expenses
Total Underwriting
Underwriting Commissions
Fund Advisory Fees Commissions Retained
==================== ================ ================ ================
Evergreen (1) $5,472,439 $586,701 $72,923
Aggressive (2) $106,041 $70,327 $89,909
Micro (1) $800,642 $3,418 $495
Omega (3) $1,280,436 $548,386 $1,167,486
- --------------------
Small (4) $6,037,504 $10,076,379 $2,257,795
Strategic (5) $2,799,544 $3,911,744 $288,671
(1) Nine months ended 9/30/95
(2) Two months ended 9/30/95
(3) Year ended 12/31/95
(4) Year ended 5/31/95
(5) Year ended 10/31/95
BROKERAGE COMMISSIONS PAID
The following chart shows: (1) for each of the last three fiscal years
the amount of brokerage commissions paid by each Fund to all brokers and the
commissions, if any, paid to Lieber & Company; (2) for the fiscal year ended
September 30, 1997, the percentage of all commissions paid to Lieber & Company;
and (3) for the fiscal year ended September 30, 1997, the percentage of the
total dollar amount of all portfolio transactions with respect to which
commissions have been paid which were effected by Lieber & Company.
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<PAGE>
<TABLE>
<CAPTION>
Evergreen Aggressive Micro Omega Small Strategic
====================== ==================== ================== =================== ================ ================= ============
<S> <C> <C> <C> <C> <C> <C>
1997 Aggregate $ 503,276 $677,860 $ 91,568 $403,294 $1,891,397 $1,144,065
Dollar Amount
1997 Dollar Amount $ 416,953 (83%) -- $ 61,717 (67%) -- -- --
Paid to Lieber
1996 Aggregate $590,105 -- $ 317,058 $829,479 $2,853,950 $1,990,208
Dollar Amount
1996 Dollar Amount $515,522 -- $153,596 -- -- --
Paid to Lieber
1995 Aggregate $342,559 -- $414,048 $735,203 $1,445,066 $871,000
Dollar Amount
- ----------------------
1995 Dollar Amount $252,069 -- $125,347 -- -- --
Paid to Lieber
- ---------------------- -------------------- ------------------ ------------------- ---------------- ----------------- ------------
1997 Percent of 79% -- 61% -- -- --
Transactions
Effected by Lieber
====================== ==================== ================== =================== ================ ================= ============
</TABLE>
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase of Class A shares of each Fund aggregating
less than $100,000 based upon the NAV of each Fund's Class A shares at the end
of each Fund's latest fiscal period.
<TABLE>
<CAPTION>
Fund* Date Net Asset Value Per Share Sales Offering Price Per
Charge Share
<S> <C> <C> <C> <C>
Evergreen 9/30/97 $22.96 4.75% $24.10
Aggressive 9/30/97 $23.48 4.75% $24.65
Micro 9/30/97 $26.68 4.75% $28.01
Omega 9/30/97 $22.69 4.75% $23.82
========================= =============================================== ==================== ========================
</TABLE>
*Excludes Strategic and Small, which did not offer Class A at the end of their
latest fiscal periods, and Tax which is expected to commence operations on or
about September 1, 1998.
PERFORMANCE
Total Return
Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been 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. All dividends and
distributions are added to the initial investment, and all recurring fees
charged to all
37
<PAGE>
shareholder accounts are deducted. The ending redeemable value assumes a
complete redemption at the end of the relevant periods.
The annual total returns as of September 30, 1997 for each class of
shares of the Funds (including applicable sales charges) are as follows:
<TABLE>
<CAPTION>
Ten Years or
One Year Five Years Since Inception Inception Date
<S> <C> <C> <C> <C>
Evergreen
Class A 27.37% -- 27.63% Jan. 3, 1995
Class B 27.69% -- 28.32% Jan. 3, 1995
Class C 31.67% -- 29.01% Jan. 3, 1995
Class Y 34.08% 19.88% 12.64% Oct. 15, 1971
Aggressive
Class A 6.30% 16.77% 14.73% Apr. 15, 1983
Class B 5.96% -- 19.49% July 7, 1995
Class C 9.92% -- 19.22% Aug. 3, 1995
Class Y 11.76% -- 21.67% July 11, 1995
Micro
Class A 46.81% -- 20.43% Jan. 3, 1995
Class B 48.13% -- 20.91% Jan. 3, 1995
Class C 52.07% -- 21.72% Jan. 3, 1995
Class Y 54.64% 14.19% 11.46% June 1, 1983
Omega
Class A 20.60% 16.86% 14.31% Apr. 29, 1968
Class B 20.45% -- 15.45% Aug. 2, 1993
Class C 24.41% -- 15.78% Aug. 2, 1993
Class Y -- -- -- Jan. 13, 1997
Strategic
Class B 37.33% 18.73% 11.76% Jul. 15, 1935
Small 15.48% 20.55% 13.95% Jul. 15, 1935
Class B
============================= =================== =================== =================== ===================
</TABLE>
FINANCIAL INFORMATION FOR STOCK
The information below pertains to Stock, formerly Core Equity Fund, a
portfolio of CoreFunds, Inc. Core Equity Fund was reorganized into Stock in July
1998.
ADVISORY FEES
38
<PAGE>
The table below shows amounts paid by Core Equity Fund to its investment
advisor, CoreStates Investment Advisers, Inc. ("CoreStates Advisers"), for the
fiscal years ended June 30, 1995, 1996 and 1997. The table also shows advisory
fees waived by CoreStates Advisers.
<TABLE>
<CAPTION>
ADVISORY FEES PAID ADVISORY FEES WAIVED
1995 1996 1997 1995 1996 1997
<S> <C> <C> <C> <C> <C>
$199,645 $1,973,776 $3,459,108 $51,162 0 0
</TABLE>
DISTRIBUTION FEES
The table below shows the aggregate sales charges payable for the fiscal
years ended June 30, 1995, 1996 and 1997 to SEI Investments Distribution Co.
("SEI"), Core Equity Fund's distributor.
The table also shows amounts retained by SEI.
<TABLE>
<CAPTION>
AGGREGATE SALES CHARGE PAYABLE TO SEI AMOUNT RETAINED BY SEI
1995 1996 1997 1995 1996 1997
<S> <C> <C> <C> <C> <C>
$616 $12,612 $96,837 $68 $1,710 $4,819
</TABLE>
The table below shows the distribution fees SEI received with respect to
Class A shares of Core Equity Fund for the fiscal year ended June 30, 1997.
AMOUNT RECEIVED AMOUNT PAID TO 3RD PARTIES
$32,372 $32,372
BROKERAGE COMMISSIONS PAID
For the fiscal years ended June 30, 1997, 1996 and 1995 Core Equity Fund paid
$1,026,435, $1,422,984 and $117,625, respectively, in brokerage
commissions.
PERFORMANCE
The table below shows Core Equity Fund's average annual total return as of
June 30, 1997. Class B Shares were not offered as of that date.
<TABLE>
<CAPTION>
SINCE
CLASS ONE YEAR FIVE YEAR INCEPTION
<S> <C> <C> <C>
Y 33.10% 18.74% 18.03%
A without load 32.74% 18.64% 17.96%
A with load 25.41% 17.31% 17.06%
</TABLE>
Non-Standardized Performance
39
<PAGE>
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
General
From time to time, a Fund may quote its performance in advertising and other
types of literature as compared to the performance of the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, Russell 2000
Index, or any other commonly quoted index of common stock prices. The Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average and the
Russell 2000 Index are unmanaged indices of selected common stock prices. A
Fund's performance may also be compared to those of other mutual funds having
similar objectives. This comparative performance would be expressed as a ranking
prepared by Lipper Analytical Services, Inc. or similar independent services
monitoring mutual fund performance. A Fund's performance will be calculated by
assuming, to the extent applicable, reinvestment of all capital gains
distributions and income dividends paid. Any such comparisons may be useful to
investors who wish to compare a Fund's past performance with that of its
competitors. Of course, past performance cannot be a guarantee of future
results.
Financial Statements
The financial statements for Stock have been audited by Ernst & Young, LLP,
independent auditors, for the periods from November 1, 1995 through June 30,
1997. A report of Ernst & Young on the financial statements for Stock appears in
the Fund's Annual Report which is incorporated by reference . The financial
statements for Omega, Small and Strategic have been audited by KPMG Peat Marwick
LLP, independent auditors. A report of KPMG Peat Marwick LLP on the financial
statements for those Funds appears in the Funds' Annual Report which is
incorporated by reference. The financial statements for Evergreen, Micro and
Aggressive have been audited by PricewaterhouseCoopers LLP, independent
auditors. A report of PricewaterhouseCoopers LLP on the financial statements for
those Funds appears in the Funds' Annual Report which is incorporated by
reference. Annual Reports may be obtained without charge by writing to ESC, P.O.
Box 2121, Boston, Massachusetts 02106-2121, or by calling ESC toll-free at
1-800-343-2898.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectuses or required by law, each 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 a Fund's prospectuses, SAI or in
supplemental sales literature issued by such Fund or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
Each Fund's prospectuses 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.
22987
40
<PAGE>
APPENDIX A
S&P AND MOODY'S BOND RATINGS
S&P Bond Ratings
An S&P bond rating is a current assessment of the creditworthiness of an
obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default and capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
S&P bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
22987
A-1
<PAGE>
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's Bond Ratings
Moody's ratings are as follows:
1. 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-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.
2. 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 risks appear somewhat larger than in Aaa securities.
3. 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 sometime in the future.
4. 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.
5. 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.
6. 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.
7. 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.
8. Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
9. C - Bonds which are rated as 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.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
22987
A-2
<PAGE>
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year
or less such as bank certificates of deposit, bankers' acceptances, commercial
paper (including variable rate master demand notes), and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase A-1, by
S&P, or Prime-1 by Moody's or F-1 by Fitch; or, if not rated, will be issued by
companies which have an outstanding debt issue rated at the time of purchase
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P or Fitch, or will be determined
by a Fund's investment advisor to be of comparable quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
1. A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on debt and
ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
22987
A-3
<PAGE>
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
22987
A-4
<PAGE>