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Evergreen
Domestic Growth
Funds
September 30, 1998
Annual Report
[LOGO OF EVERGREEN FUNDS(SM)
APPEARS HERE]
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Table of Contents
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Letter to Shareholders .................................................... 1
Evergreen Aggressive Growth Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Fund
Fund at a Glance ....................................................... 6
Portfolio Manager Interview ............................................ 7
Evergreen Micro Cap Fund
Fund at a Glance ....................................................... 10
Portfolio Manager Interview ............................................ 11
Evergreen Omega Fund
Fund at a Glance ....................................................... 14
Portfolio Manager Interview ............................................ 15
Evergreen Small Company Growth Fund
Fund at a Glance ....................................................... 18
Portfolio Manager Interview ............................................ 19
Evergreen Stock Selector Fund
Fund at a Glance ....................................................... 22
Portfolio Manager Interview ............................................ 23
Evergreen Strategic Growth Fund
Fund at a Glance ....................................................... 25
Portfolio Manager Interview ............................................ 26
Financial Highlights
Evergreen Aggressive Growth Fund........................................ 29
Evergreen Fund.......................................................... 31
Evergreen Micro Cap Fund................................................ 33
Evergreen Omega Fund.................................................... 35
Evergreen Small Company Growth Fund..................................... 37
Evergreen Stock Selector Fund........................................... 39
Evergreen Strategic Growth Fund......................................... 41
Schedule of Investments
Evergreen Aggressive Growth Fund........................................ 43
Evergreen Fund.......................................................... 44
Evergreen Micro Cap Fund................................................ 49
Evergreen Omega Fund.................................................... 51
Evergreen Small Company Growth Fund..................................... 53
Evergreen Stock Selector Fund........................................... 56
Evergreen Strategic Growth Fund......................................... 58
Statements of Assets and Liabilities....................................... 60
Statements of Operations .................................................. 61
Statements of Changes in Net Assets........................................ 63
Combined Notes to Financial
Statements ................................................................ 66
Report of Independent Accountants ......................................... 77
Independent Auditors' Reports ............................................. 78
Additional Information .................................................... 79
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Evergreen Funds
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Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
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Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
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Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
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Letter to Shareholders
----------------------
November 1998
[PHOTO OF WILLIAM M. ENNIS
MANAGING DIRECTOR APPEARS HERE]
Dear Shareholders:
We are pleased to provide you the Evergreen Domestic Growth Funds annual report
covering the year ended September 30, 1998.
Market Volatility
The financial markets have certainly experienced volatility in the past few
months. After a five-year period of unprecedented growth, the stock market
peaked on July 17, 1998, when prices were at historic highs relative to
benchmarks such as corporate profits and dividends. Since that point, fears of
foreign currency devaluations, political turbulence and instability abroad have
produced an uncertain market. Through September, the market all but lost its
year-to-date gains, and then in October was on the rise, nearing the levels of
July's peak. We encourage you to take this opportunity to review your investment
time horizon and ensure you are on track with your goals. We also encourage you
to consider an invaluable strategy of investing during uncertain times: Dollar
Cost Averaging./1/ By investing a little at a time in regular intervals, you can
remain focused on your investment goals and not worry about predicting market
trends. Contact your investment representative or call us at 800.343.2898 to
start your Systematic Investment Plan today.
Year 2000/2/
The year 2000 is nearly upon us, and unlike some, we are looking forward to it.
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. We believe that for Evergreen shareholders, the
transition into the next millennium should be seamless, with virtually no impact
on the products and services you receive from us.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
/1/ This type of plan does not assure a profit or protect against loss in a
declining market.
/2/ The information above constitutes Year 2000 readiness disclosure.
/3/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
1
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EVERGREEN
Aggressive Growth Fund
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Fund at a Glance as of September 30, 1998
We seek the best companies in an industry, and will gladly pay a "fair" price
for this opportunity rather than settling for the second or third best company
at a "bargain" price.
Portfolio
Management
----------------------------------------------
[PHOTO OF HAROLD J. IRELAND, JR. APPEARS HERE]
Harold J. Ireland, Jr.
Tenure: April 1983
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CURRENT INVESTMENT STYLE/1/
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[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The S&P 400 and the NASDAQ Industrials are unmanaged
indices. These indices do not include transaction costs associated with buying
and selling securities nor any management fees. The CPI is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
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PERFORMANCE AND RETURNS*
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Class A Class B Class C Class Y
Inception Date 4/15/83 7/7/95 8/3/95 7/11/95
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -10.40% -11.30% -7.76% n/a
................................................................................
1 year w/o sales charge -5.93% -6.82% -6.87% -5.43%
................................................................................
3 years 7.89% 8.04% 8.93% 9.97%
................................................................................
5 years 9.04% -- -- --
................................................................................
10 years 15.75% -- -- --
................................................................................
Since Inception 12.64% 10.61% 10.27% 12.54%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $0.85 $0.85 $0.85 $0.85
................................................................................
*Adjusted for maximum sales charge.
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LONG TERM GROWTH
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[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A S&P 400 NASDAQ Industrials
- ------- ------- ------------ ------- ------- ------------------
9/30/88 $10,000 $10,000 $ 9,525 $10,000 $10,000
9/30/89 $10,434 $12,149 $12,903 $13,729 $11,866
9/30/90 $11,077 $ 8,850 $10,411 $11,748 $ 9,526
9/30/91 $11,452 $12,840 $17,477 $17,658 $15,259
9/30/92 $11,795 $14,010 $20,128 $19,769 $16,052
9/30/93 $12,112 $18,656 $26,672 $24,631 $20,170
9/30/94 $12,471 $19,155 $25,533 $25,017 $20,101
9/30/95 $12,788 $23,630 $32,731 $31,452 $25,380
9/30/96 $13,172 $26,733 $41,117 $35,842 $26,637
9/30/97 $13,456 $35,605 $45,886 $49,816 $35,556
9/30/98 $13,656 $28,833 $43,165 $46,622 $26,675
Comparison of a $10,000 investment in Evergreen Aggressive Growth Fund Class A,
versus a similar investment in the Standard & Poor's 400 Mid-Cap Index (S&P
400), the Nasdaq Industrials Index, the Russell 2000 Index, and the Consumer
Price Index (CPI).
Note: The Fund is changing its benchmark from the Russell 2000 to the S&P 400
due to the Fund's mid-cap weighting which is better represented by the S&P 400.
Nasdaq Industrials Index is an unmanaged index and a sub-set of the Nasdaq
Composite Index. It includes companies classified as agricultural, mining,
construction, manufacturing (electronic components), services, and public
administration enterprises.
Standard & Poor's 400 Mid Cap Index is an unmanaged index of 400 publicly traded
mid-capitalization U.S. stocks and is often used as an indicator of the mid-cap
market.
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
2
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EVERGREEN
Aggressive Growth Fund
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Portfolio Manager Interview
How did the Fund perform during the past fiscal year?
For the 12-month period ended September 30, 1998, Class A shares, unadjusted for
sales charge, had a total return of -5.9%. For the same period, the Standard &
Poor's 400 Mid-Cap Index returned -6.3%, the Nasdaq Industrials returned -25.0%.
Within its peer group, the Fund ranked in the 31st percentile, with a total
return better than 71% of mid-cap growth funds. Specifically, within the
Morningstar Mid-Cap Growth Fund Universe, the Fund ranked 101 of 350 funds in
total return for the year./1/
Portfolio
Characteristics
---------------
Total Net Assets $204,962,745
............................................................................
Number of Holdings 47
............................................................................
Beta 1.14
............................................................................
P/E Ratio 26.7x
............................................................................
What was the economic environment like during the period?
During the first six months of the fiscal year, stronger than expected economic
growth and declining inflation and interest rates were positive for stocks.
During the second half of the period, the General Motors strike and economic
turmoil in Asia and the emerging markets caused economic growth to slow.
Financial problems in world markets led to a decline in U.S. exports, which
investors feared would lead to weak profits for U.S. corporations and a possible
recession. As a result, market sentiment turned negative, institutional
investors lightened up their stock purchases and investments and the market
declined significantly. This correction took on the characteristics of a panic
flight to quality as massive, highly leveraged hedge fund positions were
uncovered and unwound. Small company and cyclical stocks suffered the most
during the market turbulence. Consistent mid-cap growth stocks, however, like
many of the Fund's largest holdings, fared better. The long-term effects of
lower inflation are very positive for lower interest rates and consequently
higher stock valuations for growth companies.
How do you select stocks for the portfolio?
We focus on mid-cap companies with histories of consistent growth and whose
revenues and earnings, we believe, will continue to grow at least 20% a year.
These companies also have a high level of profitability based on current profit
margins and return on equity. We seek the best companies in an industry, and
will gladly pay a "fair" price for this opportunity rather than settling for the
second or third best company at a "bargain" price. We will continue to hold a
company as it becomes a larger cap company as long as it grows in line with our
investment criteria.
What contributed to performance during the period?
Each of the Fund's five largest industries was a strong contributor to
performance. In addition, each of the Fund's top ten company holdings, was up
for the year. These top ten holdings accounted for slightly more than 50% of
portfolio assets as of fiscal year end and produced an aggregate total return of
48% for the 12-month period.
/1/Source: Morningstar, Inc. an independent monitor of mutual fund performance.
The rankings are based on total return and do not include the effect of a sales
charge. For the 5-year period ended September 30, 1998, the Fund's Class A
shares ranked 67 out of 129 mid-cap growth funds tracked by Morningstar. For the
10-year period ended September 30, 1998, the Fund's Class A shares ranked 10 out
of 58 mid-cap growth funds tracked by Morningstar. Past performance is no
guarantee of future results.
3
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EVERGREEN
Aggressive Growth Fund
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Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Software / Technology 24.2%
...........................................................................
Healthcare 18.3%
...........................................................................
Retail (Specialty) 15.7%
...........................................................................
Communication Systems & Services 10.3%
...........................................................................
Business Services 10.2%
...........................................................................
What held back performance?
The Energy sector produced a negative return for the period. A warmer than
normal winter and concerns about slower future worldwide economic growth drove
oil prices lower and shaved earnings expectations for oil drilling, equipment
and service companies. Energy holdings were 28% of total assets at the beginning
of the period but only accounted for 15% of assets at September 30, 1998. The
energy company stock recovery was interrupted this year, but we believe it will
resume next year and continue for several more years.
What changes did you make in the portfolio?
We built major positions in four stocks, three of which are now among the Fund's
top ten holdings. New additions included: Citrix Systems, a company that makes
computer network products, whose WinFrame product is shipped with Microsoft's
Windows NT software; EMC Corporation, the world leader in enterprise storage and
retrieval technology, whose products are used in online reservation systems,
transaction processing, Year 2000 compliance efforts, disaster recovery systems,
the internet and corporate intranets; SunAmerica, a leading financial services
firm that focuses on the retirement savings market and markets annuities,
guaranteed investment contracts, mutual funds, trust services and investment
counseling. Recently, American International Group offered to acquire
SunAmerica. We also added VISX, Inc., a manufacturer and licenser of the leading
laser system for eye surgery. We significantly increased the Fund's position in
HBO & Company, a leader in medical information systems and medical networking
services.
We eliminated some smaller positions whose growth had slowed, including Republic
Industries, Medicis Pharmaceutical, Ethan Allen Interiors, Etec Systems, and
Parametric Technology.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Cisco Systems, Inc. 7.9%
...........................................................................
Microsoft Corporation 7.0%
...........................................................................
BMC Software, Inc. 6.2%
...........................................................................
VISX, Inc. 5.2%
...........................................................................
EMC Corporation 4.7%
...........................................................................
SunAmerica, Inc. 4.5%
...........................................................................
Home Depot, Inc. 4.4%
...........................................................................
Paychex, Inc. 3.8%
...........................................................................
Medtronic, Inc. 3.7%
...........................................................................
MedQuist, Inc. 3.4%
...........................................................................
What are some of the themes in the portfolio?
Information technology is a major theme. Information rather than materials is
the major "stuff" of economic activity. The backbone of information technology
is computer software, communications and networking equipment supporting the
Internet and corporate intranets. Cisco Systems, Microsoft, EMC Corporation and
MCI WorldCom, are major holdings and dominant developers of products and
services in
4
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EVERGREEN
Aggressive Growth Fund
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Portfolio Manager Interview
these areas. Sterling Commerce, our 17th largest holding, is the largest
provider of applications for electronic commerce and electronic payments in the
U.S., helping corporate and government organizations save on pro procurement,
acquisition and accounting costs.
Outsourcing is another theme. For several years U.S. corporations have been
striving for greater productivity and cost-cutting by outsourcing critical
business functions. Holdings in the portfolio that reflect the outsourcing theme
are: Paychex, the largest provider of payroll and accounting services to
mid-sized businesses; Fiserv, a leading provider of financial data processing
services to banks and financial institutions; Analysts International, a computer
software services and technical support company; Saville Systems, which creates
customized billing systems for corporations; and MedQuist, a provider of
information services to health care organizations. Major oil companies are
increasingly outsourcing exploration, drilling and service functions.
Halliburton, Schlumberger and Petroleum Geo-Services are companies in the
portfolio that provide broad-based, one-stop shopping for oilfield services.
The "Graying of America" is a major long-term trend in our economy driving
increased healthcare needs and spending. The U.S. now has the largest population
of retirees in history and the leading edge of the "baby boom" generation is
just reaching its fifties. Both age groups use a disproportionate amount of
healthcare products and services. An above-average 18% of the portfolio is
invested in the health care industry. Three of the largest holdings are
Medtronic, the leader in pacemakers and other implantable cardiovascular
devices; Renal Care Group, a company that provides medical care for individuals
suffering from kidney diseases and diabetes; and Health Management Associates, a
highly efficient owner/operator of acute care and psychiatric hospitals in rural
areas in eleven states.
Specialty Retailers that save customers time by providing a high level of
customized service and/or convenience are also a portfolio theme. Such companies
have a competitive edge in the marketplace. Even though consumers have more
money than ever to spend, they seem to have less and less time. Holdings in
Office Depot, Staples, Bed Bath & Beyond, Fastenal and Family Dollar Stores
reflect this theme. One of the Fund's most successful holdings in this sector is
Home Depot whose growth continues to exceed 25% annually. The company provides
the highest level of service in the do-it-yourself, home improvement market.
What is your outlook?
We are positive about the companies in the portfolio. We believe growing
companies with double-digit earnings growth should benefit from lower inflation
and interest rates. Business growth in a deflationary world is increasingly rare
and should command higher PE multiples. Small and mid-cap companies suffer more
as they always do in periods of economic and market uncertainty, but as long as
their growth remains intact we believe they will provide exceptional returns
when the financial markets settle down. Most economists expect the U.S. economy
to grow about 2.4% in the fourth quarter of 1998 and 2.3% in 1999. The Federal
Reserve has taken action with its recent interest rate cuts that should settle
the financial markets and support future economic growth. We believe economic
growth at these levels will generate a strong stock market recovery and even
stronger growth for the Fund's net asset value.
5
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EVERGREEN
Evergreen Fund
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Fund at a Glance as of September 30, 1998
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully-valued, or
overvalued.
Portfolio
Management
----------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: October 1971
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CURRENT INVESTMENT STYLE/1/
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[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
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PERFORMANCE AND RETURNS*
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Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/71
...............................................................................
Average Annual Returns
...............................................................................
1 year with sales charge -10.07% -10.77% -7.11% n/a
...............................................................................
1 year w/o sales charge -5.59% -6.18% -6.19% -5.25%
................................................................................
3 years 12.40% 12.67% 13.44% 14.59%
................................................................................
5 years -- -- -- 15.16%
...............................................................................
10 years -- -- -- 12.25%
................................................................................
Since Inception 17.76% 17.99% 18.49% 16.03%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
...............................................................................
12-month income dividends
per share $0.10 -- -- $0.14
...............................................................................
12-month capital gain distributions
per share $0.50 $0.50 $0.50 $0.50
...............................................................................
*Adjusted for maximum sales charge.
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LONG TERM GROWTH
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[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A
---- --- ------------ -------
1/3/95 $ 10,000 $ 10,000 $ 9,525
9/30/95 $ 10,234 $ 12,571 $ 12,374
9/30/96 $ 10,541 $ 14,222 $ 14,610
9/30/97 $ 10,768 $ 18,942 $ 19,537
9/30/98 $ 10,929 $ 15,339 $ 18,445
Comparison of a $10,000 investment in Evergreen Fund Class A, versus a similar
investment in the Russell 2000, and the Consumer Price Index (CPI).
Russell 2000 Index is an unmanaged Index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the performance of the small company stock
market.
6
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EVERGREEN
Evergreen Fund
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Portfolio Manager Interview
What was the Fund performance in its fiscal year?
The Evergreen Fund's original Class Y shares, had a decline of 5.25% total
return for the fiscal year ended September 30, 1998. This was only the fifth
fiscal year decline in net asset value in the Fund's twenty-seven year history.
For the entire period since inception on October 15, 1971, the Fund's Class Y
shares have provided an average annual return of 16.03%. Class A, B, and C
shares returned -5.59%, -6.18%, and -6.19%, respectively, unadjusted for any
sales charges, for the fiscal year. The Fund's performance in the fiscal year
contrasted favorably with that registered by the leading average of smaller,
entrepreneurial companies, the Russell 2000 Index which declined 19.02% in this
period. The Fund showed a significant positive figure for performance until the
fourth quarter of its fiscal year, when its decline was 14.52%. The sharpest
fall-off in net asset values took place in August, while September showed a
meaningful recovery, up 4.63%.
Portfolio
Characteristics
---------------
Total Net Assets $1,847,330,018
.............................................................................
Number of Holdings 344
.............................................................................
Beta 1.03
.............................................................................
P/E Ratio 16.2x
.............................................................................
Why did Evergreen Fund outperform the Russell 2000 Average?
The Evergreen Fund portfolio through the year was not exclusively in a selection
of smaller entrepreneurial companies. The Fund holds several highly defensive
large capitalization companies which outperformed the market during the fiscal
year. These include: Fannie Mae, up 36.4%; Freddie Mac, up 39.8%; Johnson &
Johnson, up 35.7%; and Merck & Co., Inc., up 29.5%. Each has been long held, has
had significant capital appreciation, and represents a significant portion of
Fund holdings. In addition to their strength, the Fund benefited from a sizable
cash equivalent position, 18.8% at the beginning of the sharply lower September
quarter, and 20.0% at the end of that quarter. These defensive aspects of the
portfolio provided a partial, although certainly not total, counterbalance to
the highly volatile performance of smaller companies in the September quarter.
What were the strengths and weaknesses in the Fund's portfolio during the fiscal
year?
The Fund had many areas of sizable strength, including 20 issues whose capital
appreciation during the fiscal year was 50% or more. The industry sector showing
up most in this group was financial, led by the title insurance company, First
American Financial Corp., which was up 137.9%. This high performance group
included smaller banks, such as Gold Banc Corp., Inc., up 78.7%; Sandwich
Bancorp, Inc., up 53.5%; and Maryland Federal Bancorp, Inc., up 53.4%.
Technology innovative leaders were significant performers, led by Cisco Systems,
Inc., up 89.7%; and Gateway 2000, Inc., up 66.1%. Health care was represented in
the top performers by such issues as McKesson Corp., up 79.8%; Lincare Holdings,
Inc., up 53.2%; and Express Scripts, Inc., up 52.3%. Numbers of strong
performers were sold with substantial gains, led by part of the Fund's position
in Dillard's, Inc., which was sold with a gain of 2,331.2% after a 15 1/2 year
holding. Other major gains were in BB&T Corp., up 483.5%; part of our holdings
in Executive Risk, Inc., up 481.6%; part of our holdings in MBIA Inc., up
434.8%; Onbancorp, Inc., up 406.7%; and CVS Corp., up 87.8%. These are but a few
of the issues which were sold when we either judged that they had risen to
valuations which more than discounted their future growth, or others which were
sold when we regarded them as unlikely to achieve our growth goals. The latter
group ranged from companies which had run into legal or regulatory
7
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EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
problems, such as Ucar International, which was sold with a 62.7% loss after the
Federal Trade Commission penalized the company in a price-fixing charge, or
companies whose product positioning found them in a declining market
opportunity, such as Nike, Inc., Beverly Enterprises, Inc., Ranger Oil, Ltd, and
Bio-Rad Laboratories, Inc. With the Fund's very broad diversification into 344
companies, no loss taken had a sizable impact on portfolio valuation.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Clear Channel Communications, Inc. 4.4%
..........................................................................
Merck & Co., Inc. 3.5%
..........................................................................
M & T Bank Corp. 3.3%
..........................................................................
Intel Corp. 2.8%
..........................................................................
Federal National Mortgage Association 2.1%
..........................................................................
BankBoston Corp. 1.9%
..........................................................................
NationsBank Corp. 1.8%
..........................................................................
Johnson & Johnson 1.7%
..........................................................................
Federal Home Loan Mortgage Corp. 1.4%
..........................................................................
McKesson Corp. 1.2%
..........................................................................
Were mergers and acquisitions a plus for performance?
This fiscal year saw the largest number of merger and acquisition developments
among Fund holdings in its history, with transactions completed or begun for 44
of the Fund's holdings. For those of this group which have been completed as of
the end of the fiscal year, the average gain was 170.5%. These developments
continue a long-term trend of the Fund, which has now had 351 of its holdings
merged or acquired since its inception, and nine are still pending. We have long
regarded the recurrent and frequent series of bids for Fund holdings by other
companies as demonstrating that we have bought undervalued growth opportunities.
The most prominent industry group among the 44 companies which received bids
during the year was the financial, with 14 (primarily banks) announcing or
completing such transactions. The largest was the Fund's holding in Barnett
Banks, Inc. This holding began in December, 1990, with the purchase of shares of
First Florida Banks, Inc., which was subsequently acquired by Barnett, and
Barnett, in turn, was, acquired in 1998 by NationsBank Corp. (which has now,
through yet another merger, become BankAmerica Corp.). The Fund's original
investment of $2,833,672 beginning in 1990, was valued at $35,621,924 at the
time of the completion of the acquisition in January. Other very long-term
holdings with acquisitions during the year were Fort Wayne National, bought
originally in 1985, which provided a 973.9% gain on its acquisition, and
Onbancorp, Inc., bought in 1989, with a 265.4% gain to the Fund. Specialty
technology companies, especially medical-related, were among others with
acquisition bids, including Tecnol Medical Products, Inc., Medic Computer
Systems, Inc., Heartstream Inc., and United States Surgical Corp. In the
home-building field, acquisitions were made of Pacific Greystone Corp. and
Continental Homes Holding Corp. One of the larger transactions was in the shares
of Mercantile Stores Co., Inc., initially purchased in September 1994, and
acquired in August, with a gain of 81.8%. It is anticipated that the Fund's
active research for investment opportunities and undervalued growth companies
will continue to provide the portfolio with companies which are attractive
acquisition candidates.
Top 5 Industries
------------------------------
(based on 9/30/98 net assets)
Banks 15.6%
.........................................................................
Healthcare Products & Services 11.7%
.........................................................................
Finance & Insurance 10.9%
.........................................................................
Information Services & Technology 8.3%
.........................................................................
Publishing, Broadcasting & Entertainment 6.5%
.........................................................................
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is the Fund's policy with regard to its sizable cash equivalent position?
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully valued, or
overvalued. Therefore, we anticipated potential price declines which would allow
us to meet our standards of buying the shares of entrepreneurial growth
companies on a value basis. The strategy proved highly rewarding, as toward the
end of the fiscal year, the stock markets had a major decline and we were able
to maintain a steady, careful accumulation program. Many outstanding buys were
made, especially around the period of the sharp stock market fall on August 31.
Some had achieved significant gains by the end of the fiscal year, notably in
smaller companies which had sold off greatly, such as Elan Corp. Plc., Maxxim
Medical, Inc., Analytical Surveys, Inc., Diamond Offshore Drilling, Inc., and
Comair Holdings, Inc.
What are the Fund's expectations for the current fiscal year?
We are optimistic for renewed vigor in the Fund's capital appreciation because
of both external macroeconomic influences and the quality and dynamism of the
Fund's portfolio holdings. Our assessment of the economic outlook is positive
because we believe the steps necessary to sustain economic momentum have already
begun under the leadership of the Federal Reserve and the Administration. The
recent rate cuts are highly positive, demonstrating, in our view, that the
Federal Reserve is aiming to avoid unnecessary credit tightness. It also
demonstrates that the recent trend of diminished inflation is viewed as stable
and continuing. U.S. Treasury efforts to restimulate Japan's key role in the
world economy, particularly in East Asia, are closer now to objectives than at
any time in the last several years, given Japan's banking restructuring and
discussion of tax reduction. With contemplated aid to Brazil, a major source of
instability should be removed from this important trading partner. Europe has
begun an apparently coordinated series of interest rate cuts aimed at
invigorating economic and employment growth.
This is a positive backdrop; the most immediate consequence for the portfolio
has already at this writing, late in October, been a recovery of values in the
Fund's major financial institution sector. The banking industry was most
severely hit in the decline in the fourth quarter, particularly after the
Russian ruble collapse. While the Fund's many holdings are conservatively
positioned, regional banks were not directly impacted; nonetheless, a fear
running through investors in financial companies drove down the prices of many
of our holdings. With that recovery begun, and many strong earnings already
being reported, we anticipate a favorable trend. We have further strengthened
the financial institution holdings with purchases of highly deflated, quality
regional growth banks during the fourth quarter. The negatives which overwhelm
so many technological companies, including some of the Fund's smaller company
holdings, appear to be abating as the markets see continuing demand for
computers and electronic communications products, with the inventory glut
earlier in 1998 having been worked through. Overall, the portfolio selection is
based on expectations of significantly above-average profit performance by our
holdings, even in a slowing economic environment. Volatility, both political and
economic, may still bring unexpected swings, and, therefore, the Fund is
maintaining a sizable cash equivalent reserve position. Our goal is to continue
to take advantage of outstanding opportunities which meet our standards for
long-term entrepreneurial growth, purchased on a value basis.
We appreciate the continuing support and interest of the Fund's shareholders.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
When market sentiment turned negative in the summer of 1998, the stock prices of
the smaller companies did not hold up as well as the prices of larger companies,
despite the fact that they were trading at more attractive valuations.
Portfolio
Management
----------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: January 1996
[PHOTO OF EDWIN D. MISKA APPEARS HERE]
Edwin D. Miska
Tenure: January 1996
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 6/1/83
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -25.22% -25.76% -22.79% n/a
................................................................................
1 year w/o sales charge -21.49% -22.07% -22.05% -21.28%
................................................................................
3 years 3.84% 3.86% 4.79% 5.81%
................................................................................
5 years -- -- -- 4.85%
................................................................................
10 years -- -- -- 9.49%
................................................................................
Since Inception 7.43% 7.38% 8.06% 12.39%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $1.39 $1.39 $1.39 $1.39
................................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Russell 2000 CPI
---- ------- ------------ ---
1/3/95 $9,525 $10,000 $10,000
9/30/95 $11,126 $12,571 $10,234
9/30/96 $10,803 $14,222 $10,541
9/30/97 $16,658 $18,942 $10,768
9/30/98 $13,079 $15,339 $10,929
Comparison of a $10,000 investment in Evergreen Micro Cap Fund Class A, versus a
similar investment in the Russell 2000 Index, and the Consumer Price Index
(CPI).
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Fund's performance reflected the difficulties of investing in very small
companies during the past year, when these micro-cap stocks were out of favor
despite relatively favorable valuations and earnings outlooks. For the 12 months
ended September 30, 1998, the Evergreen Micro Cap Fund Class Y shares had a
total return of -21.28%. The Fund's Class A, B, and C shares had total returns
of -21.49%, -22.07%, and -22.05%, respectively, unadjusted for any sales
charges. During the same 12-month period, the Russell 2000 Index, a commonly
used index of the small company stock market, had a return of -19.02%. The
average micro-cap fund had a return of -26.68% during the same period, according
to Lipper Analytical Services, an independent monitor of mutual fund
performance.
Portfolio
Characteristics
---------------
Total Net Assets $51,182,646
..........................................................................
Number of Holdings 96
..........................................................................
Beta 1.38
..........................................................................
P/E Ratio 12.1x
..........................................................................
What was the investment environment like during the period?
The market clearly favored the larger, well-known, giant capitalization
companies during the year, based primarily on the expectation that these
companies would continue to achieve good earnings growth. Investors thought they
could buy a company like Coca Cola, Gillette, Intel or Microsoft, get excellent
earnings growth from these companies, and see the stock prices move positively
every day. Given these expectations, it was more likely that the larger
companies would get the attention over the lesser-known, less-followed, small-
and micro-cap names. We had an environment for most of the year in which smaller
companies with positive earnings growth similar to that of larger companies were
at a distinct disadvantage because of their lower profiles. Liquidity also was
an important factor. Investors liked stocks that were easy to trade, and this
favored the biggest companies.
When market sentiment turned negative in the summer of 1998, the stock prices of
the smaller companies did not hold up as well as the prices of larger companies,
despite the fact that they were trading at more attractive valuations.
In light of this environment, what was your strategy?
Our long-term strategy remains the same -- to buy the stocks of well managed,
innovative micro-cap companies trading at attractive valuations relative to the
market and possessing a dynamic catalyst for growth. The group of stocks from
which we select is comprised of companies of $200 million or less in market
capitalization -- the lowest 10% of the market in terms of size. We use a
rigorous, quantitative, fundamental and valuation review to find attractive
opportunities among these stocks. We combine that with a discipline to sell
stocks quickly when we see any signs of disappointment.
We stuck to that strategy, although we did place greater emphasis on companies
that would benefit from a continued, strong economy. This is where micro-cap
stocks may have somewhat of an advantage during a time of international economic
uncertainty. Only 40% of micro-cap companies have any foreign sales, versus
about 65% of large-cap companies.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Industrial Specialty Products & Services 12.8%
.........................................................................
Banks 11.9%
.........................................................................
Building Construction & Furnishings 11.2%
.........................................................................
Information Services & Technology 10.0%
.........................................................................
Products & Services Healthcare 8.5%
.........................................................................
In spite of this difficult period, did any stocks help the Fund's performance?
Yes. The top three performers in the portfolio for the year were small banking
companies. CNB Financial, which is based in upstate New York, had a 62.8% return
for the year. Washington Trust Bancorp, a Rhode Island banking company, had a
return of 55.9%. Northern States Financial, based in Waukegan, Ill., was up
40.4% for the 12-month period.
These three banks were largely unaffected by world markets, and more directly
influenced by what happens in their local economies. They all continued to have
strong earnings and revenue growth. Their stocks were undervalued relative to
their peers. Smaller bank stocks also continue to be helped by expectations of
industry consolidation.
Among other top-performers were Stanley Furniture Co., a manufacturer of
furniture for the home, and Genlyte Group, Inc., a manufacturer of commercial
and home lighting fixtures. In the past 12 months, Stanley Furniture was up
29.8%, while Genlyte was up 24.6%. Both these companies benefited from strong
consumer confidence, lower interest rates, and continued healthy domestic home
construction spending. In addition, Genlyte's stock gained as a result of the
announcement of a joint venture with one of its competitors, Thomas Industries,
which should double the size of Genlyte's business and enhance its earnings.
The Fund's performance was held back by sub-par stock performance during the
year from a number of larger holdings that had been strong contributors to the
Fund in the past. This list includes Alcide Corp., down 67%; Badger Meter, down
39.7%; General Employment Corp., down 40.4%; and Del Laboratories, Inc., down
29.9%. None of these companies has any significant profitability or growth
concerns on the horizon. Alcide Corp. continues to be a leading pioneer in
anti-microbial inventions, particularly in areas of food safety. Badger Meter is
continuing to develop new technologies in fluid metering devices. General
Employment Enterprises continues to provide staffing services for the employment
needs of the high technology sector, and Del Laboratories has enhanced and
broadened its cosmetic product lines with a significant acquisition. All of
these companies had positive trends in both revenues and earnings and are
optimistic on their outlooks. We have viewed their underperformance as
temporary, given the market's limited amplitude -- the relatively limited type
of stock in favor -- and have taken their stock price declines as opportunities
to selectively increase our positions to benefit from their excellent long-term
prospects.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
First Years, Inc. 2.9%
........................................................................
Badger Meter, Inc. 2.5%
........................................................................
Hickory Tech Corp. 2.3%
........................................................................
Genlyte Group, Inc. 2.2%
........................................................................
BT Financial Corp. 2.0%
........................................................................
Washington Trust Bancorp, Inc. 2.0%
........................................................................
Alcide Corp. 2.0%
........................................................................
SBS Technologies, Inc. 2.0%
........................................................................
Equitrac Corp. 1.8%
........................................................................
Air Methods Corp. 1.8%
........................................................................
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Mergers and acquisitions have been an important theme in this Fund. Did this
continue during the fiscal year?
The Fund continued to benefit from the long-term trend of larger companies
acquiring smaller ones with strong products, distribution and franchises. Five
of the Fund's holdings announced or completed acquisitions during the fiscal
year. Shares of surgical laser systems-maker Laser Industries, Ltd., outsourcing
services company Union Corp., chemical trucker MTL Inc., and staffing firm
Personnel Management Inc. completed merger deals. This brings the total number
of acquisitions completed to 95, since the Fund's inception on June 1, 1983. The
average gain to the portfolio over the years is 63.3%. A pending deal for shares
of Special Devices, a manufacturer of air bag initiators, is set to close soon.
This transaction is for $37 cash per share, significantly over the $16.87
average cost since the Fund's purchase in February 1996.
We believe that with the economy showing signs of slowing, larger companies will
seek ways to enhance their competitive positions and this should include the
continued acquisition of attractive, smaller companies. We expect the merger and
acquisition activity will return to a more active level, despite near-term
credit and market uncertainties. Issues such as the overall pre-occupation with
larger, more strategic types of deals, the "mergers of equals" and the Year 2000
computer problem may have distracted some companies in 1998. Given the values
appearing in the micro-cap market due to the large declines in overall prices,
we believe that the consolidation activity will accelerate in the near term, and
the Fund will be poised to benefit.
What is your general outlook?
We think the outlook is largely favorable. Smaller companies have the
opportunity to outperform larger companies over time because of their domestic
orientation, their more efficient operations and their specialty focus. With
world economies, markets and currencies under turmoil, they are clear
beneficiaries, given their single-market focus. A low-interest-rate environment
also should help. We believe these catalysts will spur a renewed interest in the
small- and micro-cap stock sectors. While global concerns may mask the overall
improvement in the performance of this sector short term, we believe the
long-term investor will benefit from a compelling opportunity to get into this
area at a time when the overall market disregards its attractive fundamentals.
While we are disappointed with this year's absolute performance, we are
optimistic the Fund is well positioned for both near- and longer-term strong,
positive performance.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
The Fund did better than most other capital appreciation funds because of our
emphasis on investing in strong companies, with records of consistent earnings
growth.
Portfolio
Management
----------
[PHOTO OF MAUREEN E. CULLINANE, CFA APPEARS HERE]
Maureen E. Cullinane, CFA
Tenure: April 1989
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 4/29/68 8/2/93 8/2/93 1/13/97
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -0.53% -1.04% 2.80% n/a
................................................................................
1 year w/o sales charge 4.43% 3.64% 3.73% 4.67%
................................................................................
3 years 12.46% 12.55% 13.33% --
................................................................................
5 years 11.24% 11.07% 11.37% --
................................................................................
10 years 16.08% -- -- --
................................................................................
Since Inception 12.94% 13.19% 13.34% 13.44%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $2.13 $2.13 $2.13 $2.13
................................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P 500 Class A
---- --- ------- -------
9/30/88 $ 10,000 $ 10,000 $ 9,525
9/30/89 $ 10,434 $ 13,301 $ 12,770
9/30/90 $ 11,077 $ 12,071 $ 12,030
9/30/91 $ 11,452 $ 15,834 $ 17,564
9/30/92 $ 11,795 $ 17,583 $ 18,588
9/30/93 $ 12,112 $ 19,869 $ 24,832
9/30/94 $ 12,471 $ 20,602 $ 23,285
9/30/95 $ 12,788 $ 26,730 $ 29,742
9/30/96 $ 13,172 $ 32,165 $ 33,591
9/30/97 $ 13,456 $ 45,175 $ 42,527
9/30/98 $ 13,656 $ 49,261 $ 44,409
Comparison of a $10,000 investment in Evergreen Omega Fund Class A, versus a
similar investment in the Standard & Poor's 500 Index (S&P 500) and the Consumer
Price Index (CPI).
The Standard & Poor's 500 Index is an unmanaged index of 500 publicly-traded
U.S. stocks and is often used as an indicator of the performance of the overall
stock market.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Omega Fund substantially outperformed its competitive group of mutual funds
with similar objectives, although it trailed the S&P 500 Index. For the 12
months ended September 30, 1998, the Fund's Class Y shares had a total return of
4.67%. Class A, B, and C shares had total returns of 4.43%, 3.64%, and 3.73%,
respectively, unadjusted for any sales charges. During the same 12-month period,
the average capital appreciation fund had a return of -2.89%, as measured by
Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance, while the overall S&P 500 Index had an average return of 9.05%.
The Fund did better than most other capital appreciation funds because of our
emphasis on investing in strong companies, with records of consistent earnings
growth. The Fund's portfolio is dominated by these companies. In addition, the
Omega Fund's diversified approach includes stocks of all sizes of companies,
while the typical capital appreciation fund tends to have a higher concentration
in the mid-cap and small-cap areas. We had only a very small representation in
small company stocks, so we avoided the debacle in that market. At the same
time, the Fund trailed the S&P 500 because the index is dominated by the large
company stocks, which clearly were the most popular stocks during the 12 months.
The S&P 500 also includes some defensive industries, such as utilities, in which
we typically do not invest because they don't provide enough growth potential.
Portfolio
Characteristics
---------------
Total Net Assets $284,611,203
.............................................................................
Number of Holdings 56
.............................................................................
Beta 1.06
.............................................................................
P/E Ratio 33.2x
.............................................................................
What was the investment environment like during the period?
The first nine months of the fiscal year, from October through June, were
generally favorable. We had a continuation of moderate growth, stable-to-
declining interest rates and very little inflation; stocks did very well.
Then, in the final three months, the market corrected as the Asian currency and
financial crisis of last year rippled throughout world markets. Investors became
worried that corporate earnings would come under pressure because of a global
economic slowdown. U.S. companies could be affected because they may face more
competition from foreign companies in the U.S., and would have a more difficult
time selling internationally. Investors also worried there would be a credit
crunch, because banks would not provide sufficient loans for the growth plans of
companies. The Federal Reserve Board has been lowering short-term interest rates
to address this problem, but investors remain concerned.
The extremely high valuations of stock prices -- after more than two years of
very strong performance -- also contributed to the correction. In previous
reports, we warned that the market could not sustain the performance it had been
enjoying. We were beginning to see signs of euphoria and over-confidence about
the market. It was inevitable that it would end, and it did because the
valuations were too high, and they had to correct.
The combination of two factors -- investors expecting slower earnings' growth
and lowering the price/earnings multiple they were willing to pay for growth --
created a double whammy. The result was a significant correction. International
stocks and small company stocks have been in their own bear markets, and we have
seen the crack in the market for large company stocks. To date, the price of the
average stock on the New York Stock Exchange declined more than 35% from its
high.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Information Services & Technology 16.8%
.........................................................................
Pharmaceuticals 16.7%
.........................................................................
Healthcare Products & Services 11.8%
.........................................................................
Publishing, Broadcasting & Entertainment 8.6%
.........................................................................
Finance & Insurance 7.2%
.........................................................................
At the end of the fiscal year, you had a heavy emphasis on consumer staples
stocks, at 28.5% of net assets. What was your strategy?
Most of that 28.5% allocation was in the pharmaceutical and health care
industries, which generally have very consistent records of earnings growth. The
fundamental characteristics of the drug industry are very strong. After years of
research, many new drugs are now being introduced to the market and the aging
population in the U.S. is building demand for these products. Among the
pharmaceutical companies in the portfolio were Pfizer, Warner-Lambert and
Schering-Plough. In healthcare equipment, we held Medtronic, a manufacturer of
pacemakers and other implantable devices. Other healthcare-related investments
include Health Management Associates (HMA), a hospital management company;
Cardinal Health, a drug distribution company; and IMS Health, which provides
pharmaceutical companies with important information regarding sales and market
share.
The pharmaceutical stocks also tended to be the performance leaders for the
Omega Fund. Pfizer, Pharmacia & Upjohn, Schering-Plough and Warner Lambert all
contributed to the Fund's performance.
What other steps did you take?
We increased our investments among better-quality, industry-leading technology
companies, which continued to post good earnings reports. Our holdings include
companies like Microsoft, EMC, Intel and Cisco Systems.
We have reduced our holdings in financial services, particularly since June,
reducing the weighting from about 13% to about 7%. After being one of the market
leaders for the past few years, the banking industry was affected by fears of a
credit crunch and a slowing economy, as well as by currency trading losses and
loans to foreign companies. We saw reductions in earnings growth projections in
the financial services sector and eliminated from the portfolio a number of
companies, including Morgan Stanley and Travelers.
We continued to emphasize broadcasting and advertising, with about 9% of the
Fund's net assets still committed there at the end of the fiscal year. Companies
such as Clear Channel, CBS and Outdoor Systems, a billboard advertising company,
continued to show good earnings growth. Moreover, we believe advertising
spending will continue to be healthy, despite an economic slowdown, as companies
fight for market position. Despite this forecast, many of the stock prices in
this industry fell by more than 25% during the market correction, so we see
excellent value here.
As of September 30, the amount invested in cash and cash equivalents had risen
to 10% from 2% at the mid-point of the fiscal year in March. We would not
characterize this as a defensive move, because we are prepared to re-invest this
money as we find attractive opportunities.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Warner-Lambert Co. 3.7%
........................................................................
Schering-Plough Corp. 3.3%
........................................................................
American Home Products Corp. 3.2%
........................................................................
General Electric Co. 3.1%
........................................................................
EMC Corp. 2.7%
........................................................................
Pfizer, Inc. 2.6%
........................................................................
Tyco International Ltd. 2.5%
........................................................................
IMS Health, Inc. 2.5%
........................................................................
Pharmacia & Upjohn, Inc. 2.5%
........................................................................
Microsoft Corp. 2.4%
........................................................................
What is your outlook?
We have been through the toughest period in the market. The economy is slowing,
but this slowing already is reflected in stock prices. The choppiness we have
been seeing in the market probably will continue, but we believe we are close to
the bottom of the correction. We see good values in the market, especially in
the mid-cap and small-cap stock areas, which have been neglected by investors
for a very long period. As we look toward 1999, we may see opportunities for
positive performance, although we don't think it is likely we will see the
market gains of 30% or more that we saw during the past three years.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Although performance has been disappointing, we believe that our process is
sound and has the potential to lead to above-average returns over the long term.
Portfolio
Management
----------
[PHOTO OF J. GARY CRAVEN APPEARS HERE]
J. Gary Craven
Tenure: November 1996
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities or
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 1/26/98 1/26/98
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -- -36.92% -- --
................................................................................
1 year w/o sales charge -- -33.91% -- --
................................................................................
5 years -- 1.50% -- --
................................................................................
10 years -- 11.96% -- --
................................................................................
Since Inception** -29.70% 9.53% -27.00% -25.74%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share -- $0.78 --
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A, C, and Y shares; these classes
opened in January 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class B
---- --- ------------ -------
9/30/88 $ 10,000 $ 10,000 $ 10,000
9/30/89 $ 10,434 $ 12,149 $ 13,239
9/30/90 $ 11,077 $ 8,850 $ 10,267
9/30/91 $ 11,452 $ 12,840 $ 17,342
9/30/92 $ 11,795 $ 14,010 $ 18,398
9/30/93 $ 12,112 $ 18,656 $ 28,393
9/30/94 $ 12,471 $ 19,155 $ 28,004
9/30/95 $ 12,788 $ 23,630 $ 38,804
9/30/96 $ 13,172 $ 26,733 $ 39,539
9/30/97 $ 13,456 $ 35,605 $ 46,845
9/30/98 $ 13,656 $ 28,833 $ 30,960
Comparison of a $10,000 investment in Evergreen Small Company Growth Fund Class
A, versus a similar investment in the Russell 2000 Index and the Consumer Price
Index (CPI).
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
For the 12-month period ended on September 30, 1998, the Fund's Class B shares
- -- the original class of the Fund -- had a total return of -33.91%, unadjusted
for any sales charges. During the same 12-month period, the Russell 2000 Index,
a commonly used reflection of the small company stock market, had a return of
- -19.02%. The average return among small company stock mutual funds was -20.60%,
as measured by Lipper Analytical Services, Inc., an independent monitor of
mutual fund performance. Obviously, we are not satisfied with the performance of
the Fund.
Portfolio
Characteristics
---------------
Total Net Assets $793,895,818
............................................................................
Number of Holdings 153
............................................................................
Beta 1.22
............................................................................
P/E Ratio 24.0x
............................................................................
What factors affected the Fund's performance?
This year, unlike any other in recent memory, the larger the company, the more
demand there was for its stock. The stocks of larger cap companies outperformed
mid-cap companies, which in turn outperformed small-cap companies. For the
majority of this year, this Fund was limited to investing in companies under $1
billion in market capitalization, which was the poorest part of the stock market
in which to be invested. The Fund's investment limits were much stricter than
those of many small company funds; however, the Fund's Board of Directors has
recently addressed this situation. The Fund now has the ability to invest in
companies of up to $2.5 billion in market capitalization. This increased
latitude is important because it allows us to invest in industry leaders in
emerging industries and in the growth leaders of other industries.
It's not accurate, however, to blame everything on investment restrictions;
performance also was hurt by instances of poor stock selection. We have made a
number of internal changes to assist the stock selection process, including
enhancing our technological capabilities for monitoring and researching
investment ideas. We also have made improvements in our quality review
procedures for new stock analysis.
Performance also was hurt by too much emphasis in energy-related companies
earlier in 1998. We had about a 7% weighting in the energy industry, which was
particularly hard hit by the effects of the Asian economic crisis. We sold our
energy holdings by the end of June, before the worst of the volatility in the
market drove those stock prices even lower, but the earlier exposure hurt
performance.
Although performance has been disappointing, we believe that our process is
sound and has the potential to lead to above-average returns over the long term.
What was the investment environment like during the 12-month period?
Over the course of the year, there was increasing investor focus on the negative
implications of problems that started in Asia, and then spread to Eastern Europe
and then to Latin America. Concerns about a potential global economic slowdown
particularly affected lower quality investments. High yield bonds, for example,
underperformed Treasuries. In the stock market, by their very nature, small
company stocks are lower quality than large company stocks because they have
fewer financial resources and less diversified businesses. Over the entire year,
investors had a clear preference for higher quality instruments, and this
preference did not favor the Fund.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Information Services & Technology 12.7%
.........................................................................
Healthcare Products & Services 9.5%
.........................................................................
Banks 9.4%
.........................................................................
Electrical Equipment & Services 7.5%
.........................................................................
Finance & Insurance 6.5%
.........................................................................
What strategies did you employ during the year?
We recognized this trend toward quality and we tried to move our portfolio to
higher quality, small-capitalization companies -- those that exhibited
steadiness and predictability of earnings and financial strength. These factors,
however, did not have the impact on performance that we hoped because the
smaller stocks in which we invested were a very difficult part of the market.
In the fourth quarter of the fiscal year -- the third quarter of the calendar
year -- we bought a number
of technology companies because we still see above-average earnings potential
there. Specifically, we built up holdings in a number of specialized
semi-conductor companies with excellent growth potential that were available at
rock-bottom prices. Two good examples are Microchip, which manufactures
semi-conductors for anti-lock brakes and for toasters, and Sipex, which
manufactures semi-conductors used for backlighting in cellular phones and
wristwatches. We also de-emphasized software companies, where, the earnings
outlook has been deteriorating because corporate spending patterns are changing.
The changes are, in part, a result of corporate customers trying to deal with
the "Year 2000" computer problem, rather than buying new types of applications.
We continue to see strong growth potential in the telecommunications industry,
but this area has been very volatile because many of the companies don't yet
have a history of consistent earnings growth, so their stock price swings can be
quite wide. We do believe telecommunications offers a great deal of opportunity
in the future, however. One company we like is McLeod USA, a regional phone
company with state-of-the-art abilities in both data and voice communications.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
Devry, Inc. 3.0%
........................................................................
Roper Industries, Inc. 1.9%
........................................................................
Health Management Associates, Inc. Cl. A 1.8%
........................................................................
Safeguard Scientifics, Inc. 1.7%
........................................................................
Jacor Communications, Inc. 1.7%
........................................................................
Sipex Corp. 1.6%
........................................................................
Astoria Financial Corp. 1.6%
........................................................................
Comdisco, Inc. 1.6%
........................................................................
Scientific Atlanta, Inc. 1.5%
........................................................................
Corporate Express, Inc. 1.5%
........................................................................
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
The bright side of the coin is that stock valuations are extremely low; small
company stock prices are as low as they have been in 20 years relative to the
overall stock market. We are nearing the point at which these valuations become
compelling. Some prices are so low that companies may start to be bought out and
taken private. This would provide a floor with respect to prices.
A necessary catalyst for small companies to recover is accessibility to
financing. The credit crunch that developed this year has hurt the ability of
companies to finance growth; however, we feel this restrictive credit
environment is a temporary situation. By mid-October, the Federal Reserve Board
already had cut short-term interest rates twice, which should be positive for
the stock market going forward.
The key for success in the small company stock market is earnings growth. Right
now, there still is fear and uncertainty about the effects of the global
economic slowdown that began in Asia. We believe it is inevitable that this
uncertainty will dissipate over the next six to 12 months as the impact of the
economic slowdown becomes clear. At this point, the small company stock market
is priced as if this impact will be very severe. With greater clarity and the
very real possibility that the impact of the slowdown will be relatively mild,
there is the potential for tremendous positive performance as investors regain
confidence in the earnings outlooks of the companies in which we invest.
If we look back, small company stocks have substantially outperformed the
overall stock market coming out of the past four economic downturns. Throughout
history, small company stocks have delivered above-average returns. The bulk of
these above-average returns have come in very small time periods -- months not
years. The key to investing in small company stocks is to make sure you are
invested during the explosive upswings that periodically occur.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
We continued to use a bottom-up investment approach that combines quantitative
and qualitative analysis. The fund was well diversified among various companies
and economic sectors.
Portfolio
Management
----------
[PHOTO OF JOSEPH E. STOCKE APPEARS HERE]
Joseph E. Stocke
Tenure: February 1990
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 8/31/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 Index is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
Inception Date 2/28/90 11/7/97 2/21/95
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -15.99% -15.42% n/a
................................................................................
1 year w/o sales charge -11.79% -10.44% -11.56%
................................................................................
3 years 13.78% -- 15.90%
................................................................................
5 years 13.78% --
................................................................................
10 years -- -- --
................................................................................
Since Inception 14.42% -23.15% 19.99%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
Prior fiscal year dividends per share -- -- $0.04
................................................................................
Prior fiscal year capital gain
distributions per share $2.92 $3.24** $2.92
................................................................................
* Adjusted for maximum sales charge.
**Adjusted to reflect a reverse stock split which occured on June 24, 1998.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P 500 Class A
---- --- ------- -------
2/28/90 $ 10,000 $ 10,000 $ 9,525
9/30/90 $ 10,367 $ 9,411 $ 8,782
9/30/91 $ 10,719 $ 12,344 $ 12,569
9/30/92 $ 11,039 $ 13,708 $ 14,034
9/30/93 $ 11,336 $ 15,491 $ 15,888
9/30/94 $ 11,672 $ 16,062 $ 16,449
9/30/95 $ 11,969 $ 20,839 $ 20,551
9/30/96 $ 12,328 $ 25,076 $ 25,048
9/30/97 $ 12,594 $ 35,219 $ 36,028
9/30/98 $ 12,781 $ 38,405 $ 31,781
Comparison of a $10,000 investment in Evergreen Stock Selector Fund Class A,
versus a similar investment in the S&P 500 Index, and the Consumer Price Index
(CPI).
Standard & Poor's 500 Index is an unmanaged index of 500 publicly traded U.S.
stocks and is often used as an indicator of the performance of the overall stock
market.
Please note that the Evergreen Stock Selector Fund has changed its fiscal year
end from June 30th to September 30th. The next report for the Fund will be its
semiannual report as of March 31, 1999, which will mail at the end of May 1999.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the fund perform in the 12-month period ended September 30, 1998?
For the 12-month period ended September 30, 1998, Class A shares produced a
total return of -11.79%, unadjusted for sales charge. For the same period, the
Standard & Poor's 500 Stock Index (S&P 500) returned 7.70%.
Portfolio
Characteristics
---------------
Total Net Assets $441,315,494
...........................................................................
Number of Holdings 92
...........................................................................
P/E Ratio 28.1x
...........................................................................
Beta 1.14
...........................................................................
What was the investment environment like during the period?
Economic weakness in emerging markets overshadowed the U.S. stock market during
the 12 months. In October 1997, a currency and financial crisis in Asia
triggered a sell-off in U.S. stocks. The market recovered quickly from the
October downturn and, while stocks were volatile, they made strong gains into
mid-July 1998. In August, Russia devalued its currency and the Russian economy
nearly collapsed. Investors grew concerned that a similar economic fate awaited
the emerging markets of Latin America. Market sentiment turned negative and
investors sold their stocks. From July through September 1998, the U.S. stock
market experienced its steepest quarterly decline in nearly a decade.
Why did economic problems in the emerging markets have such a strong impact on
U.S. stocks?
Many U.S. companies export goods and services to emerging market countries. When
these countries go into recession, they make fewer purchases, which results in a
decline in revenues and profits for U.S. companies. The price of a company's
stock is linked to its profit outlook, and investors tend to sell or avoid
stocks of companies with poor prospective profits.
How did you manage the fund during the period?
We continued to use a bottom-up investment approach that combines quantitative
and qualitative analysis. The Fund was well diversified among various companies
and economic sectors. We invested in a combination of large-, mid- and small-cap
stocks.
What affected the fund's performance?
About a third of the portfolio was invested in small- and mid-cap stocks. This
hurt performance as investors became concerned about the international financial
system and engaged in a flight to the perceived greater safety of large-cap
stocks and away from small- to mid-cap stocks.
The flight to quality was the biggest issue for us; however, performance was
held back by some individual stocks as well. MedPartners declined when a merger
with Phycore didn't work out; Cendant's stock price was affected by overstated
earnings that had to be restated downward; and Sunbeam's stock price declined
when the company's sales strategy didn't work out as anticipated, and it tried
to push its products through distribution channels too aggressively.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Finance & Insurance 12.0%
....................................................................
Healthcare Products & Services 9.7%
....................................................................
Information Services & Technology 9.6%
....................................................................
Food & Beverage Products 7.1%
....................................................................
Oil / Energy 7.0%
....................................................................
Where did you find new opportunities?
We added Fred Meyer, a West Coast supermarket chain, to the portfolio. This
company was attractive because of its low valuation and strong prospects for
growth relative to its peers. Fred Meyer is consolidating some recent
acquisitions, which should result in cost savings and more rapid growth. We
believe the company should benefit from its focus on the northwest, where it has
only modest competition and where the economy is growing more rapidly than in
other parts of the U.S. We also invested in Boston Scientific, a medical
products developer that specializes in cardiovascular products. Boston
Scientific's stock was attractively valued, and we believe its growth should
pick up dramatically as it introduces new products over the next several months.
We also added American Home Products (AHP) whose stock price is among the lowest
of the major pharmaceutical companies. We believe the company should also
benefit from new product introductions. Finally, we boosted the Fund's position
in America Online, which should benefit from the continued rapid growth of the
internet; and we added to Microsoft, which is benefiting from growth in the
computer industry and demand for personal computers.
Did you eliminate stocks from the portfolio?
We sold IBM, which we believed had become fully valued, and held other
technology stocks in the portfolio that we believe have the potential to grow
more rapidly than IBM. We reduced the Fund's position in Air Touch, a cellular
phone company. A year ago, we added to our Air Touch position because we felt it
was undervalued and overlooked by investors. As investors realized Air Touch's
potential, the company's stock price advanced significantly and we were able to
take some profits in the stock.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
MCI WorldCom, Inc. 4.8%
........................................................................
Microsoft Corp. 3.9%
........................................................................
Everest Reinsurance Holdings, Inc. 3.7%
........................................................................
Mobil Corp. 3.4%
........................................................................
General Electric Co. 3.1%
........................................................................
America Online, Inc. Delaware 2.7%
........................................................................
NationsBank Corp. 2.4%
........................................................................
Conseco, Inc. 2.4%
........................................................................
Nabisco Holdings Corp. 2.4%
........................................................................
Fred Meyer, Inc. 2.4%
........................................................................
What is your outlook?
Economic problems in foreign economies remain unresolved, and as a result, there
is uncertainty about the impact they will have on U.S. profits and the U.S.
economy. Such uncertainty will probably contribute to continued stock market
volatility in the short term. Longer term, we are confident that when we get
through this problem period, there will be continued growth. We encourage
investors to focus on the long term when evaluating the Fund's performance. In
managing the Fund, we concentrate on buying the best companies we can find at
the best values. Many of these are small- and mid-cap companies, which have
relatively little exposure to foreign markets, but have been out of favor with
investors. When the market calms down and investors begin considering small- and
mid-cap stocks again, we believe we could see some solid rebounds.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Strategic Growth Fund's approach includes stocks of all sizes of companies,
including the large-cap stocks that have been the market leaders.
Portfolio
Management
-------------------------
[PHOTO OF MAUREEN E. CULLINANE APPEARS HERE]
Maureen E. Cullinane, CFA
Tenure: April 1995
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 1/20/98 9/11/35 1/22/98
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -- -0.67% --
................................................................................
1 year w/o sales charge -- 3.87% --
................................................................................
3 years -- 16.12% --
................................................................................
5 years -- 13.50% --
................................................................................
10 years -- 14.84% --
................................................................................
Since Inception** 0.99% 11.44% 3.11%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share -- $1.32 --
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A and C shares; these classes opened
in January 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P500 Class B
------- -------- -------- --------
9/30/88 $ 10,000 $ 10,000 $ 10,000
9/30/89 $ 10,434 $ 13,301 $ 12,870
9/30/90 $ 11,077 $ 12,071 $ 11,276
9/30/91 $ 11,452 $ 15,834 $ 15,387
9/30/92 $ 11,795 $ 17,583 $ 16,266
9/30/93 $ 12,112 $ 19,869 $ 20,963
9/30/94 $ 12,471 $ 20,602 $ 21,047
9/30/95 $ 12,788 $ 26,730 $ 25,010
9/30/96 $ 13,172 $ 32,165 $ 27,354
9/30/97 $ 13,456 $ 45,175 $ 38,386
9/30/98 $ 13,656 $ 49,261 $ 39,908
Comparison of a $10,000 investment in Evergreen Strategic Growth Fund Class B,
versus a similar investment in the Standard & Poor's 500 Index (S&P 500) and the
Consumer Price Index (CPI).
Standard & Poor's 500 Index is an unmanaged index of 500 publicly traded U.S.
stocks and is often used as an indicator of the performance of the overall stock
market.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
For the 12 months ended September 30, 1998, the Evergreen Strategic Growth
Fund's Class B shares had a total return of 3.87%, unadjusted for any sales
charges. The average growth fund had a return of -1.44%, as measured by Lipper
Analytical Services, Inc., an independent monitor of mutual fund performance.
During the same 12-month period, the overall S&P 500 Index had an average return
of 9.05%.
As you can see, the Fund outperformed its competitive group of mutual funds,
while it trailed the S&P 500. The Fund did better than most other growth funds
because of our emphasis on investing in strong companies with records of
consistent earnings growth. Strategic Growth Fund's approach includes stocks of
all sizes of companies, including the large-cap stocks that have been the market
leaders. We tended to have minimal investments in small company stocks recently,
because they have experienced a severe downturn. The Fund underperformed the S&P
500 because the index is dominated by the large company stocks, which clearly
were the most popular stocks during the 12 months.
Portfolio
Characteristics
---------------
Total Net Assets $836,766,397
...........................................................................
Number of Holdings 62
...........................................................................
Beta 1.05
...........................................................................
P/E Ratio 32.4x
...........................................................................
What was the investment environment like during the period?
The first nine months of the fiscal year, from October 1997 through June 1998,
were generally favorable. We had a continuation of moderate growth, stable-to-
declining interest rates and very little inflation; stocks did very well.
Then, in the final three months, the market corrected as the Asian currency and
financial crisis of last year rippled throughout world markets. Investors became
worried that corporate earnings would come under pressure because of a global
economic slowdown. U.S. companies could be affected because they may face more
competition from foreign companies in the U.S., and would have a more difficult
time selling internationally. Investors also worried that there would be a
credit crunch, because banks would not provide sufficient loans for the growth-
plans of companies. The Federal Reserve Board has been lowering short-term
interest rates to address this problem, but investors remain concerned.
The extremely high valuations of stock prices -- after more than two years of
very strong performance -- also contributed to the correction. In previous
reports, we warned that the market could not sustain the performance it had been
enjoying. We were beginning to see signs of euphoria and over-confidence about
the market. It was inevitable that it would end, and it did, because the
valuations were too high and they had to correct.
The combination of two factors -- investors expecting slower earnings' growth
and lowering the price/earnings multiple they were willing to pay for growth --
created a double whammy. The result was a significant correction. International
stocks and small company stocks have been in their own bear markets, and we have
seen the crack in the market for large company stocks. To date, the price of the
average stock on the New York Stock Exchange declined more than 35% from its
high.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
At the beginning of the fiscal year, the Fund's two largest areas of emphasis
were healthcare and financial services. Has this changed?
We continue to have a heavy weighting in pharmaceutical and healthcare
companies, which comprised more than 27% of the portfolio at the end of the
fiscal year. The pharmaceutical and health care industries, in general, have
very consistent records of earnings growth. The fundamental characteristics of
the drug industry, in particular, are very strong. After years of research, many
new drugs are now being introduced to the market, and the aging of the
population in the U.S. is building demand for these products. Among the
pharmaceutical companies in the portfolio were Pfizer, Warner-Lambert, and
Schering-Plough. In healthcare equipment, we held Medtronic, a manufacturer of
pacemakers and other implantable devices. Other healthcare-related investments
include Health Management Associates (HMA), a hospital management company;
Cardinal Health, a drug distribution company and IMS Health, which provides
pharmaceutical companies with important information regarding sales and market
share.
We have reduced our holdings in financial services, particularly since June.
After being one of the market leaders for the past few years, the banking
industry was affected by fears of a credit crunch and a slowing economy, as well
as by trading losses and loans to foreign companies. We saw reductions in
earnings growth projections in the financial services sector, and eliminated a
number of companies, including J.P. Morgan and Travelers.
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Information Services & Technology 15.5%
.........................................................................
Healthcare Products & Services 13.7%
.........................................................................
Pharmaceuticals 13.7%
.........................................................................
Oil / Energy 9.2%
.........................................................................
Publishing, Broadcasting & Entertainment 8.8%
.........................................................................
What other areas have you emphasized?
We stepped up our investments among better-quality, industry-leading technology
companies, which continued to post good earnings reports. Our holdings include
companies like Microsoft, EMC, Intel and Cisco Systems.
We continued to emphasize broadcasting and advertising, with about 9% of the
Fund's net assets still committed there at the end of the fiscal year. Companies
such as Clear Channel and CBS continued to show good earnings growth. Moreover,
we believe advertising spending will continue to be healthy, despite an economic
slowdown, as companies fight for market position. Despite this forecast, many of
the stock prices in this industry fell by more than 25% during the market
correction, so we see excellent value here.
We also have maintained a position -- about 9% of net assets at the end of the
fiscal year -- in energy companies. We increased the emphasis somewhat when it
appeared that oil prices might rise again. Our major positions are in leading
international oil companies such as AMOCO, Mobil, Unocal and Exxon. These
companies have been relatively attractive on a total return basis, with their
healthy dividend yields adding to any potential price gains.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
At the end of the period, the amount invested in cash and cash equivalents had
risen to 8% from 3% at the mid-point of the fiscal year in March. We would not
characterize this as a defensive move, because we are prepared to re-invest this
money as we find attractive opportunities.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
Warner-Lambert Co. 3.4%
........................................................................
General Electric Co. 3.4%
........................................................................
Schering-Plough Corp. 3.2%
........................................................................
American Home Products Corp. 3.2%
........................................................................
Pfizer, Inc. 2.8%
........................................................................
EMC Corp. 2.8%
........................................................................
Microsoft Corp. 2.5%
........................................................................
Pharmacia & Upjohn, Inc. 2.4%
........................................................................
International Business Machines Corp. 2.1%
........................................................................
Time Warner, Inc. 2.1%
........................................................................
What is your outlook?
We think we have been through the toughest period in the market. The economy is
slowing, but this slowdown already is reflected in stock prices. The choppiness
we have been seeing in the market probably will continue, but we believe we are
close to the bottom of the correction. We see good values in the market,
especially in areas like mid-cap stocks, which have been neglected by investors
for a very long period. As we look toward 1999, we see many opportunities for
positive performance, although we do not expect to see the market gains of 30%
or more that we saw during the past three years.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended October 31,
---------------------------------------- --------------------------
1998 1997 1996 1995*(a) 1994 (a) 1993 (a)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
CLASS A SHARES
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF YEAR $ 23.48 $ 21.04 $ 17.37 $ 13.85 $ 14.44 $ 11.76
-------- -------- ------- ------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.21)# (0.15) (0.16) (0.13)# (0.12)#
Net realized and
unrealized gains or
losses on securities (1.12) 2.65 4.46 3.68 (0.22) 3.06
-------- -------- ------- ------- ----------- -----------
Total from investment
operations (1.37) 2.44 4.31 3.52 (0.35) 2.94
-------- -------- ------- ------- ----------- -----------
LESS DISTRIBUTIONS
From net realized gain
on securities (0.85) 0 (0.64) 0 (0.24) (0.26)
-------- -------- ------- ------- ----------- -----------
Total distributions (0.85) 0 (0.64) 0 (0.24) (0.26)
-------- -------- ------- ------- ----------- -----------
NET ASSET VALUE END OF
YEAR $ 21.26 $ 23.48 $ 21.04 $ 17.37 $ 13.85 $ 14.44
-------- -------- ------- ------- ----------- -----------
TOTAL RETURN+ (5.93%) 11.60% 25.62% 25.42% (2.42%) 25.31%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $137,776 $173,982 $96,608 $70,858 $64,635 $58,053
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.33% 1.26% 1.22% 1.47%++ 1.25% 1.31%
Total expenses,
excluding indirectly
paid expenses 1.32% 1.25% N/A N/A N/A N/A
Net investment income (1.14%) (1.05%) (0.86%) (1.12%)++ (0.92%) (0.92%)
PORTFOLIO TURNOVER RATE 22% 56% 33% 31% 59% 48%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997 1996 1995**
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 23.18 $ 20.89 $ 17.35 $15.82
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.41)# (0.37)# (0.16) (0.03)
Net realized and unrealized gains or
losses on securities (1.14) 2.66 4.34 1.56
------- ------- ------- ------
Total from investment operations (1.55) 2.29 4.18 1.53
------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------- ------- ------- ------
Total distributions (0.85) 0 (0.64) 0
------- ------- ------- ------
NET ASSET VALUE END OF YEAR $ 20.78 $ 23.18 $ 20.89 $17.35
------- ------- ------- ------
TOTAL RETURN+ (6.82%) 10.96% 24.88% 9.67%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $36,301 $41,167 $21,644 $2,858
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.08% 2.02% 1.98% 2.09%++
Total expenses, excluding indirectly
paid expenses 2.07% 2.01% N/A N/A
Net investment income (1.88%) (1.80%) (1.60%) (1.71%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the eleven-month period ended September 30, 1995. The fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1995.
** For the period from July 7, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
(a) Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of
Evergreen Trust, acquired substantially all of the net assets of ABT Emerg-
ing Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that
ended on October 31 was the accounting survivor in the combination. Accord-
ingly, the information above includes the result of operations of ABT
Emerging Growth Fund prior to June 30, 1995.
See Combined Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $23.16 $20.88 $17.31 $16.42
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.41)# (0.36)# (0.15) (0.01)
Net realized and unrealized gains or
losses on securities (1.15) 2.64 4.36 0.90
------ ------ ------ ------
Total from investment operations (1.56) 2.28 4.21 0.89
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------ ------ ------ ------
Total distributions (0.85) 0 (0.64) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.75 $23.16 $20.88 $17.31
------ ------ ------ ------
TOTAL RETURN+ (6.87%) 10.92% 25.11% 5.42%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $2,570 $3,992 $ 991 $ 416
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.08% 2.02% 1.96% 2.09%++
Total expenses, excluding indirectly
paid expenses 2.07% 2.01% N/A N/A
Net investment income (1.88%) (1.80%) (1.57%) (1.51%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997 1996 1995**
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 23.57 $ 21.09 $ 17.38 $15.79
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.20)# (0.17)# (0.06) (0.01)
Net realized and unrealized gains or
losses on securities (1.06) 2.65 4.41 1.60
------- ------- ------- ------
Total from investment operations (1.26) 2.48 4.35 1.59
------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------- ------- ------- ------
Total distributions (0.85) 0 (0.64) 0
------- ------- ------- ------
NET ASSET VALUE END OF YEAR $ 21.46 $ 23.57 $ 21.09 $17.38
------- ------- ------- ------
TOTAL RETURN (5.43%) 11.76% 25.84% 10.07%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $28,314 $44,384 $25,918 $1,889
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.08% 1.01% 0.97% 1.08%++
Total expenses, excluding indirectly
paid expenses 1.07% 1.00% N/A N/A
Net investment income (0.89%) (0.78%) (0.60%) (0.71%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from August 3, 1995 (commencement of class operations) to
September 30, 1995.
** For the period from July 11, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.96 $17.64 $15.55 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06# 0.11# 0.12 0.01
Net realized and unrealized gains or
losses on securities (1.31) 5.71 2.61 3.57
------ ------ ------ ------
Total from investment operations (1.25) 5.82 2.73 3.58
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (0.10) (0.09) (0.06) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.60) (0.50) (0.64) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $21.11 $22.96 $17.64 $15.55
------ ------ ------ ------
TOTAL RETURN+ (5.59%) 33.72% 18.07% 29.91%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 183 $ 161 $ 87 $ 29
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.44% 1.40% 1.45% 1.70%++
Total expenses, excluding fee waivers and
expense reimbursements N/A N/A N/A 1.75%++
Net investment income 0.24% 0.58% 0.63% 0.13%++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.69 $17.49 $15.48 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.12)# (0.03)# (0.03) (0.02)
Net realized and unrealized gains or
losses on securities (1.25) 5.64 2.64 3.53
------ ------ ------ ------
Total from investment operations (1.37) 5.61 2.61 3.51
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income 0 0 (0.02) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.50) (0.41) (0.60) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.82 $22.69 $17.49 $15.48
------ ------ ------ ------
TOTAL RETURN+ (6.18%) 32.69% 17.29% 29.32%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 624 $ 503 $ 254 $ 74
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.19% 2.15% 2.18% 2.32%++
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A N/A 2.34%++
Net investment income (0.50%) (0.16%) (0.10%) (0.48%)++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.66 $17.47 $15.48 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.11)# (0.04)# 0 (0.01)
Net realized and unrealized gains or
losses on securities (1.26) 5.64 2.61 3.52
------ ------ ------ ------
Total from investment operations (1.37) 5.60 2.61 3.51
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income 0 0 (0.04) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.50) (0.41) (0.62) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.79 $22.66 $17.47 $15.48
------ ------ ------ ------
TOTAL RETURN+ (6.19%) 32.67% 17.29% 29.32%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 13 $ 9 $ 6 $ 2
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.19% 2.16% 2.14% 2.12%++
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 2.38% 5.31%++
Net investment income (0.50%) (0.18%) (0.07%) (0.31%)++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $23.07 $17.71 $15.59 $14.62 $14.46
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.12# 0.16# 0.24 0.10 0.07
Net realized and unrealized gains or
losses on securities (1.30) 5.73 2.55 3.10 0.79
------ ------ ------ ------ ------
Total from investment operations (1.18) 5.89 2.79 3.20 0.86
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (0.14) (0.12) (0.09) (0.07) (0.09)
From net realized gain on securities (0.50) (0.41) (0.58) (2.16) (0.61)
------ ------ ------ ------ ------
Total distributions (0.64) (0.53) (0.67) (2.23) (0.70)
------ ------ ------ ------ ------
NET ASSET VALUE END OF YEAR $21.25 $23.07 $17.71 $15.59 $14.62
------ ------ ------ ------ ------
TOTAL RETURN (5.25%) 34.08% 18.43% 26.79% 6.16%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $1,028 $1,104 $ 841 $ 612 $ 526
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.18% 1.15% 1.15% 1.16% 1.13%
Interest expense N/A N/A N/A 0.06% 0.09%
Net investment income 0.49% 0.80% 0.93% 0.53% 0.40%
PORTFOLIO TURNOVER RATE 7% 12% 15% 19% 19%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $26.68 $17.31 $18.41 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.24)# (0.15)# (0.10) (0.10)
Net realized and unrealized gains or
losses on securities (5.17) 9.52 (0.44) 2.75
------ ------ ------ ------
Total from investment operations (5.41) 9.37 (0.54) 2.65
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.88 $26.68 $17.31 $18.41
------ ------ ------ ------
TOTAL RETURN+ (21.49%) 54.13% (2.90%) 16.81%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $4,741 $2,438 $ 903 $1,089
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.64% 1.79% 1.73% 1.51%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 1.63% 1.78% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 3.08% 4.33%++
Net investment income (0.95%) (0.73%) (0.52%) (1.03%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $26.14 $17.07 $18.30 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.42)# (0.28)# (0.25) (0.20)
Net realized and unrealized gains or
losses on securities (5.02) 9.35 (0.42) 2.74
------ ------ ------ ------
Total from investment operations (5.44) 9.07 (0.67) 2.54
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.31 $26.14 $17.07 $18.30
------ ------ ------ ------
TOTAL RETURN+ (22.07%) 53.13% (3.64%) 16.12%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $4,236 $1,713 $1,461 $2,020
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.38% 2.59% 2.47% 2.26%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 2.37% 2.58% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 3.26% 3.66%++
Net investment income (1.70%) (1.44%) (1.28%) (1.77%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $26.16 $17.09 $18.31 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.43)# (0.25)# (0.35) (0.20)
Net realized and unrealized gains or
losses on securities (5.01) 9.32 (0.31) 2.75
------ ------ ------ ------
Total from investment operations (5.44) 9.07 (0.66) 2.55
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.33 $26.16 $17.09 $18.31
------ ------ ------ ------
TOTAL RETURN+ (22.05%) 53.07% (3.58%) 16.18%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $3,093 $ 261 $ 27 $ 62
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.39% 2.56% 2.44% 2.25%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 2.38% 2.55% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 32.28% 41.34%++
Net investment income (1.71%) (1.50%) (1.35%) (1.76%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------- Year Ended
1998 1997 1996 1995 1994** May 31, 1994
- -------------------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 26.83 $ 17.35 $ 18.42 $ 21.74 $ 21.20 $ 20.87
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.18)# (0.09)# (0.08) (0.23) (0.05) (0.07)
Net realized and
unrealized gains or
losses on securities (5.21) 9.57 (0.43) 0.59 0.59 1.67
------- ------- ------- ------- ------- -------
Total from investment
operations (5.39) 9.48 (0.51) 0.36 0.54 1.60
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
From net realized gain
on securities (1.39) 0 (0.56) (3.68) 0 (1.27)
------- ------- ------- ------- ------- -------
Total distributions (1.39) 0 (0.56) (3.68) 0 (1.27)
------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 20.05 $ 26.83 $ 17.35 $ 18.42 $ 21.74 $ 21.20
------- ------- ------- ------- ------- -------
TOTAL RETURN (21.28%) 54.64% (2.73%) 4.76% 2.55% 7.64%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $39,112 $50,732 $39,622 $64,721 $99,340 $96,357
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.40% 1.59% 1.55% 1.36% 1.37%++ 1.26%
Interest expense 0.03% 0.02% 0.02% N/A N/A N/A
Total expenses,
excluding indirectly
paid expenses 1.39% 1.58% N/A N/A N/A N/A
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A 1.60% N/A N/A N/A
Net investment income (0.70%) (0.45%) (0.38%) (0.87%) (0.70%)++ (0.33%)
PORTFOLIO TURNOVER RATE 47% 59% 160% 84% 36% 89%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
** For the four-month period ended September 30, 1994. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1994.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
------------------- --------------------------------------
1998 1997* 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 22.69 $ 19.52 $ 19.56 $ 15.54 $ 17.11 $ 15.84
-------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.09)# (0.03)# (0.06) 0 0.04 (0.07)
Net realized and
unrealized gains or
losses on securities 1.03 4.05 2.15 5.58 (1.00) 3.07
-------- -------- -------- -------- ------- -------
Total from investment
operations 0.94 4.02 2.09 5.58 (0.96) 3.00
-------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
-------- -------- -------- -------- ------- -------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE END OF
YEAR $ 21.50 $ 22.69 $ 19.52 $ 19.56 $ 15.54 $ 17.11
-------- -------- -------- -------- ------- -------
TOTAL RETURN+ 4.43% 21.45% 11.31% 36.94% (5.66%) 19.33%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $156,220 $162,847 $154,825 $135,079 $99,569 $90,404
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.32% 1.32%++ 1.33% 1.38% 1.41% 1.51%
Total expenses,
excluding indirectly
paid expenses 1.32% 1.31%++ 1.32% 1.37% N/A N/A
Net investment income (0.38%) (0.20%)++ (0.29%) 0.00% 0.27% (0.48%)
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
------------------- ------------------------------------
1998 1997* 1996 1995 1994 1993**
- -------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 21.71 $ 18.83 $ 19.10 $ 15.34 $ 17.06 $17.29
-------- -------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.15)# (0.17) (0.09) (0.06) (0.05)
Net realized and
unrealized gains or
losses on securities 0.99 3.88 2.03 5.41 (1.60) 1.55
-------- -------- ------- ------- ------- ------
Total from investment
operations 0.74 3.73 1.86 5.32 (1.66) 1.50
-------- -------- ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.06) (1.73)
-------- -------- ------- ------- ------- ------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.06) (1.73)
-------- -------- ------- ------- ------- ------
NET ASSET VALUE END OF
YEAR $ 20.32 $ 21.71 $ 18.83 $ 19.10 $ 15.34 $17.06
-------- -------- ------- ------- ------- ------
TOTAL RETURN+ 3.64% 20.68% 10.31% 35.70% (6.57%) 9.02%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $114,068 $110,349 $89,921 $71,636 $32,266 $7,423
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.10% 2.18%++ 2.20% 2.29% 2.30% 2.57%++
Total expenses,
excluding indirectly
paid expenses 2.10% 2.17%++ 2.18% 2.27% N/A N/A
Net investment income (1.16%) (1.06%)++ (1.15%) (0.94%) (0.58%) (1.73%)++
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
** For the period from August 2, 1993 (commencement of class operations) to
December 31, 1993.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
----------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
- ---------------------------------------------------------------------------------------
CLASS C SHARES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 21.74 $ 18.86 $ 19.13 $ 15.37 $17.09 $17.29
------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.15)# (0.18) (0.13) (0.07) (0.06)
Net realized and
unrealized gains or
losses on securities 1.01 3.88 2.04 5.45 (1.04) 1.59
------- ------- ------- ------- ------ ------
Total from investment
operations 0.76 3.73 1.86 5.32 (1.11) 1.53
------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
------- ------- ------- ------- ------ ------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
------- ------- ------- ------- ------ ------
NET ASSET VALUE END OF
YEAR $ 20.37 $ 21.74 $ 18.86 $ 19.13 $15.37 $17.09
------- ------- ------- ------- ------ ------
TOTAL RETURN+ 3.73% 20.65% 10.29% 35.62% (6.56%) 9.20%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $13,752 $16,067 $17,628 $13,963 $9,900 $3,620
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.11% 2.18%++ 2.21% 2.30% 2.30% 2.48%++
Total expenses,
excluding indirectly
paid expenses 2.11% 2.17%++ N/A N/A N/A N/A
Net investment income (1.16%) (1.05%)++ (1.17%) (0.91%) (0.63%) (1.64%)++
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------
1998 1997***
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $22.68 $19.98
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.02)# (0.01)#
Net realized and unrealized gains or losses on securities 1.01 3.56
------ ------
Total from investment operations 0.99 3.55
------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (2.13) (0.85)
------ ------
Total distributions (2.13) (0.85)
------ ------
NET ASSET VALUE END OF YEAR $21.54 $22.68
------ ------
TOTAL RETURN 4.67% 18.60%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $ 571 $ 5
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.11% 1.24%++
Total expenses, excluding indirectly paid expenses 1.11% 1.24%++
Net investment income (0.09%) (0.21%)++
PORTFOLIO TURNOVER RATE 159% 76%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from August 2, 1993 (commencement of class operations) to
December 31, 1993.
** For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
*** For the period from January 13, 1997 (commencement of class operations) to
September 30, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 7.75
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.04)#
Net realized and unrealized gains or losses on securities (1.99)
------
Total from investment operations (2.03)
------
NET ASSET VALUE END OF PERIOD $ 5.72
------
TOTAL RETURN+ (26.19%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 589
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.15%++
Total expenses, excluding indirectly paid expenses 1.15%++
Net investment income (0.50%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended May 31,
--------------- ---------------------------------
1998 1997** 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
CLASS B SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.44 $ 8.44 $10.35 $ 8.62 $ 7.64 $ 7.95
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.07)# (0.04)# (0.11) (0.13) (0.07) (0.12)
Net realized and
unrealized gains or
losses on securities (2.90) 1.74 (0.78) 2.87 1.68 0.63
------ ------ ------ ------ ------ ------
Total from investment
operations (2.97) 1.70 (0.89) 2.74 1.61 0.51
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain
on securities (0.78) (0.70) (1.02) (1.01) (0.63) (0.82)
------ ------ ------ ------ ------ ------
Total distributions (0.78) (0.70) (1.02) (1.01) (0.63) (0.82)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 5.69 $ 9.44 $ 8.44 $10.35 $ 8.62 $ 7.64
------ ------ ------ ------ ------ ------
TOTAL RETURN+ (33.91%) 21.43% (8.61%) 33.03% 23.58% 6.84%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(MILLIONS) $ 200 $1,546 $1,407 $2,006 $1,460 $1,006
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.36% 1.77%++ 1.75% 1.73% 1.78% 1.73%
Total expenses,
excluding indirectly
paid expenses 1.36% 1.77%++ 1.73% 1.72% N/A N/A
Net investment income (0.89%) (1.43%)++ (1.32%) (1.34%) (1.10%) (1.49%)
PORTFOLIO TURNOVER RATE 97% 28% 48% 94% 38% 60%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
** For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF YEAR $ 7.73
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.10)#
Net realized and unrealized gains or losses on securities (1.93)
------
Total from investment operations (2.03)
------
NET ASSET VALUE END OF YEAR $ 5.70
------
TOTAL RETURN+ (26.26%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 4
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.90%++
Total expenses, excluding indirectly paid expenses 1.90%++
Net investment income (1.32%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 7.73
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.02)#
Net realized and unrealized gains or losses on securities (1.97)
------
Total from investment operations (1.99)
------
NET ASSET VALUE END OF PERIOD $ 5.74
------
TOTAL RETURN (25.74%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 1
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.91%++
Total expenses, excluding indirectly paid expenses 0.91%++
Net investment income (0.33%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
October 31,
------------------------
Period Ended June 30,
Period Ended ---------------------------- Retail Class Prior Class
September 30, 1998**** 1998 1997 1996***++ 1995** 1994*
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 22.43 $ 21.13 $ 17.28 $ 17.08 $15.00 $ 15.39
------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0)(a) (0.02) 0.07 0.12 0.18 0.11
Net realized and
unrealized gains or
losses on securities (4.09) 4.24 5.32 1.49 2.87 0.22
------- ------- ------- ------- ------ -------
Total from investment
operations (4.09) 4.22 5.39 1.61 3.05 0.33
------- ------- ------- ------- ------ -------
LESS DISTRIBUTIONS
From net investment
income 0 0 (0.07) (0.11) (0.17) (0.11)
From net realized gain
on securities 0 (2.92) (1.47) (1.30) (0.80) (0.61)
------- ------- ------- ------- ------ -------
Total distributions 0 (2.92) (1.54) (1.41) (0.97) (0.72)
------- ------- ------- ------- ------ -------
NET ASSET VALUE END OF
PERIOD $ 18.34 $ 22.43 $ 21.13 $ 17.28 $17.08 $ 15.00
------- ------- ------- ------- ------ -------
TOTAL RETURN+ (18.23%) 21.54% 32.74% 19.11% 21.94% 2.21%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $15,910 $20,509 $16,043 $11,178 $6,591 $50,128
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.18%++ 1.25% 1.23% 1.22%++ 1.34% 1.49%++
Total expenses,
excluding fee waivers
and expense
reimbursements 1.25%++ 1.32% 1.28% 1.26%++ 1.53% 1.51%++
Net investment income (0.06%)++ (0.10%) 0.38% 0.89%++ 1.23% 0.75%++
PORTFOLIO TURNOVER RATE 28% 61% 79% 114% 119% 35%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from March 15, 1994 (commencement of class operations) to
October 31, 1994
** On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment
income, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of
February 21, 1995. The results were combined with the results of operations
and distributions for each applicable class for the period February 21,
1995 through October 31, 1995. For the year ended October 31, 1995, the
Financial Highlights' ratio of expenses, net investment income, total
return, and the per share investment activities and distributions reflect
this allocation.
*** The per share amount for the Fund for the year ended June 30, 1996
represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
**** For the three-month period ended September 30,1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30,
1998.
++ On April 15, 1996, the Conestoga Equity Fund was acquired by CoreFunds,
Inc. At that time the Retail Class Shares of the Fund were exchanged for
Class A Shares.
(a) Less than one cent per share.
See Combined Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended Year Ended
September 30, 1998*** June 30, 1998****
- ------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $22.33 $22.76(b)
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.03) (0.09)
Net realized and unrealized gains or
losses on securities (4.07) 2.90
------ ------
Total from investment operations (4.10) 2.81
------ ------
LESS DISTRIBUTIONS
From net investment income 0 0
From net realized gain on securities 0 (3.24)(b)
------ ------
Total distributions 0 (3.24)
------ ------
NET ASSET VALUE END OF PERIOD $18.23 $22.33
------ ------
TOTAL RETURN+ (18.36%) 14.38%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $ 413 $ 349
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.94%++ 2.00%++
Total expenses, excluding fee waivers
and expense reimbursements 2.00%++ 2.07%++
Net investment income (0.76%)++ (0.85%)++
PORTFOLIO TURNOVER RATE 28% 61%
</TABLE>
<TABLE>
<CAPTION>
Institutional
Class
-----------------
Year Ended June 30,
Period Ended ---------------------------- Year Ended
September 30, 1998*** 1998 1997 1996**++ October 31, 1995*
- -----------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 22.43 $ 21.11 $ 17.26 $ 17.07 $ 15.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.01 0.04 0.12 0.14 0.19
Net realized and
unrealized gains or
losses on securities (4.09) 4.24 5.32 1.49 2.87
-------- -------- -------- -------- --------
Total from investment
operations (4.08) 4.28 5.44 1.63 3.06
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
From net investment
income 0 (0.04) (0.12) (0.14) (0.19)
From net realized gain
on securities 0 (2.92) (1.47) (1.30) (0.80)
-------- -------- -------- -------- --------
Total distributions 0 (2.96) (1.59) (1.44) (0.99)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF
PERIOD $ 18.35 $ 22.43 $ 21.11 $ 17.26 $ 17.07
-------- -------- -------- -------- --------
TOTAL RETURN (18.19%) 21.90% 33.10% 19.24% 22.00%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $424,992 $563,987 $515,015 $414,824 $378,352
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.93%++ 1.00% 0.98% 0.97% 1.05%++
Total expenses,
excluding fee waivers
and expense
reimbursements 1.00%++ 1.07% 1.03% 1.01% 1.10%++
Net investment income 0.19%++ 0.15% 0.63% 1.15% 1.44%++
PORTFOLIO TURNOVER RATE 28% 61% 79% 114% 119%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment
income, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of
February 21, 1995. The results were combined with the results of operations
and distributions for each applicable class for the period February 21,
1995 through October 31, 1995. For the year ended October 31, 1995, the
Financial Highlights' ratio of expenses, net investment income, total
return, and the per share investment activities and distributions reflect
this allocation.
** The per share amount for the Fund for the year ended June 30, 1996
represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
*** For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
**** For the period from November 7, 1997 (commencement of class operations) to
June 30, 1998.
++ On April 15, 1996, the Conestoga Equity Fund was acquired by CoreFund, Inc.
At the time the institutional Class Shares of the Fund were exchanged for
Class Y Shares.
(a) Less than one cent per share.
(b) Amounts adjusted to reflect a reverse stock split which occurred on June
24, 1998.
See Combined Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.12
-----
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01#
Net realized and unrealized gains or losses on securities 0.54
-----
Total from investment operations 0.55
-----
NET ASSET VALUE END OF PERIOD $9.67
-----
TOTAL RETURN+ 6.03%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 706
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.10%++
Total expenses, excluding indirectly paid expenses 1.10%++
Net investment income 0.08%++
PORTFOLIO TURNOVER RATE 141%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended October 31,
---------------------------- -----------------------------
1998 1997** 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------
CLASS B SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.61 $ 8.68 $8.05 $7.54 $9.00 $7.60
------------ ------------ ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.03) 0.01# (0.04) (0.02) 0 (0.06)
Net realized and
unrealized gains or
losses on securities 0.39 2.96 1.04 1.13 0.23 1.89
------------ ------------ ----- ----- ----- -----
Total from investment
operations 0.36 2.97 1.00 1.11 0.23 1.83
------------ ------------ ----- ----- ----- -----
LESS DISTRIBUTIONS
From net realized gain
on securities (1.32) (1.04) (0.36) (0.60) (1.69) (0.40)
------------ ------------ ----- ----- ----- -----
From net investment
income (0.02) 0 (0.01) 0 0 (0.03)
NET ASSET VALUE END OF
YEAR $ 9.63 $ 10.61 $8.68 $8.05 $7.54 $9.00
------------ ------------ ----- ----- ----- -----
Total distributions (1.34) (1.04) (0.37) (0.60) (1.69) (0.43)
TOTAL RETURN+ 3.87% 37.74% 12.95% 15.05% 3.55% 24.97%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(MILLIONS) $ 130 $ 920 $ 497 $ 492 $ 417 $ 404
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.36% 1.19%++ 1.91% 2.01% 1.73% 1.83%
Total expenses,
excluding indirectly
paid expenses 1.36% 1.18%++ 1.90% 2.00% N/A N/A
Net investment income (0.26%) 0.12%++ (0.48%) (0.25%) (0.17%) (0.57%)
PORTFOLIO TURNOVER RATE 141% 71% 156% 140% 68% 65%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
** For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.25
-----
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.07)#
Net realized and unrealized gains or losses on securities 0.45
-----
Total from investment operations 0.38
-----
NET ASSET VALUE END OF PERIOD $9.63
-----
TOTAL RETURN+ 4.11%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $ 453
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.84%++
Total expenses, excluding indirectly paid expenses 1.84%++
Net investment income (0.80%)++
PORTFOLIO TURNOVER RATE 141%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
42
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 99.1%
BUILDING - 0.5%
80,000 Oakwood Homes Corporation............................ $ 1,050,000
------------
BUSINESS SERVICES - 10.2%
100,000 Analysts International Corporation................... 3,000,000
112,500 *Fiserv, Inc......................................... 5,182,031
150,000 Paychex, Inc......................................... 7,734,375
50,000 *Saville Systems Plc, ADR............................ 725,000
125,000 *Sterling Commerce, Inc. ............................ 4,328,125
------------
20,969,531
------------
COMMUNICATION SYSTEMS &
SERVICES - 10.3%
262,500 *Cisco Systems, Inc. ................................ 16,225,781
100,000 *MCI WorldCom, Inc. ................................. 4,887,500
------------
21,113,281
------------
EDUCATIONAL SERVICES - 0.7%
60,000 *Sylvan Learning Systems, Inc. ...................... 1,402,500
------------
FINANCIAL - 4.5%
150,000 SunAmerica, Inc. .................................... 9,150,000
------------
HEALTHCARE - 18.3%
130,000 HBO & Company........................................ 3,753,750
225,000 *Health Management Associates, Inc. ................. 4,106,250
60,000 *HEALTHSOUTH Corporation............................. 633,750
217,500 *MedQuist, Inc. ..................................... 6,878,437
130,000 Medtronic, Inc. ..................................... 7,523,750
150,000 *Renal Care Group, Inc. ............................. 3,843,750
160,000 *VISX, Inc........................................... 10,720,000
------------
37,459,687
------------
OIL/GAS - DRILLING - 8.1%
70,000 *Cliffs Drilling Company............................. 1,382,500
80,000 Diamond Offshore Drilling, Inc. ..................... 2,080,000
116,000 ENSCO International, Inc. ........................... 1,254,250
115,000 *Global Marine, Inc. ................................ 1,272,188
140,000 *Marine Drilling Companies, Inc. .................... 1,610,000
140,000 *Noble Drilling Corporation.......................... 2,065,000
180,000 *Patterson Energy, Inc. ............................. 1,192,500
100,000 *R & B Falcon Corporation............................ 1,200,000
130,000 Transocean Offshore, Inc. ........................... 4,509,375
------------
16,565,813
------------
OIL/GAS - EQUIPMENT &
SERVICES - 6.6%
256,000 *Global Industries Ltd. ............................. 2,960,000
63,000 Halliburton Company.................................. 1,799,438
240,000 *Petroleum Geo-Services ADR.......................... 3,810,000
48,000 Schlumberger Ltd. ................................... 2,415,000
120,000 *Weatherford International Inc....................... $ 2,595,000
------------
13,579,438
------------
RETAIL (SPECIALTY) - 15.7%
115,000 *Action Performance Companies, Inc. ................. 3,105,000
150,000 *Bed Bath & Beyond, Inc. ............................ 3,506,250
100,000 *Central Garden & Pet Company........................ 1,850,000
160,000 Family Dollar Stores, Inc. .......................... 2,520,000
60,000 Fastenal Company..................................... 1,500,000
230,000 Home Depot, Inc. .................................... 9,085,000
180,000 *Office Depot, Inc. ................................. 4,038,750
806 *Sound Advice, Inc.
Warrants Expires 6/14/99+ .......................... 0
225,000 *Staples, Inc. ...................................... 6,609,375
------------
32,214,375
------------
SOFTWARE/TECHNOLOGY - 24.2%
125,000 *American Power Conversion Corp. .................... 4,710,937
212,000 *BMC Software, Inc. ................................. 12,733,250
49,500 *Citrix Systems, Inc. ............................... 3,514,500
170,000 *EMC Corporation..................................... 9,721,875
130,000 *Microsoft Corporation............................... 14,308,125
129,375 *Network Associates, Inc. ........................... 4,592,813
------------
49,581,500
------------
Total Common Stocks
(cost $132,823,397)................................. 203,086,125
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
CONVERTIBLE NOTES - 0.0% (B)
HEALTHCARE - 0.0% (B)
$ 85 *Surgical Laser Technologies
8.00%, 7/30/99+..................................... 0
------------
SHORT-TERM INVESTMENTS - 0.7%
REPURCHASE AGREEMENT - 0.7%
$1,509,000 State Street Bank & Trust Company
Investments in a repurchase
agreement, in a joint trading
account purchased 9/30/98,
4.75% maturing 10/1/98,
maturity value $1,509,199
(cost $1,509,000) (a)............................... 1,509,000
------------
Total Short-Term Investments
(cost $1,509,000)................................... 1,509,000
------------
TOTAL INVESTMENTS -
(COST $134,332,397).......................... 99.8% 204,595,125
OTHER ASSETS AND
LIABILITIES - NET............................ 0.2 367,620
----- ------------
NET ASSETS -.................................. 100.0% $204,962,745
===== ============
* Non-Income Producing Securities.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Funds' Board of Trustees.
(a) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices plus accrued interest at
September 30, 1998.
(b) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts.
See Combined Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 82.4%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.2%
92,900 *Lear Corp. ...................................... $ 4,064,375
--------------
BANKS - 15.6%
435,624 1st Source Corp. ................................. 13,967,194
90,450 Amcore Financial, Inc. ........................... 2,057,737
100,000 *American Bancshares, Inc. ....................... 900,000
174,975 AmSouth Bancorp................................... 5,971,022
1,500 Anchor Financial Corp. ........................... 53,250
160,660 Arrow Financial Corp. ............................ 4,618,975
233,100 Associated Banc Corp. ............................ 7,328,081
121,495 Banc One Corp. ................................... 5,178,724
45,000 Bank of Commerce.................................. 517,500
1,064,480 BankBoston Corp. ................................. 35,127,840
242,437 BSB Bancorp, Inc. ................................ 6,742,779
170,000 Cape Cod Bank & Trust Co. ........................ 2,932,500
50,000 Cardinal Financial Corp. ......................... 393,750
55,000 CCB Financial Corp. .............................. 5,541,250
36,750 *Century Bancshares, Inc. ........................ 312,375
140,018 Chittenden Corp. ................................. 4,200,540
67,500 *Columbia Banking Systems, Inc. .................. 1,282,500
125,500 Comerica, Inc. ................................... 6,878,969
65,000 Compass Bancshares, Inc. ......................... 2,145,000
109,318 Cornerstone Bank**................................ 2,261,516
70,000 Corus Bankshares, Inc. ........................... 2,380,000
70,000 Crestar Financial Corp. .......................... 3,972,500
14,800 Cullen/Frost Bankers, Inc. ....................... 714,100
62,500 First State Bancorp............................... 1,183,594
31,513 FNB Corp. ........................................ 882,364
60,393 Glacier Bancorp Inc. ............................. 1,423,017
210,000 Gold Banc Corp., Inc. ............................ 3,570,000
889,540 Hibernia Corp. Cl. A.............................. 12,842,734
319,042 Hubco, Inc. ...................................... 8,095,691
37,500 Independent Bankshares, Inc. ..................... 435,938
3,000 ING Groep N V, ADR................................ 131,625
51,000 Letchworth Independent
Bancshares Corp. ................................ 790,500
133,187 M & T Bank Corp. ................................. 61,399,207
22,000 Merchants Bancorp, Inc. .......................... 495,000
169,143 National City Corp. .............................. 11,152,867
613,510 NationsBank Corp. ................................ 32,822,785
150,000 North Fork Bancorp, Inc. ......................... 3,000,000
188,838 Old Kent Financial Corp. ......................... 5,594,326
33,593 One Valley Bancorp of West
Virginia, Inc. .................................. 1,085,474
36,300 Premier National Bancorp Inc. .................... 614,831
66,000 Sandwich Bancorp, Inc. ........................... 3,795,000
50,000 Seacoast Banking Corp. of Florida
Cl. A............................................ 1,487,500
136,512 State Financial Services Corp. Cl. A.............. 2,371,896
83,975 Summit Bancorp.................................... 3,149,062
410,000 *Surety Capital Corp.**........................... 1,101,875
65,650 Union Planters Corp. ............................. 3,298,912
112,145 *United Security Bancorp.......................... 1,766,284
78,570 Univest Corp. of Pennsylvania..................... 2,714,348
30,000 USBancorp, Inc. .................................. 570,000
34,000 Webster Financial Corp. .......................... 828,750
53,137 West Coast Bancorp, Inc. (Ore.)................... 890,045
110,000 Westamerica Bancorp. ............................. 3,183,125
45,560 Western Bancorp. ................................. 1,543,345
--------------
287,698,197
--------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 6.1%
14,000 Carlisle Companies, Inc. ......................... 545,125
30,000 *Castle & Cooke, Inc. ............................ 450,000
136,250 Cavalier Homes, Inc. ............................. 1,268,828
288,100 *Champion Enterprises, Inc. ...................... 6,698,325
421,625 Clayton Homes, Inc. .............................. 7,378,437
220,900 *Crossmann Communities, Inc. ..................... 4,445,613
661,710 D.R. Horton, Inc. ................................ 10,587,360
170,000 Eagle Hardware & Garden, Inc. .................... 3,686,875
80,000 *Furniture Brands International, Inc. ............ 1,560,000
260,600 *Genlyte Group, Inc. ............................. 5,342,300
30,000 Hon Industries, Inc. ............................. 708,750
70,800 Juno Lighting, Inc. .............................. 1,584,150
120,600 *Knoll, Inc. ..................................... 2,638,125
370,200 La-Z-Boy Chair Co. ............................... 7,265,175
336,740 Lennar Corp. ..................................... 7,513,511
262,000 Lowe's Companies, Inc. ........................... 8,334,875
159,700 *M/I Schottenstein Homes, Inc. ................... 2,954,450
160,000 Miller (Herman), Inc. ............................ 3,160,000
110,250 *Monaco Coach Corp. .............................. 2,783,813
159,300 Oakwood Homes Corp. .............................. 2,090,813
28,250 *Palm Harbor Homes, Inc. ......................... 702,719
34,000 Pillowtex Corp. .................................. 998,750
88,000 *Royal Group Technologies Ltd. ................... 1,474,000
54,472 Southdown, Inc. .................................. 2,451,240
119,000 *Southern Energy Homes, Inc. ..................... 833,000
40,000 Standard Pacific Corp. ........................... 565,000
81,200 *Stanley Furniture Co., Inc. ..................... 1,410,850
90,000 *Sundance Homes, Inc. ............................ 140,625
129,400 TJ International, Inc. ........................... 2,426,250
612,200 *Toll Brothers, Inc. ............................. 14,042,337
201,500 *US Home Corp. ................................... 5,919,062
--------------
111,960,358
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.9%
50,000 Artesyn Technologies Inc. ........................ 862,500
297,130 First Data Corp. ................................. 6,982,555
160,000 *In Focus Systems, Inc. .......................... 960,000
266,697 *Paxar Corp. ..................................... 2,366,936
164,700 *Zebra Technologies Corp. Cl. A................... 5,517,450
--------------
16,689,441
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.5%
62,221 Delta & Pine Land Co. ............................ 2,737,724
150,000 H.B. Fuller Co. .................................. 5,681,250
39,800 Nalco Chemical Co. ............................... 1,174,100
16,500 OM Group, Inc. ................................... 465,094
44
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
CHEMICAL & AGRICULTURAL
PRODUCTS - CONTINUED
359,568 Schulman (A.), Inc. .............................. $ 5,078,898
361,200 Sigma-Aldrich Corp. .............................. 10,429,650
92,700 Tredegar Industries, Inc. ........................ 1,697,568
--------------
27,264,284
--------------
COMMUNICATION SYSTEMS &
SERVICES - 2.4%
45,000 *American Tower Systems Corp. .................... 1,147,500
299,250 *Andrew Corp. .................................... 3,965,062
247,500 *Cisco Systems, Inc. ............................. 15,298,594
232,000 *Coherent Communications Systems
Corp., Inc. ..................................... 2,167,750
50,000 *DSP Group, Inc. ................................. 737,500
74,800 Echostar Communications Corp. .................... 1,795,200
120,000 *Inter-Tel, Inc. ................................. 1,552,500
50,000 *Loral Space & Communications..................... 737,500
235,000 Orbital Sciences Corp. ........................... 6,594,687
185,000 *Powertel, Inc. .................................. 2,509,063
126,000 *Tellabs, Inc. ................................... 5,016,375
155,000 *Vertex Communications Corp. ..................... 2,848,125
--------------
44,369,856
--------------
CONSUMER PRODUCTS &
SERVICES - 3.3%
140,000 Aaron Rents, Inc. Cl. B........................... 2,100,000
792,298 Cendant Corp. .................................... 9,210,464
145,800 Commonwealth Industries, Inc. .................... 1,184,625
151,300 Crown Crafts, Inc. ............................... 1,200,944
481,700 *Gaylord Container Corp. Cl. A.................... 1,565,525
63,300 Gucci Group....................................... 2,286,713
374,150 Harman International
Industries, Inc. ................................ 13,726,628
132,300 Heilig-Meyers Co. ................................ 950,906
201,030 K2, Inc. ......................................... 3,555,718
326,815 Lancaster Colony Corp. ........................... 10,049,561
140,000 *LoJack Corp. .................................... 1,505,000
180,000 *Nautica Enterprises, Inc. ....................... 3,363,750
70,000 Noble Affiliates, Inc. ........................... 2,231,250
181,600 *North Face, Inc. ................................ 2,360,800
40,000 *Recovery Engineering, Inc. ...................... 335,000
45,000 St. John Knits, Inc. ............................. 725,625
53,800 Toro Co. ......................................... 1,112,988
109,000 Valspar Corp. .................................... 3,263,187
--------------
60,728,684
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.9%
76,500 Applied Power, Inc. Cl. A......................... 2,089,406
80,400 *Atmel Corp. ..................................... 728,625
388,933 Baldor Electric Co. .............................. 8,507,909
62,500 *Brooks Automation, Inc. ......................... 621,094
96,400 *Dupont Photomasks, Inc. ......................... 2,072,600
50,000 *Electro Scientific Industries, Inc............... 793,750
27,000 *Franklin Electric Co., Inc. ..................... 1,707,750
130,100 *Hadco Corp. ..................................... 3,154,925
159,600 Harmon Industries, Inc. .......................... 3,511,200
103,000 Jabil Circuit, Inc. .............................. 3,579,250
75,000 *KLA-Tencor Corp. ................................ 1,865,625
46,500 *Sanmina Corp. ................................... 1,307,813
226,400 *SMART Modular Technologies, Inc.................. 4,655,350
50,000 *Vicon Industries, Inc. .......................... 356,250
--------------
34,951,547
--------------
FINANCE & INSURANCE - 10.9%
48,528 Aegon NV.......................................... 3,779,118
71,228 Allmerica Financial Corp. ........................ 4,246,969
368,800 AMBAC Financial Group, Inc. ...................... 17,702,400
49,000 Concord Pacific Group Inc. ....................... 28,910
121,900 Countrywide Credit Industries, Inc. .............. 5,074,087
111,600 Dain Rauscher Corp. .............................. 3,515,400
380,000 Edwards (A.G.), Inc. ............................. 11,518,750
68,200 Enhance Financial Services
Group, Inc. ..................................... 2,016,163
70,000 Executive Risk, Inc. ............................. 3,154,375
23,700 *Farm Family Holdings, Inc. ...................... 722,850
507,600 Federal Home Loan Mortgage Corp. ................. 25,094,475
618,000 Federal National Mortgage
Association...................................... 39,706,500
37,700 Fidelity National Financial, Inc. ................ 1,274,731
342,000 First American Financial Corp. ................... 10,944,000
85,000 *FPIC Insurance Group, Inc. ..................... 2,358,750
50,000 *Itla Capital Corp. .............................. 687,500
113,100 John Nuveen Co. Cl. A............................. 4,029,188
16,000 Landamerica Financial Group, Inc. ................ 820,000
148,266 Legg Mason, Inc. ................................. 3,901,249
93,000 *Life USA Holdings, Inc. ......................... 1,220,625
91,515 MBIA, Inc. ....................................... 4,913,212
30,000 *Mego Mortgage Corp. ............................. 15,000
75,385 Metris Companies Inc. ............................ 3,514,826
507,600 MGIC Investment Corp. ............................ 18,717,750
38,200 Mutual Risk Mgmt Ltd. ............................ 1,351,325
15,000 Ohio Casualty Corp. .............................. 581,250
318,400 Paine Webber Group, Inc. ......................... 9,552,000
100,000 Penn-America Group, Inc. ......................... 925,000
40,000 Price (T.) Rowe & Associates, Inc. ............... 1,175,000
54,692 Providian Financial Corp. ........................ 4,638,565
33,200 Reinsurance Group Of America...................... 1,718,100
86,000 ReliaStar Financial Corp. ........................ 3,354,000
75,107 Resource Bancshares Mortgage
Group, Inc. ..................................... 1,333,149
65,000 State Auto Financial Corp. ....................... 901,875
57,500 SunAmerica, Inc. ................................. 3,507,500
89,250 Trenwick Group, Inc. ............................. 2,599,406
39,300 Waddell & Reed Financial, Inc. ................... 746,700
--------------
201,340,698
--------------
FOOD & BEVERAGE PRODUCTS - 0.1%
16,500 Coca Cola Bottling Co. ........................... 990,000
40,000 Wendy's International, Inc. ...................... 887,500
--------------
1,877,500
--------------
45
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 11.7%
24,000 *Abiomed, Inc. ................................... $ 255,000
220,000 *ADAC Laboratories................................ 5,280,000
60,000 Arrow International, Inc. ........................ 1,672,500
114,500 Beckman Coulter, Inc. ............................ 5,911,062
90,000 Beverly Enterprises, Inc. ........................ 720,000
190,000 Biomet, Inc. ..................................... 6,590,625
128,298 *Boston Scientific Corp. ......................... 6,591,310
146,200 *Chad Therapeutics, Inc. ......................... 402,050
205,300 Columbia/HCA Healthcare Corp. .................... 4,118,831
8,025 *Coram Healthcare Corp. Warrants-
$22.125 Expiring 7/11/99+........................ 0
100,000 Depuy, Inc. ...................................... 3,500,000
185,000 Dura Pharmaceuticals, Inc. ....................... 2,023,438
10,000 *Elan Corp Plc, ADR............................... 720,625
112,800 *Exactech, Inc. .................................. 747,300
40,000 *Express Scripts, Inc. Cl. A...................... 3,290,000
100,000 First Health Group Corp. ......................... 2,425,000
10,000 *Forest Labs, Inc. ............................... 343,750
47,666 *Foundation Health Systems, Inc. ................. 446,869
440,000 HBO & Co. ........................................ 12,705,000
105,862 *Health Management Associates,
Inc. Cl. A....................................... 1,931,982
23,600 *HEALTHSOUTH Corp. ............................... 249,275
235,000 *Hologic, Inc. ................................... 3,055,000
265,000 *Idexx Laboratories, Inc. ........................ 6,326,875
30,000 Invacare Corp. ................................... 705,000
390,000 Johnson & Johnson................................. 30,517,500
26,800 *Lincare Holdings, Inc. .......................... 1,038,500
53,100 *Maxxim Medical, Inc. ............................ 1,364,006
235,800 McKesson Corp. ................................... 21,605,175
500,000 Merck & Co., Inc. ................................ 64,781,250
35,000 Meridian Diagnostics, Inc. ....................... 266,875
1,446 Pacificare Health Systems, Inc. Cl. A ............ 101,943
4,545 *Pacificare Health Systems, Inc. Cl. B ........... 338,603
209,163 Pharmeric, Inc. .................................. 1,137,324
100,000 Somanetics Corp. ................................. 181,250
97,500 *St. Jude Medical, Inc. .......................... 2,254,687
468,000 Stryker Corp. .................................... 15,912,000
90,000 *Sun Healthcare Group, Inc. ...................... 585,000
72,950 *Tenet Healthcare Corp. .......................... 2,097,312
58,800 U.S. Physical Therapy, Inc. ...................... 543,900
40,900 *VISX, Inc. ...................................... 2,740,300
45,600 West Co., Inc. ................................... 1,311,000
--------------
216,788,117
--------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 4.8%
242,000 AptarGroup, Inc. ................................. 5,505,500
36,300 BHA Group Holdings, Inc. Cl. A.................... 426,525
40,500 *Chemfab Corp. ................................... 793,547
290,000 *Dionex Corp. .................................... 6,742,500
187,000 Donaldson, Inc. .................................. 2,992,000
122,000 Dover Corp. ...................................... 3,766,750
191,400 Furon Co. ........................................ 3,325,575
128,000 *Input/Output, Inc. .............................. 1,016,000
324,200 Kaydon Corp. ..................................... 8,530,512
361,600 Leggett & Platt, Inc. ............................ 7,503,200
18,400 Nacco Industries, Inc. Cl. A...................... 1,840,000
60,000 *Osmonics, Inc. .................................. 622,500
247,900 Pall Corp. ....................................... 5,500,281
185,200 Park Electrochemical Corp. ....................... 2,523,350
133,200 Robbins & Myers, Inc. ............................ 2,822,175
6,400 *Simula, Inc. .................................... 52,800
241,500 Snap-on, Inc. .................................... 7,441,219
185,000 Spartech Corp. ................................... 3,179,688
20,000 *Special Devices, Inc. ........................... 652,500
147,200 Tecumseh Products Co. Cl. A....................... 7,222,000
57,800 Tecumseh Products Co. Cl. B....................... 2,976,700
256,000 Teleflex, Inc. ................................... 8,960,000
19,250 United Rental, Inc. .............................. 460,797
50,000 Wescast Industries, Inc. ......................... 1,171,875
104,000 Woodward Governor Co. ............................ 2,392,000
--------------
88,419,994
--------------
INFORMATION SERVICES &
TECHNOLOGY - 8.3%
100,000 *Advanced Communications
Systems, Inc. ................................... 943,750
119,850 *Analytical Surveys, Inc. ........................ 2,786,513
120,000 Autodesk, Inc. ................................... 3,150,000
40,000 Compaq Computer Corp. ............................ 1,265,000
75,000 Computer Associates
International, Inc. ............................. 2,775,000
52,000 Comverse Technology, Inc. ........................ 2,125,500
120,000 *Dialogic Corp. .................................. 3,345,000
183,900 Fair Issac & Co., Inc. ........................... 6,137,662
335,000 *Gateway 2000, Inc. .............................. 17,461,875
397,468 Hewlett-Packard Co. .............................. 21,040,962
150,000 InfoUSA, Inc. Cl. A............................... 871,875
150,000 InfoUSA, Inc. Cl. B............................... 1,068,750
598,000 Intel Corp. ...................................... 51,278,500
100,000 *Macromedia, Inc. ................................ 1,625,000
229,000 Micros Systems, Inc. ............................. 6,870,000
160,995 Molex, Inc. ...................................... 4,668,855
33,750 *National Instruments Corp. ...................... 841,641
430,000 *Parametric Technology Corp. ..................... 4,326,875
406,000 *Sun Microsystems, Inc. .......................... 20,223,875
--------------
152,806,633
--------------
LEISURE & TOURISM - 0.0% (A)
75,000 American Skiing Co. .............................. 525,000
--------------
OIL/ENERGY - 0.5%
35,000 *Barrett Resources Corp. ......................... 706,563
40,000 *COHO Energy, Inc. ............................... 193,750
60,000 *Global Marine, Inc. ............................. 663,750
30,000 KN Energy, Inc. .................................. 1,537,500
50,000 *Noble Drilling Corp. ............................ 737,500
20,000 Penn Virginia Corp. .............................. 438,750
242,600 Precision Drilling Corp. ......................... 3,047,662
118,590 Tosco Corp. ...................................... 2,549,685
--------------
9,875,160
--------------
46
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - 0.5%
35,000 ENSCO International, Inc. ........................ $ 378,438
140,000 *Global Industries Ltd. .......................... 1,618,750
170,000 *Hvide Marine, Inc. Cl. A......................... 1,221,875
61,500 Lufkin Industries, Inc. .......................... 1,599,000
34,000 *Oceaneering International, Inc. ................. 484,500
100,000 *Offshore Logistics, Inc. ........................ 1,262,500
118,000 *R & B Falcon Corp. .............................. 1,416,000
30,000 Stolt Comex Seaway SA ADR......................... 258,750
60,000 *Stolt Comex Seaway, SA........................... 577,500
--------------
8,817,313
--------------
PAPER & PACKAGING - 0.4%
31,815 Kimberly-Clark Corp. ............................. 1,288,508
107,000 St. Joe Corp. .................................... 2,554,625
186,662 Wausau Mosinee Paper Corp. ....................... 2,683,266
--------------
6,526,399
--------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 6.5%
29,500 Banta Corp. ...................................... 803,875
504,000 Belo (A.H.) Corp. Ser. A ......................... 10,080,000
150,000 Cadmus Communications Corp. ...................... 2,925,000
45,000 *Chancellor Media Corp. .......................... 1,501,875
1,714,000 *Clear Channel Communications, Inc................ 81,415,000
10,000 Gaylord Entertainment Co. ........................ 298,125
205,800 *Jacor Communications, Inc. ...................... 10,418,625
137,500 *Obie Media Corp. ................................ 1,615,625
190,000 Wiley (John) & Sons, Inc. Cl. A................... 11,673,125
--------------
120,731,250
--------------
REAL ESTATE - 1.7%
141,460 *Alexander's, Inc. REIT........................... 10,857,055
46,200 Apartment Investment & Management Co..............
Cl. A REIT....................................... 1,744,050
172,500 *Candlewood Hotel Co., Inc. ...................... 1,056,562
54,000 Chelsea GCA Realty, Inc. REIT..................... 1,849,500
78,000 Del Webb Corp. ................................... 1,642,875
75,000 Entertainment Properties Trust REIT............... 1,387,500
19,062 Equity Residential Properties
Trust REIT....................................... 804,178
20,000 Forest City Enterprises, Inc. .................... 420,000
47,400 *FRP Properties, Inc. ............................ 1,048,725
73,900 *Grubb & Ellis Co. ............................... 646,625
2,090 Horizon Group Properties, Inc. REIT............... 4,964
120,000 *Host Marriott Corp. ............................. 1,522,500
20,000 Irvine Apartment Communities, Inc.
REIT............................................. 537,500
32,600 *John Q. Hammons Hotels, Inc. Cl. A............... 146,700
70,000 LNR Property Corp. ............................... 1,351,875
81,200 Newhall Land & Farming Co. ....................... 1,898,050
51,783 Oxford Properties Group Inc. ..................... 526,164
441,661 *Prime Hospitality Corp. ......................... 3,091,627
29,850 Prime Retail, Inc. ............................... 292,903
115,000 *Servico, Inc. ................................... 862,500
--------------
31,691,853
--------------
RETAILING & WHOLESALE - 2.2%
145,000 Avnet, Inc. ...................................... $ 5,337,812
199,000 *Cole National Corp. Cl. A........................ 4,141,687
120,000 *Costco Companies, Inc. .......................... 5,685,000
32,730 CVS Corp. ........................................ 1,433,983
98,200 Dillards, Inc. ................................... 2,780,288
10,000 Ethan Allen Interiors, Inc. ...................... 362,500
236,800 Fingerhut Companies, Inc. ........................ 2,604,800
100,000 Finish Line, Inc. Cl. A........................... 931,250
50,000 *Footstar, Inc. .................................. 1,134,375
80,000 *Home Products International, Inc. ............... 680,000
151,600 *Jones Apparel Group, Inc. ....................... 3,477,325
29,500 *Payless Shoesource, Inc. ........................ 1,220,563
167,078 *Saks, Inc. ...................................... 3,748,813
402,000 Seaway Food Town, Inc.**.......................... 5,577,750
50,000 *Tommy Hilfiger Corp. ............................ 2,050,000
--------------
41,166,146
--------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.3%
40,000 ADC Telecommunications, Inc. ..................... 845,000
158,000 *Aspect Telecommunications Corp. ................. 3,792,000
55,000 Scientific Atlanta, Inc. ......................... 1,161,875
--------------
5,798,875
--------------
THRIFT INSTITUTIONS - 0.7%
185,100 First Palm Beach Bancorp, Inc. ................... 6,478,500
73,500 *Hawthorne Financial Corp. ....................... 1,111,687
148,500 Maryland Federal Bancorp, Inc. ................... 5,346,000
--------------
12,936,187
--------------
TRANSPORTATION - 1.9%
125,000 ASA Holdings, Inc. ............................... 4,437,500
97,900 Comair Holdings, Inc. ............................ 2,814,625
78,000 Delta Air Lines, Inc. ............................ 7,585,500
41,400 GATX Corp. ....................................... 1,368,788
217,465 *Heartland Express, Inc. ......................... 3,588,172
645,250 Southwest Airlines Co. ........................... 12,905,000
120,000 U.S. Freightways Corp. ........................... 2,385,000
--------------
35,084,585
--------------
Total Common Stocks
(cost $851,112,658).............................. 1,522,112,452
--------------
CONVERTIBLE PREFERRED - 0.0% (A)
REAL ESTATE - 0.0% (A)
10,000 Prime Retail, Inc. ............................... 170,000
--------------
Total Convertible Preferred
(cost $381,196).................................. 170,000
--------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 20.0%
COMMERCIAL PAPER - 14.6%
$27,000,000 Aluminum Co. America
5.51%, 10/30/98.................................. 26,880,157
12,650,000 Aristar, Inc.
5.35%, 11/10/98.................................. 12,574,803
47
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - CONTINUED
COMMERCIAL PAPER - CONTINUED
$20,600,000 Avon Capital Corp. 5.48%, 11/9/98.................. $ 20,477,705
16,350,000 BHF Finance
5.52%, 10/1/98.................................... 16,350,000
22,000,000 BMW U.S. Capital Corp.
5.50%, 10/13/98................................... 21,959,667
7,300,000 BTR Dunlop Finance, Inc.
5.50%, 11/19/98................................... 7,245,351
Duke Capital Corp.:
9,850,000 5.53%, 10/6/98..................................... 9,842,435
7,075,000 5.53%, 10/8/98..................................... 7,067,392
8,750,000 Great Lakes Chemical Corp. 5.50%,
10/1/98........................................... 8,750,000
6,725,000 International Business Machines
5.50%, 10/22/98................................... 6,703,424
2,640,000 Oil Insurance Limited
5.52%, 10/20/98................................... 2,632,309
16,000,000 Old Line Funding Corp.
5.52%, 11/4/98.................................... 15,916,587
Park Avenue Recreation Corp.:
17,200,000 5.37%, 11/16/98.................................... 17,081,979
3,700,000 5.52%, 10/28/98.................................... 3,684,682
46,700,000 Republic Industries Funding Corp.
5.54%, 10/29/98................................... 46,498,775
7,500,000 Sharp Electronics Corp.
5.65%, 11/10/98................................... 7,452,917
Sothebys Inc.:
4,900,000 5.52%, 11/5/98..................................... 4,873,703
5,680,000 5.53%, 11/6/98..................................... 5,648,590
2,900,000 Southern Co.
5.50%, 10/15/98................................... 2,893,797
4,500,000 Star Marketers Acceptance Corp.
5.55%, 10/27/98................................... 4,481,962
11,600,000 Triple A One Funding Corp. 5.53%,
10/27/98.......................................... 11,553,671
8,450,000 TRW, Inc.
5.53%, 10/14/98................................... 8,433,126
--------------
269,003,032
--------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 5.4%
50,000,000 Federal Home Loan Bank Consolidated
Discount Notes 5.10%, 11/4/98..................... 49,759,167
50,000,000 Federal Home Loan Mortgage Discount
Notes 5.45%, 10/14/98............................. 49,901,597
--------------
99,660,764
--------------
Total Short-Term Investments
(cost $368,663,796)............................... 368,663,796
--------------
TOTAL INVESTMENTS -
(COST $1,220,157,650).................... 102.4% 1,890,946,248
OTHER ASSETS AND LIABILITIES - NET........ (2.4) (43,616,230)
----- --------------
NET ASSETS -.............................. 100.0% $1,847,330,018
===== ==============
* Non-Income Producing Securities.
** Investment in non-controlled affiliate holding over 5% of outstanding voting
shares. At September 30, 1998, the Fund held investments in the following
securities:
DIVIDENDS
SECURITY NAME SHARES COST VALUE EARNED
-----------------------------------------------------------------------------
Cornerstone Bank 109,318 $1,089,310 $2,261,516 $34,385
Seaway Food Town, Inc. 402,000 1,563,474 5,577,750 64,320
Surety Capital Corp. 410,000 1,559,388 1,101,875 --
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Funds' Board of Trustees.
(a) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
48
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 94.4%
BANKS - 11.9%
38,720 BT Financial Corp. ................................... $ 1,045,440
20,000 CNB Financial Corp. .................................. 400,000
2,500 First Keystone Financial, Inc ........................ 34,063
40,000 First Oak Brook Bancshares, Inc. Cl. A................ 790,000
2,964 First West Virginia Bancorp, Inc. .................... 75,397
40,495 Independent Bank Corp. ............................... 895,952
14,500 Northern States Financial Corp. ...................... 397,844
7,500 Peoples Bancorp, Inc. ................................ 194,062
20,000 Second Bancorp, Inc. ................................. 520,000
47,587 Washington Trust Bancorp, Inc. ....................... 1,014,198
41,875 West Coast Bancorp, Inc. (Ore.)....................... 701,406
-----------
6,068,362
-----------
BUILDING, CONSTRUCTION &
FURNISHINGS - 11.2%
15,000 American Woodmark Corp. .............................. 380,625
28,250 Cavalier Homes, Inc. ................................. 263,078
25,000 *Crossmann Communities, Inc. ......................... 503,125
25,000 Decorator Industries, Inc. ........................... 187,500
55,000 *Genlyte Group, Inc. ................................. 1,127,500
45,000 *Koala Corp. ......................................... 596,250
15,500 *M/I Schottenstein Homes, Inc. ....................... 286,750
52,000 *Mity Lite, Inc. ..................................... 825,500
50,000 *Modtech, Inc. ....................................... 875,000
40,000 *Stanley Furniture Co., Inc. ......................... 695,000
-----------
5,740,328
-----------
BUSINESS EQUIPMENT &
SERVICES - 3.4%
50,000 *Equitrac Corp. ...................................... 925,000
20,000 *Execustay Corp. ..................................... 180,000
89,750 General Employment Enterprises, Inc. ................. 628,250
-----------
1,733,250
-----------
CHEMICAL & AGRICULTURAL
PRODUCTS - 3.2%
66,000 Balchem Corp. ........................................ 585,750
52,100 Chase Corp. .......................................... 514,487
46,318 Hawkins Chemical, Inc. ............................... 463,180
56,000 *Top Air Manufacturing, Inc. ......................... 98,000
-----------
1,661,417
-----------
CONSUMER PRODUCTS &
SERVICES - 7.1%
35,000 Cooker Restaurant Corp. .............................. 341,250
31,000 *Escalade Inc. ....................................... 620,000
104,000 First Years, Inc. .................................... 1,482,000
72,400 *Fountain Power Boat Industries, Inc. ................ 452,500
72,500 *Play By Play Toys & Novelties, Inc. ................. 761,250
-----------
3,657,000
-----------
ELECTRICAL EQUIPMENT &
SERVICES - 5.0%
30,000 *Ault, Inc. .......................................... 146,250
63,270 *Del Global Technologies Corp. ....................... 466,616
19,200 *Graham Corp. ........................................ 216,000
8,400 L.S. Starrett, Co. Cl. A.............................. 289,800
62,800 *OSI Systems, Inc. ................................... 478,850
8,500 *Powell Industries, Inc. ............................. 65,875
15,500 Todd-AO Corp. Cl. A................................... 114,313
110,000 *Vicon Industries, Inc. .............................. 783,750
-----------
2,561,454
-----------
FINANCE & INSURANCE - 3.1%
63,500 *ACE Cash Express, Inc. .............................. 762,000
16,600 *CorVel Corp. ........................................ 643,250
11,804 Grand Premier Financial, Inc. ........................ 177,060
-----------
1,582,310
-----------
FOOD & BEVERAGE PRODUCTS - 1.1%
28,333 Worthington Foods, Inc. .............................. 548,952
-----------
HEALTHCARE PRODUCTS & SERVICES - 8.5%
245,000 *Air Methods Corp. ................................... 918,750
58,000 *Alcide Corp. ........................................ 1,004,125
120,500 *Biosource International, Inc. ....................... 376,563
44,888 Del Laboratories, Inc. ............................... 875,316
10,000 *Empi, Inc. .......................................... 160,000
45,000 Kewaunee Scientific Corp. ............................ 525,937
67,800 *Neogen Corp. ........................................ 491,550
-----------
4,352,241
-----------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 12.8%
50,000 *AG Services of America, Inc. ........................ 712,500
44,600 Badger Meter, Inc. ................................... 1,304,550
11,500 *Benthos, Inc. ....................................... 53,906
20,000 *Chemfab Corp. ....................................... 391,875
14,850 *Ducommun, Inc. ...................................... 297,000
40,000 *General Bearing Corp. ............................... 250,000
23,000 General Magnaplate Corp. ............................. 96,313
35,000 Gorman Rupp Co. ...................................... 551,250
40,000 *Meade Instruments Corp. ............................. 387,500
53,250 Met-Pro Corp. ........................................ 599,062
22,500 Modern Controls, Inc. ................................ 118,125
71,000 RPC, Inc. ............................................ 630,125
17,500 *Special Devices, Inc. ............................... 570,938
46,350 World Fuel Services Corp. ............................ 576,478
-----------
6,539,622
-----------
INFORMATION SERVICES &
TECHNOLOGY - 10.0%
75,000 *Advanced Communications Systems, Inc. ............... 707,813
71,200 *American Science & Engineering, Inc. ................ 863,300
15,000 *Analytical Surveys, Inc. ............................ 348,750
29,600 *Diversified Corporate Resources Inc. ................ 229,400
59,500 *Equinox Systems, Inc. ............................... 476,000
27,000 *Norstan, Inc. ....................................... 472,500
90,300 *Plasma Therm, Inc. .................................. 287,831
40,000 *SBS Technologies, Inc. .............................. 1,000,000
50,000 *Tidel Technologies Inc. ............................. 78,125
100,000 *WPI Group, Inc. ..................................... 662,500
-----------
5,126,219
-----------
49
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
OIL/ENERGY - 0.4%
14,500 *Prima Energy Corp. .................................. $ 213,875
-----------
OIL FIELD SERVICES - 2.6%
48,500 *Dawson Geophysical Co. .............................. 563,813
28,000 *Eagle Geophysical, Inc. ............................. 194,250
55,000 *Omni Energy Services Corp. .......................... 567,187
-----------
1,325,250
-----------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 1.0%
29,420 *Clark (Dick) Productions, Inc. ...................... 422,912
10,000 *Obie Media Corp. .................................... 117,500
-----------
540,412
-----------
RETAILING & WHOLESALE - 3.7%
20,000 *Bowlin Outdoor Advertising &
Travel Centers, Inc. ................................ 100,000
40,000 Craftmade International Inc. ......................... 602,500
20,000 *Kenneth Cole Productions, Inc. Cl. A................. 358,750
65,000 *Rocky Shoes & Boots, Inc. ........................... 520,000
45,000 *Shoe Pavilion, Inc. ................................. 298,125
-----------
1,879,375
-----------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.5%
70,000 *Cognitronics Corp. .................................. 726,250
98,400 Hickory Tech Corp..................................... 1,156,200
60,000 *Vari L Inc. ......................................... 405,000
-----------
2,287,450
-----------
THRIFT INSTITUTIONS - 4.6%
30,000 Horizon Financial Corp. .............................. 405,000
14,600 Iroquois Bancorp, Inc. ............................... 306,600
30,710 Parkvale Financial Corp. ............................. 913,622
25,000 *WSFS Financial Corp. ................................ 401,563
19,000 York Financial Corp. ................................. 332,500
-----------
2,359,285
-----------
TRANSPORTATION - 0.3%
5,100 Kenan Transport Co. .................................. 155,550
-----------
Total Common Stocks
(cost $45,961,869)................................... 48,332,352
-----------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.1%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 5.1%
Federal Home Loan Bank Discount Notes:
$ 475,000 5.20%, 10/14/98....................................... 474,108
1,100,000 5.22%, 10/14/98....................................... 1,097,926
685,000 5.35%, 10/14/98....................................... 683,677
Federal Home Loan Mortgage Discount Notes:
140,000 5.44%, 10/2/98........................................ 139,979
220,000 5.45%, 10/14/98....................................... 219,567
-----------
2,615,257
-----------
Total Short-Term Investments
(cost $2,615,257).................................... 2,615,257
-----------
TOTAL INVESTMENTS -
(COST $48,577,126)............................ 99.5% 50,947,609
OTHER ASSETS AND LIABILITIES - NET............. 0.5 235,037
----- -----------
NET ASSETS -................................... 100.0% $51,182,646
===== ===========
* Non-Income Producing Securities.
See Combined Notes to Financial Statements.
50
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 89.9%
ADVERTISING & RELATED
SERVICES - 1.4%
200,000 *Outdoor Systems, Inc................................... $ 3,900,000
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 1.2%
40,000 Chrysler Corp........................................... 1,915,000
35,000 Ford Motor Co........................................... 1,642,812
------------
3,557,812
------------
BANKS - 1.2%
29,400 BankBoston Corp......................................... 970,200
35,000 Fleet Financial Group, Inc.............................. 2,570,313
------------
3,540,513
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.7%
105,000 *Furniture Brands International, Inc. .................. 2,047,500
------------
BUSINESS EQUIPMENT &
SERVICES - 2.2%
120,000 Paychex, Inc. .......................................... 6,172,500
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 2.0%
100,000 Monsanto Co............................................. 5,637,500
------------
COMMUNICATION SYSTEMS &
SERVICES - 1.3%
140,000 *American Tower Systems Corp............................ 3,570,000
------------
DIVERSIFIED COMPANIES - 2.5%
130,000 Tyco International Ltd. ................................ 7,182,500
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.1%
110,000 General Electric Co..................................... 8,751,875
------------
FINANCE & INSURANCE - 7.2%
25,000 American Express Co. ................................... 1,940,625
60,000 American International Group, Inc....................... 4,620,000
23,587 Associates First Capital Corp. Cl. A.................... 1,539,052
100,000 Federal Home Loan Mortgage Corp......................... 4,943,750
140,000 Greenpoint Financial Corp............................... 4,462,500
35,000 Lincoln National Corp................................... 2,878,750
------------
20,384,677
------------
HEALTHCARE PRODUCTS &
SERVICES - 11.8%
54,250 Cardinal Health, Inc.................................... 5,601,313
65,000 HBO & Co................................................ 1,878,906
281,250 *Health Management Associates,
Inc. Cl. A............................................. 5,132,813
115,000 IMS Health, Inc......................................... 7,122,812
75,000 Medtronic, Inc.......................................... 4,340,625
94,100 Omnicare, Inc........................................... 3,317,025
100,000 *Steris Corp............................................ 2,828,125
82,700 *Universal Health Services, Inc. Cl. B.................. 3,452,725
------------
33,674,344
------------
INFORMATION SERVICES &
TECHNOLOGY - 16.8%
134,600 *EMC Corp............................................... 7,697,438
90,000 *Gateway 2000, Inc...................................... 4,691,250
40,000 Intel Corp.............................................. 3,431,250
45,000 International Business Machines Corp. .................. 5,760,000
130,000 *Learning Co., Inc...................................... 2,575,625
100,000 *Lycos, Inc............................................. 3,378,125
125,000 *Microchip Technology, Inc.............................. 2,722,656
63,000 *Microsoft Corp. ....................................... 6,935,906
80,000 *PeopleSoft, Inc........................................ 2,612,500
60,000 *Solectron Corp......................................... 2,880,000
105,000 *Sun Microsystems, Inc.................................. 5,233,594
------------
47,918,344
------------
LEISURE & TOURISM - 0.8%
90,000 Disney Walt Co. ........................................ 2,278,125
------------
OIL/ENERGY - 3.0%
108,400 Anadarko Petroleum Corp. ............................... 4,261,475
115,000 Burlington Resources, Inc............................... 4,298,125
------------
8,559,600
------------
PHARMACEUTICALS - 16.7%
175,000 American Home Products Corp............................. 9,165,625
115,000 *Forest Labs Inc........................................ 3,953,125
70,200 Pfizer, Inc............................................. 7,436,812
140,000 Pharmacia & Upjohn, Inc. ............................... 7,026,250
90,000 Schering-Plough Corp. .................................. 9,320,625
140,000 Warner-Lambert Co....................................... 10,570,000
------------
47,472,437
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 8.6%
160,000 CBS Corp................................................ 3,880,000
105,000 *Clear Channel Communications, Inc...................... 4,987,500
70,000 Time Warner, Inc........................................ 6,129,375
85,000 *Viacom, Inc. Cl. B..................................... 4,930,000
150,000 *World Color Press, Inc................................. 4,650,000
------------
24,576,875
------------
RETAILING & WHOLESALE - 3.2%
162,500 *Staples, Inc. ......................................... 4,778,516
80,000 Wal-Mart Stores, Inc.................................... 4,370,000
------------
9,148,516
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 6.2%
250,000 *Antec Corp............................................. 3,859,375
100,000 *Ascend Communications, Inc. ........................... 4,553,125
60,000 *Broadcom Corp.......................................... 4,252,500
78,750 *Cisco Systems, Inc. ................................... 4,870,195
------------
17,535,195
------------
Total Common Stocks
(cost $216,338,856).................................... 255,908,313
------------
51
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 9.9%
REPURCHASE AGREEMENT - 9.9%
$28,216,000 Keystone Joint
Repurchase Agreement,
Investments in
repurchase agreements, in a joint
trading account purchased
9/30/98, 5.60%, maturing 10/1/98,
maturity value $28,220,389,
(cost $28,216,000) (a)............................ $ 28,216,000
------------
Total Short-Term
Investments
(cost $28,216,000)................................ 28,216,000
------------
TOTAL INVESTMENTS -
(COST $244,554,856)......................... 99.8% 284,124,313
OTHER ASSETS AND LIABILITIES - NET........... 0.2 486,890
----- ------------
NET ASSETS................................... 100.0% $284,611,203
===== ============
* Non-Income Producing Securities.
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
See Combined Notes to Financial Statements.
52
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 91.6%
ADVERTISING & RELATED
SERVICES - 1.9%
360,400 *ADVO, Inc. ........................................ $ 8,807,275
300,000 *Outdoor Systems Inc. .............................. 5,850,000
------------
14,657,275
------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.5%
184,100 *Dura Automotive Systems, Inc. ..................... 4,786,600
373,720 *Tower Automotive, Inc. ............................ 7,380,970
------------
12,167,570
------------
BANKS - 9.4%
294,862 *Astoria Financial Corp. ........................... 12,439,490
318,240 BostonFed Bancorp, Inc. ............................ 5,410,080
206,300 Charter One Financial, Inc. ........................ 5,105,925
30,200 Dime Community Bancorp, Inc. ....................... 625,706
171,370 *Long Island Bancorp, Inc. ......................... 8,268,602
577,620 *North Fork Bancorp, Inc. .......................... 11,552,400
222,294 Queens County Bancorp, Inc. ........................ 5,876,898
847,235 *Sovereign Bancorp, Inc. ........................... 11,225,864
559,760 *TCF Financial Corp. ............................... 11,125,230
104,938 *Westamerica Bancorp ............................... 3,030,085
------------
74,660,280
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.8%
100,000 Miller (Herman), Inc. .............................. 1,993,750
181,700 *Wackenhut Corrections Corp. ....................... 4,031,469
------------
6,025,219
------------
BUSINESS EQUIPMENT &
SERVICES - 5.2%
175,855 *BISYS Group, Inc. (a).............................. 7,710,143
909,340 *Comdisco, Inc. .................................... 12,389,757
37,000 *CSG System International, Inc. .................... 1,640,719
369,000 *GTS Duratek, Inc. ................................. 2,098,688
127,700 *Mercury Interactive Corp. ......................... 5,072,084
100,000 *Policy Management Systems Corp..................... 4,050,000
96,300 *Rental Service Corp. .............................. 1,733,400
150,000 *Superior Consultant, Inc. ......................... 6,431,250
------------
41,126,041
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.0%
270,940 *OM Group, Inc. .................................... 7,637,121
------------
CONSUMER PRODUCTS &
SERVICES - 4.0%
396,869 *Equity Corp. International......................... 8,929,552
352,900 *Helen of Troy Ltd. ................................ 6,815,381
16,600 Oneida Ltd. ....................................... 282,200
101,700 *Rock Of Ages Corp. Cl. A........................... 1,137,769
124,000 *Russ Berrie & Co., Inc. ........................... 2,363,750
172,500 *Scotts Co. Cl. A................................... 5,282,813
182,900 Universal Corp. .................................... 6,538,675
------------
31,350,140
------------
EDUCATION - 6.1%
100,000 *Apollo Group Inc. ................................. $ 2,800,000
1,500 *Bright Horizons Family Solutions,
Inc. .............................................. 31,781
279,600 *CBT Group Public Ltd. ............................. 3,783,338
1,448,600 *Computer Learning Centers, Inc. ................... 11,452,994
1,024,968 *Devry, Inc. ....................................... 24,022,687
56,400 *Education Management Corp. ........................ 2,023,350
100,000 *ITT Educational Services Inc. ..................... 3,200,000
50,000 Strayer Education, Inc. ............................ 1,290,625
------------
48,604,775
------------
ELECTRICAL EQUIPMENT &
SERVICES - 7.5%
411,080 *DII Group, Inc. ................................... 4,971,499
350,000 Lattice Semiconductor Corp. ........................ 8,695,312
237,778 Maxim Integrated Products, Inc. .................... 6,635,492
200,000 *Microchip Technology, Inc. ........................ 4,356,250
200,000 *Parlex Corp. ...................................... 1,831,250
512,514 *Sipex Corp. ....................................... 13,069,107
100,000 *Sofamor/Danek Group, Inc. ......................... 8,900,000
100,000 *Solectron Corp. ................................... 4,800,000
200,000 *Windmere Durable Holdings, Inc. ................... 1,125,000
150,000 *Xilinx, Inc. ...................................... 5,245,313
------------
59,629,223
------------
FINANCE & INSURANCE - 6.5%
100,000 Arthur J. Gallagher & Co. .......................... 4,125,000
110,670 Delphi Financial Group, Inc. ....................... 4,357,631
100,000 *E Trade Group, Inc. ............................... 1,862,500
360,000 Federated Investors, Inc. Cl. B..................... 5,175,000
148,422 *First Alliance Co. ................................ 932,276
250,000 Firstplus Financial Group, Inc. .................... 2,859,375
248,800 *Freedom Securities Corp. .......................... 3,296,600
186,023 *HCC Insurance Holdings, Inc. ...................... 3,604,196
200,000 Horace Mann Educators Corp. ........................ 6,000,000
202,500 Leucadia National Corp. ............................ 5,935,781
150,000 Mercury General Corp. .............................. 5,625,000
199,200 *Ocwen Financial Corp. ............................. 1,743,000
58,200 *Penn-America Group, Inc. .......................... 538,350
100,000 Reinsurance Group America, Inc. .................... 5,893,750
------------
51,948,459
------------
FOOD & BEVERAGE PRODUCTS - 0.3%
148,000 *Buffets, Inc. ..................................... 1,586,375
36,900 *Twinlab Corp. ..................................... 943,256
------------
2,529,631
------------
HEALTHCARE PRODUCTS &
SERVICES - 9.5%
68,900 *Access Health, Inc................................. 2,534,228
286,000 *Arterial Vascular Engineering, Inc. ............... 10,573,062
20,500 *Chirex, Inc. ...................................... 244,719
306,000 *Cyberonics, Inc.................................... 1,845,563
131,100 *Envoy Corp. ....................................... 2,835,038
180,000 *Graham Field Health Products, Inc. ................ 461,250
770,358 *Health Management Associates, Inc. Cl..............
A.................................................. 14,059,033
53
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS & SERVICES - CONTINUED
277,585 *Idexx Laboratories, Inc. .......................... $ 6,609,993
135,620 *Pediatrix Medical Group, Inc. ..................... 6,085,947
165,000 *Renal Care Group, Inc. ............................ 4,222,969
21,200 *Rexall Sundown, Inc. .............................. 328,600
200,000 *Steris Corp........................................ 5,656,250
200,000 *Sunrise Assisted Living, Inc....................... 6,881,250
253,380 *Thermo Cardiosystems, Inc.......................... 4,054,080
385,751 *Total Renal Care Holdings, Inc..................... 9,258,024
------------
75,650,006
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 3.5%
500,000 *Halter Marine Group, Inc. ......................... 5,687,500
248,300 *Kaydon Corp. ...................................... 6,533,394
882,000 Roper Industries, Inc............................... 15,324,750
------------
27,545,644
------------
INFORMATION SERVICES & TECHNOLOGY -
12.7%
150,000 *Acxiom Corp........................................ 3,721,875
173,000 *Avid Technology, Inc............................... 4,092,531
150,000 *BMC Software, Inc.................................. 9,004,687
250,000 *Broadvision, Inc................................... 2,625,000
121,000 *CMG Information Services, Inc...................... 6,443,250
150,000 *DAOU Systems, Inc.................................. 860,156
380,000 *Electronics for Imaging, Inc. ..................... 8,063,125
137,800 *FileNet Corp....................................... 1,929,200
100,000 *IDX Systems Corp................................... 5,271,875
200,000 *Learning Company, Inc.............................. 3,962,500
3,100 *Lycos, Inc......................................... 104,722
416,000 *Mapics, Inc. ...................................... 9,126,000
200,000 *Maximus, Inc. ..................................... 6,100,000
100,000 *Network Appliance, Inc............................. 5,068,750
32,400 *Platinum Software Corp. ........................... 329,063
210,000 *PMC-Sierra, Inc.................................... 6,654,375
66,300 *Project Software & Development,
Inc. .............................................. 890,906
812,300 *Radiant Systems, Inc............................... 6,219,172
515,816 Safeguard Scientifics, Inc. ........................ 13,378,977
125,000 *Transition Systems, Inc............................ 1,039,063
90,000 *Unisys Corp........................................ 2,047,500
100,000 *Veritas DGC, Inc................................... 1,668,750
51,997 *Wind River Systems, Inc. .......................... 2,463,358
------------
101,064,835
------------
LEISURE & TOURISM - 1.6%
240,000 *Gametech International, Inc........................ 757,500
150,000 *Global Vacation Group, Inc......................... 1,078,125
447,800 *Rio Hotel & Casino, Inc............................ 6,185,238
300,000 *Steiner Leisure Ltd................................ 4,668,750
------------
12,689,613
------------
METAL PRODUCTS & SERVICES - 0.3%
329,700 Maverick Tube Corp.................................. 2,266,688
------------
OIL / ENERGY - 1.3%
1,307,656 *Newpark Resources, Inc............................. 8,990,135
100,000 *Seven Seas Petroleum, Inc. ........................ 1,037,500
------------
10,027,635
------------
OIL FIELD SERVICES - 0.5%
360,100 *R & B Falcon Corp.................................. 4,321,200
------------
PHARMACEUTICALS - 0.2%
100,000 *Millennium Pharmaceuticals......................... 1,718,750
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 3.0%
227,600 *Big Flower Holdings, Inc........................... 5,320,150
13,200 *Cox Radio, Inc..................................... 463,650
108,700 *Hearst-Argyle Television, Inc. .................... 3,627,862
259,000 *Jacor Communications, Inc. ........................ 13,103,781
83,700 *Sinclair Broadcast Group, Inc. Cl. A............... 1,354,894
------------
23,870,337
------------
REAL ESTATE - 0.0% (B)
4,900 *Host Marriott Corp................................. 62,169
------------
RETAILING & WHOLESALE - 6.4%
300,000 *AnnTaylor Stores Corp.............................. 6,093,750
55,500 *Brylane, Inc. ..................................... 888,000
1,002,480 *Corporate Express, Inc. ........................... 11,935,777
124,200 *Cutter & Buck, Inc................................. 2,879,888
150,000 Ethan Allen Interiors, Inc.......................... 5,437,500
231,900 *Gadzooks, Inc. .................................... 2,116,088
200,000 *Good Guys, Inc..................................... 1,168,750
186,500 *Goodys Family Clothing, Inc........................ 2,232,172
103,500 *Kenneth Cole Productions, Inc. Cl. A............... 1,856,531
352,500 Pier 1 Imports, Inc................................. 2,643,750
140,000 *REX Stores Corp.................................... 1,487,500
200,000 Ross Stores, Inc.................................... 5,762,500
400,000 *Stage Stores, Inc.................................. 4,875,000
100,000 Talbots, Inc........................................ 1,787,500
------------
51,164,706
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.5%
500,000 *Advanced Fibre Communications...................... 3,421,875
345,000 *Antec Corp. ....................................... 5,325,937
79,000 *Esprit Telecom Group, Plc, ADR..................... 2,044,125
211,600 *LCC International, Inc. ........................... 1,005,100
800,000 Premiere Technologies, Inc. ........................ 3,800,000
566,400 Scientific Atlanta, Inc............................. 11,965,200
251,800 *Univision Communications, Inc. Cl. A............... 7,491,050
50,000 *Viatel, Inc........................................ 528,125
------------
35,581,412
------------
TRANSPORTATION - 1.3%
112,700 *ASA Holdings, Inc. ................................ 3,986,763
150,399 *Coach USA, Inc..................................... 3,712,975
141,900 *Covenant Transport, Inc. Cl. A..................... 1,605,244
84,900 *Eagle USA Airfreight, Inc. ........................ 1,191,253
------------
10,496,235
------------
UTILITIES - TELEPHONE - 2.6%
316,000 *McLeod USA, Inc., Cl. A............................ 6,873,000
50,000 *Rural Celluar Corp. Cl. A.......................... 606,250
54
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - CONTINUED
345,000 *United States Cellular Corp........................ $ 10,285,312
150,000 *Vanguard Cellular Systems, Inc. Cl.
A.................................................. 2,831,250
------------
20,595,812
------------
Total Common Stocks
(cost $738,183,241)................................ 727,390,776
------------
WARRANTS - 0.0% (B)
LEISURE & TOURISM - 0.0% (B)
49,395 Casino America, Inc., Warrants Expires
5/3/2001........................................... 494
------------
Total Warrants
(cost $284,412).................................... 494
------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.0%
REPURCHASE AGREEMENT - 8.0%
$35,000,000 Goldman Sachs Repurchase Agreement purchased
9/30/98, 5.60%, maturing 10/1/98, maturity value
$35,005,444 (cost $35,000,000) (c)................. $ 35,000,000
28,340,000 Keystone Joint Repurchase Agreement Investments in
repurchase agreements, in a joint trading account,
purchased 9/30/98, 5.60%, maturing 10/1/98,
maturity value $28,344,408
(cost $28,340,000) (d)............................. 28,340,000
------------
63,340,000
------------
Total Short-Term Investments (cost $63,340,000)..... 63,340,000
------------
TOTAL INVESTMENTS -
(COST $801,807,653)......................... 99.6% 790,731,270
OTHER ASSETS AND
LIABILITIES - NET........................... 0.4 3,164,548
----- ------------
NET ASSETS - ................................ 100.0% $793,895,818
===== ============
* Non-Income Producing Securities.
(a) At September 30, 1998, the Fund owned 175,855 shares of common stock
of The BISYS Group, Inc. at a cost of $4,437,038. During the twelve
months ended September 30, 1998 the Fund earned no dividend income
from this investment. These shares were purchased prior to Evergreen
Distributors Inc., a wholly owned subsidiary of The BISYS Group,
Inc., becoming the Fund's principal underwriter and BISYS Fund
Services, Inc. becoming the Fund's sub-administrator.
(b) Less than one-tenth percent.
(c) At September 30, 1998, the repurchase agreement was fully collateralized by:
$35,000,000 FNMA, 6.131%, 4/01/35; value including interest - $35,294,148.
(d) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
55
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.3%
AEROSPACE & DEFENSE - 0.5%
67,800 Boeing Co............................................. $ 2,326,388
------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.8%
48,700 Ford Motor Co......................................... 2,285,856
99,500 Pep Boys-Manny Moe & Jack............................. 1,330,813
------------
3,616,669
------------
BANKS - 6.0%
85,700 BankBoston Corp. ..................................... 2,828,100
152,800 Mellon Bank Corp...................................... 8,413,550
201,600 NationsBank Corp...................................... 10,785,600
113,100 Summit Bancorp........................................ 4,241,250
------------
26,268,500
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 2.1%
199,200 Clayton Homes, Inc. .................................. 3,486,000
47,600 Lennar Corp........................................... 1,062,075
142,000 Lowe's Companies, Inc................................. 4,517,375
------------
9,065,450
------------
BUSINESS EQUIPMENT &
SERVICES - 3.2%
123,200 Lucent Technologies, Inc. ............................ 8,508,500
138,200 Seagate Technology.................................... 3,463,637
153,100 Thermo Electron Corp. ................................ 2,306,069
------------
14,278,206
------------
CAPITAL GOODS - 0.2%
38,500 Case Corp............................................. 837,375
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 2.3%
84,600 Monsanto Co........................................... 4,769,325
22,700 Potash Corp. of Saskatchewan, Inc. ................... 1,194,588
123,800 Praxair, Inc. ........................................ 4,046,712
------------
10,010,625
------------
COMMUNICATION SYSTEMS &
SERVICES - 5.5%
56,253 *AirTouch Communications, Inc. ....................... 3,206,421
433,800 *MCI WorldCom, Inc. .................................. 21,201,975
------------
24,408,396
------------
CONSUMER PRODUCTS &
SERVICES - 2.1%
669,400 Cendant Corp. ........................................ 7,781,775
14,700 Clorox Co. ........................................... 1,212,750
39,900 USA Detergents, Inc. ................................. 319,200
------------
9,313,725
------------
DIVERSIFIED COMPANIES - 1.7%
95,300 AlliedSignal, Inc..................................... 3,371,237
36,100 ITT Industries, Inc................................... 1,222,888
43,900 Textron, Inc.......................................... 2,661,438
------------
7,255,563
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.3%
171,400 General Electric Co................................... 13,637,012
14,300 Honeywell, Inc........................................ 916,094
------------
14,553,106
------------
FINANCE & INSURANCE - 12.0%
74,000 Ace Ltd. ............................................. 2,220,000
54,700 Aetna, Inc............................................ 3,801,650
78,400 American International Group, Inc. ................... 6,036,800
352,600 Conseco, Inc. ........................................ 10,776,338
438,900 Everest Reinsurance Holdings, Inc. ................... 16,376,456
160,100 Lehman Brothers Holdings, Inc......................... 4,522,825
243,000 Travelers Group, Inc.................................. 9,112,500
------------
52,846,569
------------
FOOD & BEVERAGE PRODUCTS - 7.1%
166,505 Canandaigua Wine Co., Inc............................. 6,576,947
597,600 Chiquita Brands International, Inc. .................. 6,312,150
32,500 Landry's Seafood Restaurant, Inc. .................... 219,375
297,600 Nabisco Holdings Corp. Cl. A.......................... 10,695,000
36,100 Pepsico, Inc.......................................... 1,062,694
261,900 RJR Nabisco Holdings Corp. ........................... 6,596,606
------------
31,462,772
------------
HEALTHCARE PRODUCTS &
SERVICES - 9.7%
171,500 American Home Products Corp........................... 8,982,312
200,800 *Boston Scientific Corp............................... 10,316,100
31,800 Bristol-Myers Squibb Co. ............................. 3,303,225
524,900 *MedPartners, Inc. ................................... 1,705,925
277,800 Mylan Laboratories, Inc............................... 8,195,100
62,380 Pfizer, Inc. ......................................... 6,608,381
91,700 U.S Surgical Corp. ................................... 3,822,744
------------
42,933,787
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 2.8%
99,600 Browning Ferris Industries, Inc. ..................... 3,012,900
59,600 Magna International, Inc. Cl. A....................... 3,464,250
352,600 United States Filter Corp. ........................... 5,641,600
------------
12,118,750
------------
INFORMATION SERVICES &
TECHNOLOGY - 9.6%
108,400 America Online, Inc. Delaware......................... 12,059,500
83,300 Computer Associates International,
Inc. ................................................ 3,082,100
155,100 *Microsoft Corp. ..................................... 17,070,694
151,500 Storage Technology Corp. ............................. 3,853,781
97,300 Texas Instruments, Inc. .............................. 5,132,575
165,900 VLSI Technology, Inc.................................. 1,264,987
------------
42,463,637
------------
LEISURE & TOURISM - 0.5%
128,100 Hilton Hotels Corp. .................................. 2,185,706
------------
56
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
METAL PRODUCTS & SERVICES - 1.1%
129,470 Crown Cork & Seal Co., Inc. .......................... $ 3,463,322
109,100 Freeport McMoran Copper & Gold,
Inc., Cl. B.......................................... 1,295,563
------------
4,758,885
------------
OIL / ENERGY - 7.0%
68,400 Apache Corp. ......................................... 1,833,975
77,696 British Petroleum Plc, ADR............................ 6,778,997
200,100 Mobil Corp............................................ 15,195,094
59,800 Triton Energy Ltd. ................................... 594,263
188,600 USX Marathon Group.................................... 6,683,512
------------
31,085,841
------------
OIL FIELD SERVICES - 0.6%
99,600 *R & B Falcon Corp. .................................. 1,195,200
64,000 Tidewater, Inc. ...................................... 1,328,000
------------
2,523,200
------------
PHARMACEUTICALS - 0.8%
73,500 Human Genome Sciences, Inc. .......................... 2,205,000
86,300 ICN Pharmaceuticals, Inc. ............................ 1,510,250
------------
3,715,250
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 1.8%
70,100 Emmis Broadcasting Corp. Cl. A........................ 2,646,275
268,600 USA Networks, Inc. ................................... 5,220,912
------------
7,867,187
------------
REAL ESTATE - 0.0% (B)
7,200 Glenborough Reality Trust, Inc. ...................... 153,000
------------
RETAILING & WHOLESALE - 6.8%
87,600 Abercrombie & Fitch Co. .............................. 3,854,400
217,100 Corporate Express, Inc. .............................. 2,591,631
273,105 Fred Meyer, Inc. ..................................... 10,616,957
296,200 *General Nutrition Companies, Inc. ................... 3,202,663
98,200 IMC Global, Inc....................................... 1,902,625
34,300 Kroger Co............................................. 1,715,000
275,902 *Saks, Inc............................................ 6,190,551
------------
30,073,827
------------
TELECOMMUNICATION SERVICES
& EQUIPMENT - 2.4%
19,525 Leap Wireless International, Inc. .................... 91,523
234,800 Metromedia International Group, Inc. ................. 909,850
78,100 Qualcomm, Inc. ....................................... 3,743,919
187,400 *Qwest Communications
International, Inc................................... 5,867,963
------------
10,613,255
------------
TRANSPORTATION - 1.3%
63,600 Burlington Northern
Santa Fe Corp. ...................................... 2,035,200
7,600 Canadian National
Railway Co. ......................................... 339,150
36,100 CNF Transportation,
Inc.................................................. 1,051,412
22,000 Delta Air Lines, Inc.................................. 2,139,500
------------
5,565,262
------------
UTILITIES - ELECTRIC - 3.4%
223,900 AES Corp. ............................................ 8,298,295
135,800 Calenergy, Inc. ...................................... 3,598,700
44,800 FPL Group, Inc. ...................................... 3,122,000
------------
15,018,995
------------
UTILITIES - TELEPHONE - 0.7%
49,200 *McLeod USA, Inc., Cl.
A.................................................... 1,076,250
155,600 Star Telecommunications, Inc. ........................ 1,925,550
------------
3,001,800
------------
Total Common Stocks
(cost $418,849,083).................................. 420,321,726
------------
PREFERRED STOCKS - 1.8%
PUBLISHING, BROADCASTING
& ENTERTAINMENT - 1.8%
355,200 News Corp. Ltd. ...................................... 7,947,600
------------
Total Preferred Stocks
(cost $7,558,657).................................... 7,947,600
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.2%
REPURCHASE AGREEMENT - 1.2%
$5,340,608 Dresdner Bank AG 5.00%, purchased
9/30/98, maturing 10/1/98, maturity
value $5,341,350
(cost $5,340,608) (a)............................... 5,340,608
------------
Total Short-Term Investments
(cost $5,340,608)................................... 5,340,608
------------
TOTAL INVESTMENTS -
(COST $431,748,348).......................... 98.3% 433,609,934
OTHER ASSETS AND
LIABILITIES - NET............................ 1.7 7,705,560
----- ------------
NET ASSETS - ................................. 100.0% $441,315,494
===== ============
* Non-Income Producing Securities.
(a) At September 30, 1998, the repurchase agreement was collateralized
by: $5,315,000 U.S. Treasury Notes, 5.62%, 12/31/99; value including
accrued interest - $5,451,184.
(b) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
57
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 92.2%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.3%
115,000 Chrysler Corp. ...................................... $ 5,505,625
120,000 Ford Motor Co. ...................................... 5,632,500
------------
11,138,125
------------
BANKS - 1.7%
183,400 BankBoston Corp...................................... 6,052,200
110,000 Fleet Financial Group, Inc. ......................... 8,078,125
------------
14,130,325
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.6%
275,000 *Furniture Brands International, Inc. ............... 5,362,500
------------
BUSINESS EQUIPMENT &
SERVICES - 1.8%
297,500 Paychex, Inc. ....................................... 15,302,656
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.7%
255,000 Monsanto Co. ........................................ 14,375,625
------------
COMMUNICATION SYSTEMS & SERVICES - 1.5%
255,000 *MCI WorldCom, Inc................................... 12,471,094
------------
DIVERSIFIED COMPANIES - 1.9%
281,600 Tyco International Ltd. ............................. 15,558,400
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.4%
355,000 General Electric Co. ................................ 28,244,688
------------
FINANCE & INSURANCE - 7.6%
80,000 American Express Co. ................................ 6,210,000
157,500 American International Group, Inc. .................. 12,127,500
72,073 Associates First Capital Corp. Cl. A................. 4,702,763
280,000 Federal Home Loan Mortgage Corp. .................... 13,842,500
430,000 Greenpoint Financial Corp............................ 13,706,250
110,000 Lincoln National Corp................................ 9,047,500
97,500 Travelers Group, Inc................................. 3,656,250
------------
63,292,763
------------
FOOD & BEVERAGE PRODUCTS - 0.8%
115,000 Coca Cola Co......................................... 6,626,875
------------
HEALTHCARE PRODUCTS &
SERVICES - 13.7%
141,200 Cardinal Health, Inc. ............................... 14,578,900
192,500 HBO & Co. ........................................... 5,564,453
510,000 *Health Management Associates,
Inc. Cl. A.......................................... 9,307,500
250,000 IMS Health, Inc...................................... 15,484,375
165,000 Lilly (Eli) & Co. ................................... 12,921,563
225,000 Medtronic, Inc. ..................................... 13,021,875
323,700 Omnicare, Inc. ...................................... 11,410,425
400,000 Pharmacia & Upjohn, Inc. ............................ 20,075,000
435,000 *Tenet Healthcare Corp. ............................. 12,506,250
------------
114,870,341
------------
INFORMATION SERVICES &
TECHNOLOGY - 15.5%
210,000 *BMC Software, Inc. ................................. 12,606,563
410,600 *EMC Corp. .......................................... 23,481,187
300,000 *Gateway 2000, Inc. ................................. 15,637,500
125,000 Intel Corp........................................... 10,722,656
140,000 International Business Machines Corp. ............... 17,920,000
275,000 *Microchip Technology, Inc. ......................... 5,989,844
190,000 *Microsoft Corp. .................................... 20,917,813
175,000 *Solectron Corp...................................... 8,400,000
275,000 *Sun Microsystems, Inc. ............................. 13,707,031
------------
129,382,594
------------
LEISURE & TOURISM - 0.9%
292,500 Disney Walt Co. ..................................... 7,403,906
------------
OIL / ENERGY - 9.2%
150,000 Amoco Corp. ......................................... 8,081,250
303,400 Anadarko Petroleum Corp. ............................ 11,927,413
340,000 Burlington Resources, Inc. .......................... 12,707,500
215,000 Exxon Corp. ......................................... 15,090,312
100,000 Mobil Corp........................................... 7,593,750
250,000 Texaco, Inc.......................................... 15,671,875
165,000 Unocal Corp.......................................... 5,981,250
------------
77,053,350
------------
PHARMACEUTICALS - 13.7%
510,000 American Home Products Corp. ........................ 26,711,250
222,800 Pfizer, Inc.......................................... 23,602,875
260,000 Schering-Plough Corp. ............................... 26,926,250
400,000 *Shire Pharmaceuticals Group Plc. ................... 8,675,000
380,000 Warner-Lambert Co. .................................. 28,690,000
------------
114,605,375
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 8.8%
475,000 CBS Corp............................................. 11,518,750
275,000 *Clear Channel Communications, Inc. ................. 13,062,500
110,000 *Tele Communications, Inc. .......................... 4,307,187
200,000 Time Warner, Inc. ................................... 17,512,500
270,000 *Viacom, Inc. Cl. B.................................. 15,660,000
370,000 *World Color Press, Inc. ............................ 11,470,000
------------
73,530,937
------------
RETAILING & WHOLESALE - 4.5%
235,000 CVS Corp. ........................................... 10,295,937
482,500 *Staples, Inc. ...................................... 14,188,516
250,000 Wal-Mart Stores, Inc. ............................... 13,656,250
------------
38,140,703
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 3.6%
285,000 *Ascend Communications, Inc. ........................ 12,976,406
232,500 *Cisco Systems, Inc. ................................ 14,378,672
65,000 *Iridium World Communications, Inc. Cl. A............ 2,494,375
------------
29,849,453
------------
Total Common Stocks
(cost $632,520,201)................................. 771,339,710
------------
58
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0% (A)
IRON & STEEL - 0.0% (A)
$ 180,000 Compania Vale do Rio
Doce Navegacao SA
1.00%, 12/31/99..................................... $ 15
------------
Total Convertible
Debentures
(cost $0)........................................... 15
------------
SHORT-TERM INVESTMENTS - 6.8%
REPURCHASE AGREEMENT - 6.8%
50,000,000 Goldman Sachs Repurchase
Agreement purchased 9/30/98,
5.60%, maturing 10/1/98, maturity
value $50,007,778
(cost $50,000,000) (b).............................. 50,000,000
7,210,000 Keystone Joint Repurchase
Agreement Investments in
repurchase agreements, in a joint
trading account, purchased 9/30/98,
5.60%, maturing 10/1/98, maturity
value $7,211,122
(cost $7,210,000) (c)............................... 7,210,000
------------
57,210,000
------------
Total Short-Term Investments
(cost $57,210,000).................................. 57,210,000
------------
TOTAL INVESTMENTS -
(COST $689,730,201).......................... 99.0% 828,549,725
OTHER ASSETS AND
LIABILITIES - NET............................ 1.0 8,216,672
----- ------------
NET ASSETS.................................... 100.0% $836,766,397
===== ============
* Non-Income Producing Securities.
(a) Less than one-tenth percent.
(b) At September 30, 1998, the repurchase agreement was fully collateralized by:
$32,682,000 FNMA, 6.131%, 10/01/32; value including interest -$32,935,340
and $17,318,000 FNMA, 6.131%, 10/01/32; value including interest -
$17,452,437.
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
See Combined Notes to Financial Statements.
59
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE COMPANY STOCK STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA GROWTH SELECTOR GROWTH
FUND FUND FUND FUND FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at value
(identified cost -
$134,332,397,
$1,220,157,650,
$48,577,126,
$244,554,856,
$801,807,653,
$431,748,348 and
$689,730,201,
respectively).......... $204,595,125 $1,890,946,248 $50,947,609 $284,124,313 $790,731,270 $433,609,934 $828,549,725
Cash.................... 465 26,416 92,830 797 95 12,782 660
Receivable for
investments sold....... 0 6,612,960 417,095 3,755,380 16,559,126 14,442,937 11,254,465
Receivable for Fund
shares sold............ 824,870 2,100,765 47,424 248,094 2,070,141 316,529 305,018
Dividends and interest
receivable............. 19,404 968,458 16,744 83,323 63,713 650,785 289,419
Unamortized
organization
expenses............... 9,452 0 0 0 0 0 0
Prepaid expenses and
other assets........... 25,589 55,633 18,693 53,412 148,027 58,600 87,225
- ---------------------------------------------------------------------------------------------------------------------------
Total assets.......... 205,474,905 1,900,710,480 51,540,395 288,265,319 809,572,372 449,091,567 840,486,512
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased.............. 0 1,058,303 242,856 2,864,344 13,780,148 2,189,707 2,497,239
Payable for Fund shares
repurchased............ 361,716 50,538,714 22,219 499,960 1,265,088 5,048,361 563,653
Advisory fee payable.... 97,879 1,374,242 41,322 171,812 366,836 238,997 367,236
Distribution fee
payable................ 27,171 138,993 9,412 96,926 121,880 4,116 115,080
Due to related
parties................ 3,487 0 0 3,800 14,820 98,714 10,589
Accrued expenses and
other liabilities...... 21,907 270,210 41,940 17,274 127,782 196,178 166,318
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities..... 512,160 53,380,462 357,749 3,654,116 15,676,554 7,776,073 3,720,115
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............. $204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494 $836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $114,799,483 $1,168,338,213 $47,674,345 $210,183,587 $737,059,904 $347,671,295 $581,723,646
Undistributed net
investment income...... (13,651) 1,991,530 (12,286) (4,940) (31,807) 231,576 (20,596)
Accumulated
undistributed net
realized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... 19,914,185 6,211,677 1,150,104 34,863,099 67,944,104 91,551,143 116,243,773
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 70,262,728 670,788,598 2,370,483 39,569,457 (11,076,383) 1,861,480 138,819,574
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...... $204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494 $836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A................. $137,776,477 $ 182,590,060 $ 4,741,438 $156,219,847 $589,233,330 $ 15,910,099 $706,279,735
Class B................. 36,301,385 623,644,288 4,235,649 114,068,435 199,876,815 413,056 130,033,248
Class C................. 2,570,475 12,620,017 3,093,122 13,752,251 4,086,881 -- 453,414
Class Y................. 28,314,408 1,028,475,653 39,112,437 570,670 698,792 424,992,339 --
- ---------------------------------------------------------------------------------------------------------------------------
$204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494 $836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 6,480,639 8,648,992 238,535 7,266,503 102,955,378 867,445 73,001,272
Class B................. 1,746,951 29,947,478 219,404 5,612,889 35,096,950 22,664 13,507,691
Class C................. 123,875 607,099 160,013 675,119 717,391 -- 47,090
Class Y................. 1,319,266 48,390,516 1,951,003 26,492 121,812 23,166,413 --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 21.26 $ 21.11 $ 19.88 $ 21.50 $ 5.72 $ 18.34 $ 9.67
- ---------------------------------------------------------------------------------------------------------------------------
Class A - Offering
price (based on sales
charge of 4.75%) $ 22.32 $ 22.16 $ 20.87 $ 22.57 $ 6.01 $ 19.25 $ 10.15
- ---------------------------------------------------------------------------------------------------------------------------
Class B................. $ 20.78 $ 20.82 $ 19.31 $ 20.32 $ 5.69 $ 18.23 $ 9.63
- ---------------------------------------------------------------------------------------------------------------------------
Class C................. $ 20.75 $ 20.79 $ 19.33 $ 20.37 $ 5.70 -- $ 9.63
- ---------------------------------------------------------------------------------------------------------------------------
Class Y................. $ 21.46 $ 21.25 $ 20.05 $ 21.54 $ 5.74 $ 18.35 --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
60
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Year Ended September 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH SELECTOR GROWTH
FUND FUND FUND FUND FUND FUND* FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends (net of
foreign withholding
taxes of $0,
$19,485, $0, $319,
$0, $23,917 and
$76,459,
respectively)....... $ 356,777 $ 14,368,085 $ 401,736 $ 2,005,311 $ 3,276,542 $ 1,414,664 $ 7,315,512
Interest............. 81,217 18,768,768 22,193 828,568 2,909,517 47,371 3,145,575
Securities lending
income.............. 0 0 0 0 913,249 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Total income........ 437,994 33,136,853 423,929 2,833,879 7,099,308 1,462,035 10,461,087
EXPENSES
Advisory fee......... 1,390,081 17,536,054 615,473 2,214,127 6,367,129 968,973 4,870,007
Distribution Plan
expenses............ 812,992 6,797,255 79,603 1,697,051 5,187,679 12,491 3,317,412
Transfer agent fees.. 635,857 4,017,835 97,049 641,820 2,944,028 9,509 1,767,753
Trustees fees and
expenses............ 3,956 51,288 382 5,723 32,253 1,442 21,940
Custodian fees....... 66,285 529,231 13,795 84,057 390,606 22,867 380,772
Administrative
service fees........ 68,149 0 0 50,291 223,424 35,239 155,809
Professional fees.... 32,284 66,617 34,549 24,051 89,868 45,045 40,864
Printing............. 166,429 938,445 4,630 170,808 681,437 64,076 336,141
Registration fees.... 107,748 209,637 76,137 103,951 222,287 141,793 83,057
Amortization of
organization
expenses............ 5,110 0 0 0 0 0 0
Other................ 14,996 51,099 17,678 11,042 65,692 14,311 45,627
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses...... 3,303,887 30,197,461 939,296 5,002,921 16,204,403 1,315,746 11,019,382
Less: Indirectly paid
expenses............ (2,512) (9,972) (3,229) (2,813) (51,786) 0 (10,940)
Fee waivers and/or
reimbursement from
investment
adviser............ 0 0 0 0 0 (85,492) 0
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses........ 3,301,375 30,187,489 936,067 5,000,108 16,152,617 1,230,254 11,008,442
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME.............. (2,863,381) 2,949,364 (512,138) (2,166,229) (9,053,309) 231,781 (547,355)
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS OR
LOSSES ON
SECURITIES, FUTURES
CONTRACTS AND
FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gains or
losses on:
Securities.......... 21,129,001 11,080,737 1,277,329 47,348,560 92,508,170 17,941,434 149,288,259
Futures contracts... 0 0 0 0 3,075,767 0 0
Foreign currency
related
transactions....... 0 0 0 0 (493) (205) 260,070
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains or
losses on
securities, futures
contracts, foreign
currency related
transactions and
foreign currency
related
transactions........ 21,129,001 11,080,737 1,277,329 47,348,560 95,583,444 17,941,229 149,548,329
- -----------------------------------------------------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and foreign currency
related
transactions........ (32,882,258) (131,256,024) (14,974,624) (33,661,614) (507,105,194) (120,015,197) (105,851,911)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on
securities, futures
contracts and
foreign currency
related
transactions........ (11,753,257) (120,175,287) (13,697,295) 13,686,946 (411,521,750) (102,073,968) 43,696,418
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... $(14,616,638) $(117,225,923) $(14,209,433) $11,520,717 $(420,575,059) $(101,842,187) $ 43,149,063
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
See Combined Notes to Financial Statements.
61
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended June 30, 1998
<TABLE>
<CAPTION>
STOCK
SELECTOR
FUND
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends....................................................... $ 6,255,049
Interest........................................................ 348,724
- --------------------------------------------------------------------------------
Total income................................................... 6,603,773
EXPENSES
Advisory fee.................................................... 4,270,615
Distribution Plan expenses...................................... 49,441
Transfer agent fees............................................. 179,534
Custodian fees.................................................. 984
Administrative service fees..................................... 1,442,317
Professional fees............................................... 63,803
Printing........................................................ 79,413
Registration fees............................................... 71,862
Other........................................................... 78,284
- --------------------------------------------------------------------------------
Total expenses................................................. 6,236,253
Less: Fee waivers and/or expense reimbursements................. (421,178)
- --------------------------------------------------------------------------------
Net expenses................................................... 5,815,075
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME........................................... 788,698
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES
Net realized gains or losses on securities...................... 99,737,743
Net change in unrealized gains or losses on securities.......... 10,477,319
- --------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities....... 110,215,062
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $111,003,760
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
62
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH SELECTOR GROWTH
FUND FUND FUND FUND FUND FUND* FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income.......... $ (2,863,381) $ 2,949,364 $ (512,138) $ (2,166,229) $ (9,053,309) $ 231,781 $ (547,355)
Net realized
gains or losses
on securities,
futures
contracts and
foreign currency
related
transactions.... 21,129,001 11,080,737 1,277,329 47,348,560 95,583,444 17,941,229 149,548,329
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... (32,882,258) (131,256,024) (14,974,624) (33,661,614) (507,105,194) (120,015,197) (105,851,911)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... (14,616,638) (117,225,923) (14,209,433) 11,520,717 (420,575,059) (101,842,187) 43,149,063
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (756,350) 0 0 0 0 0
Class B......... 0 0 0 0 0 0 (1,289,169)
Class Y......... 0 (6,894,401) 0 0 0 0 0
From net realized
gains
Class A......... (6,090,321) (3,670,523) (142,183) (14,940,773) 0 0 0
Class B......... (1,515,887) (11,529,535) (114,702) (10,805,705) (124,537,167) 0 (113,103,093)
Class C......... (134,112) (199,185) (57,650) (1,549,758) 0 0 0
Class Y......... (1,606,606) (23,699,502) (2,593,995) (493) 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (9,346,926) (46,749,496) (2,908,530) (27,296,729) (124,537,167) 0 (114,392,262)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 68,811,650 2,735,869,664 28,365,456 56,200,250 489,047,720 34,074,181 74,908,829
Payment for
shares
redeemed........ (111,550,305) (2,543,496,256) (17,334,111) (70,377,012) (834,438,095) (75,761,134) (188,432,304)
Net asset value
of shares issued
in reinvestment
of
distributions... 8,139,247 40,835,635 2,124,920 25,295,379 105,065,592 0 101,552,338
Shares issued in
acquisition of
Keystone Small
Company Growth
Fund II......... 0 0 0 0 33,587,309 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... (34,599,408) 233,209,043 13,156,265 11,118,617 (206,737,474) (41,686,953) (11,971,137)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... (58,562,972) 69,233,624 (3,961,698) (4,657,395) (751,849,700) (143,529,140) (83,214,336)
NET ASSETS
Beginning of
year............ 263,525,717 1,778,096,394 55,144,344 289,268,598 1,545,745,518 584,844,634 919,980,733
- ------------------------------------------------------------------------------------------------------------------------------
END OF YEAR...... $ 204,962,745 $ 1,847,330,018 $ 51,182,646 $284,611,203 $ 793,895,818 $ 441,315,494 $ 836,766,397
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (13,651) $ 1,991,530 $ (12,286) $ (4,940) $ (31,807) $ 231,576 $ (20,596)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
See Combined Notes to Financial Statements.
63
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH SELECTOR GROWTH
FUND***** FUND***** FUND***** FUND**** FUND*** FUND** FUND*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income.......... $ (1,900,304) $ 7,514,387 $ (209,402) $ (1,130,464) $ (7,065,364) $ 788,698 $ 655,106
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 12,171,177 36,805,817 3,640,708 17,255,823 110,149,243 99,737,743 80,803,578
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... 16,257,433 388,053,134 16,316,906 35,276,768 184,561,753 10,477,319 105,055,036
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... 26,528,306 432,373,338 19,748,212 51,402,127 287,645,632 111,003,760 186,513,720
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (454,970) 0 0 0 0 0
Class B......... 0 0 0 0 0 (3,827) 0
Class Y......... 0 (5,485,239) 0 0 0 (1,044,935) 0
From net realized
gains
Class A......... 0 (2,174,311) 0 (6,112,342) 0 (2,420,586) 0
Class B......... 0 (6,498,011) 0 (4,386,128) (114,171,454) (16,877) (59,854,176)
Class C......... 0 (143,970) 0 (657,041) 0 0 0
Class Y......... 0 (18,647,833) 0 (1) 0 (69,731,105) 0
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... 0 (33,404,334) 0 (11,155,512) (114,171,454) (73,217,330) (59,854,176)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 109,161,502 1,988,694,819 7,828,678 43,285,351 243,488,031 86,624,977 120,935,075
Payment for
shares
redeemed........ (99,552,842) (1,825,979,211) (14,445,981) (66,967,170) (369,839,740) (137,373,206) (165,997,292)
Net asset value
of shares issued
in reinvestment
of
distributions... 0 28,705,464 0 10,330,073 91,854,430 66,747,336 53,539,767
Shares issued in
acquisition of
Keystone America
Hartwell
Emerging Growth
Fund............ 82,227,499 0 0 0 0 0 0
Shares issued in
acquisition of
Keystone Mid-Cap
Growth Fund (S-
3).............. 0 0 0 0 0 0 287,967,178
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 91,836,159 191,421,072 (6,617,303) (13,351,746) (34,497,279) 15,999,107 296,444,728
- -----------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 118,364,465 590,390,076 13,130,909 26,894,869 138,976,899 53,785,537 423,104,272
NET ASSETS
Beginning of
period.......... 145,161,252 1,187,706,318 42,013,435 262,373,729 1,406,768,619 531,059,097 496,876,461
- -----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $263,525,717 $ 1,778,096,394 $ 55,144,344 $289,268,598 $1,545,745,518 $ 584,844,634 $ 919,980,733
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (11,041) $ 6,784,258 $ (11,658) $ (2,889) $ (16,648) $ 28,200 $ 985,051
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
** For the year ended June 30, 1997.
*** For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1997.
**** For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
***** For the year ended September 30, 1997.
See Combined Notes to Financial Statements.
64
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
SMALL STOCK STRATEGIC
OMEGA COMPANY GROWTH SELECTOR GROWTH
FUND**** FUND*** FUND** FUND*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ (1,563,271) $ (22,139,802) $ 2,927 $ (2,412,617)
Net realized gains or
losses on securities
and foreign currency
related transactions... 35,051,903 117,982,561 66,598 70,337,618
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions........... (8,092,996) (279,047,661) 67,597 (7,283,970)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 25,395,636 (183,204,902) 137,122 60,641,031
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income
Class A................ 0 0 (49) 0
Class B................ 0 0 0 (478,981)
Class Y................ 0 0 (2,858) 0
From net realized gains
Class A................ (15,011,932) 0 (977) 0
Class B................ (9,027,710) (200,508,632) 0 (22,079,862)
Class C................ (1,879,136) 0 0 0
Class Y................ 0 0 (35,253) 0
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (25,918,778) (200,508,632) (39,137) (22,558,843)
- -----------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 68,666,813 1,018,919,437 60,154 65,085,209
Payment for shares
redeemed............... (69,108,584) (1,402,606,782) 39,148 (118,085,204)
Net asset value of
shares issued in
reinvestment of
distributions.......... 24,060,522 168,366,921 (92,231) 20,184,450
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 18,599,730 0 0 0
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 42,218,481 (215,320,424) 7,071 (32,815,545)
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... 41,695,339 (599,033,958) 105,056 5,266,643
NET ASSETS
Beginning of period..... 220,678,390 2,005,802,577 426,002 491,609,818
- -----------------------------------------------------------------------------------
END OF PERIOD........... $262,373,729 $ 1,406,768,619 $531,058 $ 496,876,461
- -----------------------------------------------------------------------------------
Undistributed net
investment income...... $ 0 $ (7,516) $ 1 $ 85,978
- -----------------------------------------------------------------------------------
</TABLE>
* For the year ended October 31, 1996.
** For the year ended June 30, 1997. Values shown in thousands. This Fund was
formerly known as the CoreFunds Inc., Core Equity Fund.
*** For the year ended May 31, 1997.
**** For the year ended December 31, 1996.
See Combined Notes to Financial Statements.
65
<PAGE>
COMBINED NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Evergreen Domestic Growth Funds consist of Evergreen Aggressive Growth Fund
("Aggressive Growth Fund"), Evergreen Fund ("Evergreen Fund"), Evergreen Micro
Cap Fund ("Micro Cap Fund"), Evergreen Omega Fund ("Omega Fund"), Evergreen
Small Company Growth Fund ("Small Company Growth Fund"), Evergreen Stock Selec-
tor Fund ("Stock Selector Fund") and Evergreen Strategic Growth Fund ("Strate-
gic Growth Fund"), which are collectively referred to herein as the "Funds".
Each Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as diversified, open-end management investment companies.
Each Fund is a series of the Evergreen Equity Trust, a Delaware business Trust
organized on September 18, 1997.
The Funds offer Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class C shares are sold subject to a con-
tingent deferred sales charge payable on shares redeemed within one year after
the month of purchase. Class B shares purchased after January 1, 1997 will au-
tomatically convert to Class A shares after seven years. Class B shares pur-
chased prior to January 1, 1997 retain their existing conversion rights. Class
Y shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union Corporation ("First Union") and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates.
2. REORGANIZATION OF EVERGREEN STOCK SELECTOR FUND
Effective on the close of business on July 24, 1998, Stock Selector Fund ac-
quired all of the net assets and certain liabilities of the CoreFund Core Eq-
uity Fund (the "CoreFund") through a tax-free exchange of shares. Shareholders
of Class A, Class B and Class Y shares of the CoreFund became owners of that
number of full and fractional shares of Class A, Class B, and Class Y, respec-
tively, of Stock Selector Fund having an aggregate net asset value equal to the
aggregate net asset value of their shares of the CoreFund immediately prior to
the close of business on July 24, 1998. The operating results for prior periods
have been carried forward.
3. ACQUISITION INFORMATION
Effective on the close of business on August 14, 1997, Aggressive Growth Fund
acquired the net assets of Keystone America Hartwell Emerging Growth Fund, an
open-end management investment company registered under the 1940 Act, in an ex-
change of shares. The net assets were exchanged through a non-taxable exchange
for 3,462,126, 287,735, and 87,678 Class A, Class B and Class C shares, respec-
tively, of Aggressive Growth Fund. The acquired net assets consisted primarily
of portfolio securities with unrealized appreciation of $26,393,360. The aggre-
gate net assets of Aggressive Growth Fund immediately after the acquisition
were $245,798,619.
On April 25, 1996, Omega Fund acquired the net assets of Keystone Hartwell
Growth Fund, an open-end management investment company registered under the
1940 Act, in an exchange of Class A, Class B and Class C shares. The net assets
of Keystone Hartwell Growth Fund were exchanged through a nontaxable exchange
for 910,037, 66,754, and 25,665 Class A, Class B, and Class C shares, respec-
tively, of Omega Fund. The acquired net assets consisted primarily of portfolio
securities with unrealized appreciation of $7,665,038. The aggregate net assets
of Omega Fund immediately after the acquisition were $255,527,188.
Effective at the close of business on January 2, 1998, Small Company Growth
Fund acquired the net assets of Keystone Small Company Growth Fund II, an open-
end management investment company registered under the 1940 Act, in an exchange
of shares. The net assets were exchanged through a non-taxable exchange for
1,123,086, 2,456,961, 675,716 and 87,676 Class A, Class B, Class C and Class Y
shares, respectively, of Small
66
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Company Growth Fund. The acquired net assets consisted primarily of portfolio
securities with unrealized appreciation of $490,029. The aggregate net assets
of Small Company Growth Fund immediately after the acquisition were
$1,340,337,418.
Effective on the close of business on July 17, 1997, Strategic Growth Fund ac-
quired the net assets of Keystone Mid-Cap Growth Fund (S-3), an open-end man-
agement investment company registered under the 1940 Act, in an exchange of
shares. The net assets were exchanged through a non-taxable exchange for
28,278,170 Class B shares of Strategic Growth Fund. The acquired net assets
consisted primarily of portfolio securities with unrealized appreciation of
$63,919,167. The aggregate net assets of Strategic Growth Fund immediately af-
ter the acquisition were $880,849,984.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
The Funds value securities traded on a national securities exchange or included
on the Nasdaq National Market System ("NMS"), at the last reported sales price
on the exchange where primarily traded. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which valuations are not available from an inde-
pendent pricing service, which may include restricted securities, are valued at
fair value as determined in good faith according to procedures established by
the Board of Trustees. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Omega, Small Company Growth, and Strategic Growth, along with certain
other funds managed by Evergreen Investment Management Company (formerly Key-
stone Investment Management Company) ("EIMCO"), a subsidiary of First Union,
may transfer uninvested cash balances into a joint trading account. These bal-
ances are invested in one or more repurchase agreements that are fully collat-
eralized by U.S. Treasury and/or federal agency obligations.
C. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of ex-
change; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized foreign currency
gains and losses resulting from changes in
67
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
exchange rates include: foreign currency gains and losses between trade date
and settlement date on investment securities transactions, foreign currency re-
lated transactions and the difference between the amounts of interest and divi-
dends recorded on the books of the Funds and the amounts actually received.
Such gains and losses are included in realized gains or losses on foreign cur-
rency related transactions. The portion of foreign currency gains and losses
related to fluctuations in exchange rates between the initial purchase trade
date and subsequent sale trade date is included in realized gains or losses on
security transactions.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gains or losses on foreign currency related transactions. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the
other party will not fulfill their obligations under the contract. Forward con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
F. SECURITIES LENDING
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 30% of a Fund's total assets and will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including accrued interest. While such
securities are on loan, the borrower will pay a Fund any income accruing there-
on, and the Fund may invest the collateral in portfolio securities, thereby in-
creasing its return. A Fund will have the right to call any such loan and ob-
tain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities, which occurs during the term of
the loan, would affect a Fund and its investors. A Fund may pay reasonable fees
in connection with such loans.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities maybe subject to foreign taxes and
are accrued as applicable.
H. FEDERAL TAXES
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). As such, the Funds
will not incur any federal income tax liability since they
68
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
are expected to distribute all of their net investment company taxable income
and net realized capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
I. DISTRIBUTIONS
Distributions from net investment income and/or net realized capital gains for
the Funds are declared and paid at least annually. Distributions to sharehold-
ers are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statements
amounts available for distribution and distributions made in accordance with
income tax regulations are primarily due to differing treatment for certain
distributions received from real estate investment trusts and certain operating
expenses.
J. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
K. ORGANIZATION EXPENSES
Organization expenses are amortized over a five-year period on a straight-line
basis. In the event any of the initial shares of the Funds are redeemed by any
holder during the five-year amortization period, redemption proceeds will be
reduced by any unamortized organization expenses in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of the redemption.
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C and Class Y. Currently, Stock Se-
lector Fund does not have any Class C shares and Strategic Growth Fund does not
have any Class Y shares. Transactions in shares of the Funds were as follows:
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1998 1997
------------------------ -----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold................ 1,458,678 $ 32,751,533 2,422,550 $47,560,544
Shares redeemed............ (2,644,186) (58,974,321) (3,066,636) (61,339,895)
Shares issued in
reinvestment of
distributions............. 256,170 5,566,568 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 3,462,126 74,280,008
- -------------------------------------------------------------------------------
Net increase (decrease).... (929,338) (20,656,220) 2,818,040 60,500,657
- -------------------------------------------------------------------------------
CLASS B
Shares sold................ 438,746 9,743,538 816,049 16,534,301
Shares redeemed............ (537,072) (11,598,031) (363,564) (7,410,013)
Shares issued in
reinvestment of
distributions............. 69,204 1,481,656 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 287,735 6,092,951
- -------------------------------------------------------------------------------
Net increase (decrease).... (29,122) (372,837) 740,220 15,217,239
- -------------------------------------------------------------------------------
CLASS C
Shares sold................ 257,084 5,525,299 147,478 2,974,904
Shares redeemed............ (311,675) (6,765,435) (110,246) (2,231,375)
Shares issued in
reinvestment of
distributions............. 6,094 130,354 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 87,678 1,854,540
- -------------------------------------------------------------------------------
Net increase (decrease).... (48,497) (1,109,782) 124,910 2,598,069
- -------------------------------------------------------------------------------
CLASS Y
Shares sold................ 948,746 20,791,280 2,044,324 42,091,753
Shares redeemed............ (1,556,481) (34,212,518) (1,390,494) (28,571,559)
Shares issued in
reinvestment of
distributions............. 44,007 960,669 0 0
- -------------------------------------------------------------------------------
Net increase (decrease).... (563,728) (12,460,569) 653,830 13,520,194
- -------------------------------------------------------------------------------
Net increase (decrease).... (1,570,685) $(34,599,408) 4,337,000 $91,836,159
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EVERGREEN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............. 26,892,204 $ 635,409,399 10,240,806 $ 201,289,910
Shares redeemed......... (25,471,595) (602,607,887) (8,297,731) (163,949,566)
Shares issued in
reinvestment of
distributions.......... 197,302 4,386,012 141,874 2,555,157
- ------------------------------------------------------------------------------------
Net increase............ 1,617,911 37,187,524 2,084,949 39,895,501
- ------------------------------------------------------------------------------------
CLASS B
Shares sold............. 11,537,318 271,151,787 9,332,781 179,140,600
Shares redeemed......... (4,288,369) (99,320,748) (2,027,269) (39,748,674)
Shares issued in
reinvestment of
distributions.......... 516,498 11,383,615 359,029 6,426,786
- ------------------------------------------------------------------------------------
Net increase............ 7,765,447 183,214,654 7,664,541 145,818,712
- ------------------------------------------------------------------------------------
CLASS C
Shares sold............. 311,900 7,316,782 166,021 3,177,817
Shares redeemed......... (105,425) (2,443,473) (123,428) (2,398,358)
Shares issued in
reinvestment of
distributions.......... 8,349 183,677 7,595 135,795
- ------------------------------------------------------------------------------------
Net increase............ 214,824 5,056,986 50,188 915,254
- ------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 77,736,786 1,821,991,696 82,859,843 1,605,086,492
Shares redeemed......... (78,332,089) (1,839,124,148) (83,538,658) (1,619,882,613)
Shares issued in
reinvestment of
distributions.......... 1,115,299 24,882,331 1,085,192 19,587,726
- ------------------------------------------------------------------------------------
Net increase............ 519,996 7,749,879 406,377 4,791,605
- ------------------------------------------------------------------------------------
Net increase............ 10,118,178 $ 233,209,043 10,206,055 $ 191,421,072
- ------------------------------------------------------------------------------------
</TABLE>
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
MICRO CAP FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1998 1997
--------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................... 359,192 $ 9,478,268 115,021 $ 2,520,780
Shares redeemed................ (217,436) (5,670,641) (75,840) (1,765,373)
Shares issued in reinvestment
of distributions.............. 5,408 138,923 0 0
- ------------------------------------------------------------------------------
Net increase................... 147,164 3,946,550 39,181 755,407
- ------------------------------------------------------------------------------
CLASS B
Shares sold.................... 195,624 5,003,162 16,193 358,523
Shares redeemed................ (46,210) (1,107,294) (36,249) (699,297)
Shares issued in reinvestment
of distributions.............. 4,452 111,788 0 0
- ------------------------------------------------------------------------------
Net increase (decrease)........ 153,866 4,007,656 (20,056) (340,774)
- ------------------------------------------------------------------------------
CLASS C
Shares sold.................... 219,122 5,600,712 8,543 214,527
Shares redeemed................ (71,292) (1,779,947) (152) (3,237)
Shares issued in reinvestment
of distributions.............. 2,222 55,851 0 0
- ------------------------------------------------------------------------------
Net increase................... 150,052 3,876,616 8,391 211,290
- ------------------------------------------------------------------------------
CLASS Y
Shares sold.................... 325,348 8,283,314 216,277 4,734,848
Shares redeemed................ (335,562) (8,776,229) (609,034) (11,978,074)
Shares issued in reinvestment
of distributions.............. 70,343 1,818,358 0 0
- ------------------------------------------------------------------------------
Net increase (decrease)........ 60,129 1,325,443 (392,757) (7,243,226)
- ------------------------------------------------------------------------------
Net increase (decrease)........ 511,211 $13,156,265 (365,241) $ (6,617,303)
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
OMEGA FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------- Year Ended
1998 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 1,365,259 $ 31,279,961 764,570 $ 14,997,288 1,759,793 $ 33,571,953
Shares redeemed......... (1,928,567) (43,773,765) (1,812,460) (35,414,920) (2,381,626) (44,999,521)
Shares issued in
reinvestment of
distributions.......... 652,599 13,593,635 292,502 5,545,839 736,752 13,822,516
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 910,037 16,929,242
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 89,291 1,099,831 (755,388) (14,871,793) 1,024,956 19,324,190
- -------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 1,005,764 21,758,490 1,361,525 25,967,636 1,552,928 28,806,348
Shares redeemed......... (992,163) (21,153,692) (1,280,735) (24,835,178) (1,062,059) (19,500,081)
Shares issued in
reinvestment of
distributions.......... 515,276 10,207,610 227,976 4,149,157 466,572 8,494,665
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 66,754 1,206,044
- -------------------------------------------------------------------------------------------------------
Net increase............ 528,877 10,812,408 308,766 5,281,615 1,024,195 19,006,976
- -------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 105,783 2,255,994 121,875 2,315,406 336,661 6,288,512
Shares redeemed......... (244,821) (5,151,403) (352,354) (6,717,072) (253,439) (4,608,982)
Shares issued in
reinvestment of
distributions.......... 75,246 1,493,641 34,837 635,076 95,593 1,743,341
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 25,665 464,444
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (63,792) (1,401,768) (195,642) (3,766,590) 204,480 3,887,315
- -------------------------------------------------------------------------------------------------------
CLASS Y**
Shares sold............. 38,657 905,805 232 5,021 0 0
Shares redeemed......... (12,421) (298,152) 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 24 493 0 1 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 26,260 608,146 232 5,022 0 0
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 580,636 $ 11,118,617 (642,032) $(13,351,746) 2,253,631 $ 42,218,481
- -------------------------------------------------------------------------------------------------------
</TABLE>
* For the nine month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
** Omega Fund, Class Y shares commenced operations on July 23, 1997.
71
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- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------- Year Ended
1998 1997* May 31, 1997
----------------------------- -------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 27,641,238 $ 212,158,414 0 0 0 0
Automatic conversion of
Class B shares to Class
A shares............... 124,181,726 962,424,518 0 0 0 0
Shares redeemed......... (49,990,672) (395,810,407) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 1,123,086 8,684,926 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 102,955,378 787,457,451 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 32,457,309 268,266,006 27,990,885 $ 243,488,031 121,645,715 $ 1,018,919,437
Automatic conversion of
Class B shares to Class
A shares............... (124,181,726) (962,424,518) 0 0 0 0
Shares redeemed......... (52,395,091) (430,471,220) (42,215,378) (369,839,740) (168,659,715) (1,402,606,782)
Shares issued in
reinvestment of
distributions.......... 13,003,167 105,065,592 11,242,892 91,854,430 19,925,079 168,366,921
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 2,456,961 18,998,994 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net decrease............ (128,659,380) (1,000,565,146) (2,981,601) (34,497,279) (27,088,921) (215,320,424)
- -------------------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 1,067,525 7,292,107 0 0 0 0
Shares redeemed......... (1,025,850) (7,103,508) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 675,716 5,225,388 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 717,391 5,413,987 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 174,175 1,331,193 0 0 0 0
Shares redeemed......... (140,039) (1,052,960) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 87,676 678,001 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 121,812 956,234 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net decrease............ (24,864,799) $ (206,737,474) (2,981,601) $ (34,497,279) (27,088,921) $ (215,320,424)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1998.
- --------------------------------------------------------------------------------
STOCK SELECTOR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Period Ended -------------------------------------------
September 30, 1998** 1998 1997*
------------------------ ------------------------- ----------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 9,092 $ 185,580 179,299 $ 4,004,438 181 $ 3,395
Shares redeemed......... (56,116) (1,183,750) (144,091) (3,155,375) (126) (2,376)
Shares issued in
reinvestment of
distributions.......... 0 0 119,866 2,407,663 57 1,038
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (47,024) (998,170) 155,074 3,256,726 112 2,057
- -----------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 8,269 159,003 17,128 335,684 0 0
Shares redeemed......... (1,244) (22,379) (2,484) (15,011) 0 0
Shares issued in
reinvestment of
distributions.......... 0 0 995 17,497 0 0
- -----------------------------------------------------------------------------------------------
Net increase............ 7,025 136,624 15,639 338,170 0 0
- -----------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 1,552,973 33,729,598 3,703,125 82,284,855 3,083 56,759
Shares redeemed......... (3,531,924) (74,555,005) (6,152,133) (134,202,820) (4,824) (89,855)
Shares issued in
reinvestment of
distributions.......... 0 0 3,198,533 64,322,176 2,104 38,110
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (1,978,951) (40,825,407) 749,525 12,404,211 363 5,014
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (2,018,950) $(41,686,953) 920,238 $ 15,999,107 475 $ 7,071
- -----------------------------------------------------------------------------------------------
</TABLE>
* Amounts shown in thousands.
** For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
72
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------ Year Ended October 31,
1998 1997* 1996
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 2,441,784 $ 24,888,096 0 0 0 0
Automatic conversion of
Class B shares to Class
A shares............... 80,710,264 735,774,137 0 0 0 0
Shares redeemed......... (10,150,776) (103,841,488) 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 73,001,272 656,820,745 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 4,930,584 49,374,717 13,375,436 $ 120,935,075 8,012,349 $ 65,085,209
Automatic conversion of
Class B shares to Class
A shares............... (80,710,264) (735,774,137) 0 0 0 0
Shares redeemed......... (8,473,644) (84,439,886) (18,734,530) (165,997,292) (14,456,998) (118,085,204)
Shares issued in
reinvestment of
distributions.......... 11,014,353 101,552,338 6,585,457 53,539,767 2,591,072 20,184,450
Shares issued in
acquisition of Keystone
Mid Cap Growth Fund.... 0 0 28,278,170 287,967,178 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (73,238,971) (669,286,968) 29,504,533 296,444,728 (3,853,577) (32,815,545)
- -------------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 62,655 646,015 0 0 0 0
Shares redeemed......... (15,565) (150,929) 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 47,090 495,086 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (190,609) $ (11,971,137) 29,504,533 $ 296,444,728 (3,853,577) $ (32,815,545)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the year ended September 30, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-----------------------------
<S> <C> <C>
Aggressive Growth Fund............ $ 50,254,882 $ 98,048,122
Evergreen Fund.................... 280,760,053 119,838,170
Micro Cap Fund.................... 35,188,696 28,775,444
Omega Fund........................ 446,948,856 482,462,280
Small Company Growth Fund......... 1,178,780,023 1,576,919,572
Stock Selector Fund*.............. 137,026,533 189,768,425
Strategic Growth Fund............. 1,195,180,992 1,350,525,235
</TABLE>
-------
* For the period from July 1, 1998 to September 30, 1998.
On September 30, 1998, the composition of unrealized appreciation and deprecia-
tion of investment securities based on the aggregate cost of investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive
Growth Fund... $ 134,332,397 $ 89,730,633 $ 19,467,905 $ 70,262,728
Evergreen
Fund.......... 1,220,062,867 763,461,052 92,577,671 670,883,381
Micro Cap
Fund.......... 48,587,737 8,495,470 6,135,598 2,359,872
Omega Fund..... 244,819,986 45,136,485 5,832,158 39,304,327
Small Company
Growth Fund... 804,094,846 126,219,606 139,583,182 (13,363,576)
Stock Selector
Fund.......... 434,533,188 76,298,087 77,221,341 (923,254)
Strategic
Growth Fund... 690,147,444 152,211,650 13,809,384 138,402,266
</TABLE>
Small Company Growth Fund loaned securities during the year ended September 30,
1998 to certain brokers who paid the Fund a negotiated lenders' fee. At Septem-
ber 30, 1998, the Fund had no securities on loan.
At September 30, 1998, Small Company Growth Fund for federal tax purposes, had
a capital loss carryforward of approximately $104,728,148. Pursuant to the In-
ternal Revenue Code, such capital loss carryforward will expire in 2006.
73
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit each Fund to reimburse
its principal underwriter for costs related to selling shares of the fund and
for various other services. These costs, which consist primarily of commissions
and services fees to broker-dealers who sell shares of the Fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
except Class Y, currently pays a service fee equal to 0.25% of the average
daily net asset of the class. Class B and Class C also presently pay distribu-
tion fees equal to 0.75% of the average daily net assets of the Class. Distri-
bution Plan expenses are calculated daily and paid monthly. With respect to
Class B and Class C shares, the principal underwriter may pay 12b-1 fees
greater than the allowable annual amounts the Funds are permitted to pay. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at the prime rate plus 1.00%.
During the year ended September 30, 1998, amounts paid to EDI and/or its prede-
cessor pursuant to each Fund's Class A, Class B and Class C Distribution Plans
were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1998
------------------------------
Class A Class B Class C
<S> <C> <C> <C>
------------------------------
Aggressive Growth Fund.......... $ 386,073 $ 392,895 $ 34,024
Evergreen Fund.................. 487,965 6,189,891 119,399
Micro Cap Fund.................. 11,483 39,503 28,617
Omega Fund...................... 369,456 1,170,948 156,647
Small Company Growth Fund....... 1,539,502 3,613,415 34,762
Stock Selector Fund*............ 11,597 894 0
Strategic Growth Fund........... 1,356,293 1,959,585 1,534
</TABLE>
-------
* For the period from July 1, 1998 to September 30, 1998.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The Capital Management Group of First Union ("CMG"), the investment adviser for
Aggressive Growth Fund, is entitled to an annual fee of 0.60% of the average
daily net assets, pursuant to the Fund's investment advisory agreement.
Pursuant to an agreement with Evergreen Fund and Micro Cap Fund, Evergreen As-
set Management Corp. ("EAMC"), a wholly owned subsidiary of First Union, is en-
titled to an annual fee based on each of Evergreen Fund's and Micro Cap Fund's
average daily net assets, respectively, in accordance with the following sched-
ule:
<TABLE>
<S> <C>
First $750 million......................................... 1.00%
Next $250 million.......................................... 0.90%
Over $1 billion............................................ 0.80%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
Evergreen Fund and Micro Cap Fund. Lieber & Company provides these services at
no additional cost to the Funds.
EIMCO, as the investment adviser for Omega Fund, Small Company Growth Fund and
Strategic Growth Fund, receives a management fee that is calculated daily and
paid monthly for providing investment advisory and management services. For
Omega Fund, the management fee paid to EIMCO is determined by applying percent-
age rates starting at 0.75% and declining to 0.50% per annum as net assets in-
crease, to the average daily net asset value of the Fund. For Small Company
Growth Fund and Strategic Growth Fund, the management fee paid to EIMCO is de-
termined by applying percentage rates starting at 0.70% and declining to 0.35%
per annum as net assets increase, to the average daily net asset value of the
Fund.
74
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
The investment adviser to Stock Selector Fund is Meridian Investment Company
("Meridian"). Meridian is an indirect subsidiary of First Union. Meridian man-
ages investments and supervises the daily business affairs of Stock Selector
Fund subject to the authority of the Trustees. Meridian is entitled to an an-
nual fee equal to 0.74% of the Fund's average daily net assets.
Prior to the reorganization of Stock Selector Fund on July 27, 1998, CoreStates
Investment Advisers, Inc. ("CSIA") provided investment advisory services for
Stock Selector Fund (formerly CoreFund Core Equity Fund). For its services,
CSIA was entitled to an annual fee of 0.74% of the average daily net assets,
pursuant to the Fund's investment advisory agreement dated April 12, 1996. Ad-
visory fees were computed daily and paid monthly. Additionally, in 1998, CSIA
voluntarily waived a portion of their fees in order to assist the Core Equity
Fund in maintaining competitive expense ratios.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and BISYS Fund Services ("BISYS") is sub-administrator to the
Funds. As administrator, EIS provides the Funds with facilities, equipment and
personnel. As sub-administrator to the Funds, BISYS provides the officers of
the Funds. The administrator and sub-administrator for each Fund are entitled
to an annual fee based on the average daily net assets of the funds adminis-
tered by EIS for which First Union or its investment advisory subsidiaries are
also the investment advisers. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The sub-ad-
ministration fee is calculated by applying percentage rates, which start at
0.01% and decline to .004% per annum as net assets increase, to the average
daily net asset value of the Fund. For Evergreen Fund and Micro Cap Fund, the
administration and sub-administration fee is paid by their respective invest-
ment adviser and is not a Fund expense. For the year ended September 30, 1998,
Aggressive Growth Fund paid administrative fees to EIS of $68,149. EIS and
BISYS provide administration and sub-administration services to Omega Fund,
Small Company Growth Fund and Strategic Growth Fund at no additional cost.
Omega Fund, Small Company Growth Fund and Strategic Growth Fund reimbursed
EIMCO for certain administrative and accounting expenses amounting to $50,291,
$223,424 and $155,809, respectively, for the year ended September 30, 1998.
Prior to the reorganization of Stock Selector Fund on July 1, 1998, SEI Fund
Resources ("SFR") acted as the Fund's Administrator. Under the terms of this
agreement, SFR was entitled to receive an annual fee of 0.25% on the average
net assets of the Fund. SFR voluntarily waived a portion of their fees in order
to assist the Fund in maintaining competitive expense ratios.
Lieber & Company also provides brokerage services with respect to substantially
all security transactions of Evergreen Fund and Micro Cap Fund effected on the
New York or American Stock Exchanges. For the year ended September 30, 1998,
Evergreen Fund and Micro Cap Fund incurred $405,182 and $56,631 respectively,
in brokerage commissions with Lieber & Company. Lieber & Company is reimbursed
by EAMC, at no additional expense to the Fund, for its cost of providing in-
vestment advisory services.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC, re-
lating to certain cash balances held at First Union for the benefit of the Ev-
ergreen Funds.
Prior to the reorganization of Stock Selector Fund on July 1, 1998, Boston Fi-
nancial Data Services ("BFDS"), a wholly owned subsidiary of State Street Bank
and Trust Company acted as the Fund's Transfer Agent. As such, BFDS provided
transfer agency, dividend disbursing and shareholder servicing to the Fund.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
Prior to the reorganization of Stock Selector Fund on July 24, 1998, CoreStates
Bank (now First Union) served as Custodian to the Company. Under the Custodian
Agreement, CoreStates Bank held the Fund's securities and cash items, made re-
ceipts and disbursements of money on behalf of the Fund, collected and received
all
75
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
income and other payments and distributions on account of the Fund's securities
and performed other related services.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are al-
located to deferral accounts which are included in the accrued expenses for the
Funds. The investment performance of the deferral accounts are based on the in-
vestment performance of certain Evergreen Funds. Any gains earned or losses in-
curred in the deferral accounts are reported in the Fund's Trustees's fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000. As of September 30, 1998, the value of the Trustees deferral account
for Aggressive Growth Fund, Evergreen Fund, Micro Cap Fund, Omega Fund, Small
Company Growth Fund, Stock Selector Fund and Strategic Growth Fund were
$13,652, $87,519, $12,286, $4,940, $31,807, $472 and $20,597.
11. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating Funds. State Street served as agent for the Banks, and as agent was en-
titled to a fee of $15,000 which was allocated to all of the participating
Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union pro-
vided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated among the Banks, under the terms of the financing agreement. The
credit facility is to be accessed by the Funds for temporary or emergency pur-
poses only and is subject to each Fund's borrowing restrictions. Borrowings un-
der this facility bear interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum will be incurred on the unused por-
tion of the committed facility, which will be allocated to all funds. State
Street serves as administrative agent for the Banks, and as administrative
agent is entitled to a fee of $20,000 per annum which is allocated to all of
the Funds.
At September 30, 1998, Stock Selector Fund was not included in this financing
agreement.
During the year ended September 30, 1998, the Funds had no significant
borrowings under these agreements.
76
<PAGE>
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES OR DIRECTORS AND SHAREHOLDERS OF
EVERGREEN AGGRESSIVE GROWTH FUND, EVERGREEN FUND,
EVERGREEN MICRO CAP FUND AND
EVERGREEN STOCK SELECTOR FUND
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Evergreen Aggressive Growth Fund,
Evergreen Fund, Evergreen Micro Cap Fund (formerly Evergreen Micro Cap Fund,
Inc.) and Evergreen Stock Selector Fund (formerly Core Equity Fund) (the
"Funds") at September 30, 1998, and the results of their operations, the
changes in their net assets and the financial highlights for the periods indi-
cated, in conformity with generally accepted accounting principles. These fi-
nancial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Funds' management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights of
Evergreen Aggressive Growth Fund for each of the two years in the period ended
October 31, 1994, and the financial highlights of Evergreen Micro Cap Fund for
the year ended September 30, 1995, the four month period ended September 30,
1994 and the year ended May 31, 1994, were audited by other auditors, whose
opinions, dated November 29, 1994 and November 16, 1995, respectively were un-
qualified. The Statement of Operations of Evergreen Stock Selector Fund for the
year ended June 30, 1998, the Statement of Changes in Net Assets for each of
the two years in the period ended June 30, 1998 and the financial highlights
for each of the five years in the period ended June 30, 1998 were audited by
other auditors, whose opinion dated August 25, 1998 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
November 12, 1998
77
<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of three of the Funds, listed below, compris-
ing Evergreen Equity Trust as of September 30, 1998, and the related statements
of operations, and changes in net assets, and financial highlights for each of
the years or periods listed below:
Evergreen Omega Fund -- statement of operations for the year ended September
30, 1998, statements of changes in net assets for the year ended September
30, 1998, the nine-month period ended September 30, 1997 and the year ended
December 31, 1996 and the financial highlights for the years or periods pre-
sented on pages 35 through 36.
Evergreen Small Company Growth Fund -- statement of operations for the year
ended September 30, 1998, statements of changes in net assets for the year
ended September 30, 1998, the four-month period ended September 30, 1997 and
the year ended May 31, 1997 and the financial highlights for the years or
periods presented on pages 37 through 38.
Evergreen Strategic Growth Fund -- statement of operations for the year
ended September 30, 1998, statements of changes in net assets for the year
ended September 30, 1998, the eleven-month period ended September 30, 1997
and the year ended October 31, 1996 and the financial highlights for the
years or periods presented on pages 41 through 42.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these fi-
nancial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green Omega Fund, Evergreen Small Company Growth Fund and Evergreen Strategic
Growth Fund as of September 30, 1998, the results of their operations, changes
in their net assets and financial highlights for each of the years or periods
specified in the first paragraph above in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 6, 1998
78
<PAGE>
[LOGO]
ADDITIONAL INFORMATION
YEAR 2000 (UNAUDITED)
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisers and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisers are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
79
<PAGE>
[LOGO]
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
Pursuant to section 852 of the Internal Revenue Code, the Funds have
designated the following amounts as long-term 28% capital gain dis-
tributions and long-term 20% capital gain distributions for the fis-
cal year ended September 30, 1998:
<TABLE>
<CAPTION>
Aggregate Per Share
----------------------- -----------
28% 20% 28% 20%
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund.... $ 0 $ 9,346,926 $ 0 $0.85
Evergreen Fund............ 15,413,075 18,551,491 0.20 0.23
Micro Cap Fund............ 0 364,949 0 0.17
Omega Fund................ 5,029,778 18,460,511 0.37 1.36
Small Company Growth
Fund..................... 0 0 0.00 0.00
Stock Selector Fund....... 0 0 0.00 0.00
Strategic Growth Fund..... 46,908,169 25,866,052 0.54 0.30
</TABLE>
For corporate shareholders, the following percentages of ordinary in-
come dividends paid during the fiscal year ended September 30, 1998
qualified for the dividends received deduction.
<TABLE>
<S> <C>
Aggressive Growth Fund................................... 0.00%
Evergreen Fund........................................... 100.00%
Micro Cap Fund........................................... 0.00%
Omega Fund............................................... 52.63%
Small Company Growth Fund................................ 0.00%
Stock Selector Fund...................................... 0.00%
Strategic Growth Fund.................................... 74.36%
</TABLE>
80
<PAGE>
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<PAGE>
EVERGREEN
TAX STRATEGIC EQUITY FUND
ANNUAL REPORT
SEPTEMBER 30, 1998
[LOGO OF EVERGREEN FUNDS APPEARS HERE]
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
A Report From Your Portfolio Manager........................................ 1
Financial Highlights........................................................ 2
Schedule of Investments..................................................... 3
Statement of Assets and Liabilities......................................... 4
Statement of Operations..................................................... 5
Statement of Changes in Net Assets.......................................... 6
Notes to Financial Statements............................................... 7
Independent Auditor's Report................................................ 10
Other Information........................................................... 11
</TABLE>
E V E R G R E E N F U N D S
Evergreen Funds is one of the nation's fastest growing investment companies
with approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies ex-
ecuted by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
A REPORT FROM YOUR
PORTFOLIO MANAGER
Stephen A. Lieber
Evergreen Tax Strategic Equity Fund began operations on September 1, 1998. In
its first month, the Fund's Class Y shares had a total return of 6.50%; Class
A shares returned 5.34%, unadjusted for sales charges, and 1.43% with sales
charges.
The investment strategy of this Fund is to achieve long-term growth in a tax
efficient manner, minimizing the payout of taxable income and capital gains.
The Fund will substantially follow the strategies of the Evergreen Tax
Strategic Foundation Fund, limited, however, to equities only in this Fund.
These strategies include concentration on the use of common stocks whose
payout policies allow for significant stock buybacks as the most tax-efficient
means of utilizing retained earnings and facilitating increased capital values
for shareholders. The Fund will also favor non-dividend paying common stocks,
and/or those with favorable tax treatment of dividend payouts, including
dividends whose payouts are treated as capital gains only upon the sale of
shares. Further, the Fund will employ investment strategies aimed at
offsetting gains when realized. In selecting securities, the goal will be for
long-term-holding growth opportunities necessitating limited turnover.
Forty-seven securities were purchased for the Fund's portfolio during its
first month of operation. The largest positions established were, General
Electric Co., Chubb Corp., Coca-Cola FEMSA S.A. de CV, and Kaufman & Broad
Home Corp. The balance of the portfolio represents a mix between large and
medium capitalization companies. We anticipate that these two segments of the
market spectrum will provide the bulk of the Fund's holdings. Our objective is
to build a liquid, high-quality equity portfolio.
Because the Fund commenced operations after a major recent stock market
decline, we thought it appropriate to fully invest the Fund within its first
few weeks. During that period, we followed a policy of gradual investment,
taking advantage, particularly, of some of the sharp declines experienced in
the equity market during this period. The largest appreciation, to date, is
+20.3% in the shares of Park Electrochemical Corp., followed by +17.4% in the
shares of Lennar Corp.; +17.3% in the shares of Raymond James Financial, Inc.;
+16.9% in the shares of Perkin-Elmer Corp.; and +15.8% in the shares of
Glenlyte Group Inc. 16 holdings show gains of 10% or more, and we have
declines ranging from less than 11% to 27%. The sizable short-term increases
reflect the recent volatility of the market, rather than the Fund's intended
policy of acquiring volatile securities. Each of these is intended to be held
for participation in long-term growth opportunities.
Top 5 Industries
(based on 9/30/98 net assets)
<TABLE>
<S> <C>
Banks 14.5%
...............................................................................
Finance 13.4%
...............................................................................
Building, Construction & Furnishings 13.3%
...............................................................................
Insurance 10.1%
...............................................................................
Electrical Equipment & Services 9.6%
...............................................................................
</TABLE>
Top 10 Equity Holdings
(based on 9/30/98 net assets)
<TABLE>
<S> <C>
General Electric Co. 4.4%
...............................................................................
Chubb Corp. 3.5%
...............................................................................
Coca-Cola Co. Femsa SA ADR 3.4%
...............................................................................
Kaufman & Broad Home Corp. 3.2%
...............................................................................
Inversiones y Representaciones SA, GDR 3.0%
...............................................................................
MBIA, Inc. 3.0%
...............................................................................
Armstrong World Industries, Inc. 2.9%
...............................................................................
Wilmington Trust Corp. 2.9%
...............................................................................
Sonic Automotive, Inc. 2.7%
...............................................................................
Citicorp 2.6%
...............................................................................
</TABLE>
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost.
1
<PAGE>
Evergreen Tax Strategic Equity Fund
- --------------------------------------------------------------------------------
Financial Highlights
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30,
CLASS A SHARES 1998*
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $10.11
------
INCOME FROM INVESTMENT OPERATIONS................................
Net investment income........................................... 0.00+++
Net realized and unrealized gains on securities................. 0.54
------
Total from investment operations................................. 0.54
------
NET ASSET VALUE, END OF PERIOD................................... $10.65
------
Total return+.................................................... 5.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)............................ $ 10
Ratios to average net assets:
Total expenses.................................................. 1.54%++
Total expenses, excluding fee waivers and expense
reimbursements................................................. 9.12%++
Net investment income........................................... 0.43%++
Portfolio turnover rate.......................................... 0%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30,
CLASS Y SHARES 1998**
- -------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS................................
Net investment income........................................... 0.00+++
Net realized and unrealized gains on securities................. 0.65
------
Total from investment operations................................. 0.65
------
NET ASSET VALUE, END OF PERIOD................................... $10.65
------
Total return+.................................................... 6.50%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands)............................ $3,629
Ratios to average net assets:
Total expenses.................................................. 1.30%++
Total expenses, excluding fee waivers and expense
reimbursements................................................. 8.87%++
Net investment income........................................... 0.61%++
Portfolio turnover rate.......................................... 0%
</TABLE>
+ Excluding sales charges.
++ Annualized.
+++ Less than one cent per share.
* For the period from September 4, 1998 (commencement of Class A operations)
to September 30, 1998.
** For the period from September 1, 1998 (commencement of Class Y operations)
to September 30, 1998.
See Notes to Financial Statements.
2
<PAGE>
Evergreen Tax Strategic Equity Fund
- --------------------------------------------------------------------------------
Schedule of Investments
September 30, 1998
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS--88.3%
AUTOMOTIVE EQUIPMENT & MANUFACTURING--2.7%
5,000 *Sonic Automotive, Inc.................................... $ 99,062
----------
BANKS--14.5%
2,500 BankBoston Corp........................................... 82,500
1,000 Citicorp.................................................. 92,937
1,000 Crestar Financial Corp.................................... 56,750
2,000 Republic New York Corp.................................... 79,000
1,000 State Street Corp......................................... 54,563
2,000 Westamerica Bancorp....................................... 57,875
2,000 Wilmington Trust Corp..................................... 104,000
----------
527,625
----------
BUILDING, CONSTRUCTION & FURNISHINGS--13.3%
2,000 Armstrong World Industries, Inc........................... 107,000
1,200 Carlisle Companies, Inc................................... 46,725
1,000 *Crossmann Communities, Inc............................... 20,125
5,000 Kaufman & Broad Home Corp................................. 117,187
3,000 Lennar Corp............................................... 66,938
2,000 Royal Group Technologies Ltd.............................. 33,500
4,000 *Toll Brothers, Inc....................................... 91,750
----------
483,225
----------
CAPITAL GOODS--1.2%
1,000 Caterpillar, Inc.......................................... 44,563
----------
CHEMICAL & AGRICULTURAL PRODUCTS--1.5%
1,000 Du Pont (E. I.) De Nemours & Co........................... 56,125
----------
ELECTRICAL EQUIPMENT & SERVICES--9.6%
2,000 General Electric Co....................................... 159,125
1,000 Honeywell, Inc............................................ 64,063
1,000 Perkin Elmer Corp......................................... 68,687
1,500 Thomas & Betts Corp....................................... 57,094
----------
348,969
----------
FINANCE--13.4%
1,000 American Express Co....................................... 77,625
1,000 Federal National Mortgage Association..................... 64,250
2,000 MBIA, Inc................................................. 107,375
1,000 Merrill Lynch & Co., Inc.................................. 47,375
1,500 MGIC Investment Corp...................................... 55,312
2,000 Morgan Keegan, Inc........................................ 35,375
3,000 Raymond James Financial, Inc.............................. 63,000
2,000 Waddell & Reed Financial, Inc............................. 38,000
----------
488,312
----------
FOOD & BEVERAGE PRODUCTS--3.3%
10,000 Coca-Cola Co. Femsa SA ADR................................ 121,875
----------
HEALTHCARE PRODUCTS & SERVICES--1.2%
1,000 Alza Corp................................................. 43,375
----------
</TABLE>
* Non-Income Producing Securities.
SUMMARY OF ABBREVIATIONS:
ADR--American Depository Receipts
GDR--Global Depository Receipts
REIT--Real Estate Investment Trust
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ------------------------------------------------------------------------------
COMMON STOCKS--CONTINUED
INDUSTRIAL SPECIALTY PRODUCTS & SERVICES--3.6%
3,000 *Genlyte Group, Inc..................................... $ 61,500
5,000 Park Electrochemical Corp............................... 68,125
----------
129,625
----------
INFORMATION SERVICES & TECHNOLOGY--2.4%
1,000 Intel Corp.............................................. 85,750
----------
INSURANCE--10.1%
3,000 AFLAC, Inc.............................................. 85,687
500 American International Group, Inc....................... 38,500
2,000 Chubb Corp.............................................. 126,000
2,000 Edwards (A.G.), Inc..................................... 60,625
500 Progressive Corp. Ohio.................................. 56,375
----------
367,187
----------
MACHINERY--DIVERSIFIED--1.2%
1,000 W.W. Grainger, Inc...................................... 42,125
----------
OIL/ENERGY--0.4%
500 Williams Companies, Inc................................. 14,375
----------
OIL FIELD SERVICES--1.4%
1,000 Schlumberger Ltd........................................ 50,313
----------
REAL ESTATE--4.0%
500 *Alexander's, Inc. REIT................................. 38,375
5,000 Inversiones y Representaciones SA, GDR.................. 107,500
----------
145,875
----------
RETAILING & WHOLESALE--2.5%
1,000 Ethan Allen Interiors, Inc.............................. 36,250
2,460 Saks, Inc............................................... 55,196
----------
91,446
----------
UTILITIES--TELEPHONE--2.0%
1,000 Sprint Corp............................................. 72,000
----------
Total Common Stocks (cost $3,077,201)................... 3,211,827
----------
SHORT-TERM INVESTMENTS--8.2%
U.S. GOVERNMENT AGENCY OBLIGATIONS--8.2%
200,000 Federal Home Loan Bank Discount Notes 5.35%, 10/14/98... 199,614
100,000 Federal Home Loan Mortgage Discount Notes
5.45%, 10/14/98........................................ 99,803
----------
299,417
----------
Total Short-Term Investments (cost $299,417)............ 299,417
----------
<CAPTION>
<C> <S> <C> <C>
TOTAL INVESTMENTS--(COST $3,376,618)............... 96.5% 3,511,244
OTHER ASSETS AND LIABILITIES--NET.................. 3.5 128,423
----- ----------
NET ASSETS......................................... 100.0% $3,639,667
===== ==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
Evergreen Tax Strategic Equity Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
September 30, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
ASSETS
Investments at value (identified cost--$3,376,618)................. $3,511,244
Cash............................................................... 15,554
Dividends and interest receivable.................................. 2,990
Receivable from investment advisor................................. 14,490
Prepaid expenses and other assets.................................. 96,980
- --------------------------------------------------------------------------------
Total assets....................................................... 3,641,258
- --------------------------------------------------------------------------------
LIABILITIES
Due to related parties............................................. 62
Accrued expenses and other liabilities............................. 1,529
- --------------------------------------------------------------------------------
Total liabilities.................................................. 1,591
- --------------------------------------------------------------------------------
NET ASSETS.......................................................... $3,639,667
- --------------------------------------------------------------------------------
NET ASSETS REPRESENTED BY
Paid-in capital.................................................... $3,487,938
Undistributed net investment income................................ 17,081
Accumulated net realized gains on securities....................... 22
Net unrealized gains on securities................................. 134,626
- --------------------------------------------------------------------------------
Total net assets................................................... $3,639,667
- --------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A............................................................ $ 10,264
Class Y............................................................ 3,629,403
- --------------------------------------------------------------------------------
$3,639,667
- --------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A............................................................ 964
Class Y............................................................ 340,703
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
Class A............................................................ $ 10.65
- --------------------------------------------------------------------------------
Class A--Offering price (based on sales charge of 4.75%)........... $ 11.18
- --------------------------------------------------------------------------------
Class Y............................................................ $ 10.65
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
Evergreen Tax Strategic Equity Fund
- --------------------------------------------------------------------------------
Statement of Operations
Period Ended September 30, 1998*
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividends.................................................. $ 3,301
Interest................................................... 881
- --------------------------------------------------------------------------------
TOTAL INCOME................................................ 4,182
- --------------------------------------------------------------------------------
EXPENSES
Advisory fee............................................... $ 2,079
Administrative service fees................................ 59
Trustees fees and expenses................................. 6
Transfer agent fees........................................ 2
Distribution Plan expenses................................. 1
Organization expenses...................................... 15,588
Professional fees.......................................... 1,548
Custodian fees............................................. 66
Registration fees.......................................... 10
Other...................................................... 56
- --------------------------------------------------------------------------------
Total expenses............................................. 19,415
Less: Fee waivers and/or reimbursement from investment
advisor................................................... (16,569)
- --------------------------------------------------------------------------------
Net expenses............................................... 2,846
- --------------------------------------------------------------------------------
Net investment income...................................... 1,336
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS ON SECURITIES
Net realized gains on securities........................... 22
Net change in unrealized gains on securities............... 134,626
- --------------------------------------------------------------------------------
Net realized and unrealized gains on securities............ 134,648
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $135,984
- --------------------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1998 (commencement of operations) to
September 30, 1998.
See Notes to Financial Statements.
5
<PAGE>
Evergreen Tax Strategic Equity Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
Period Ended September 30, 1998*
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
OPERATIONS
Net investment income............................................. $ 1,336
Net realized gains on securities.................................. 22
Net change in unrealized gains on securities...................... 134,626
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations.............. 135,984
- -------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold......................................... 3,503,683
Payment for shares redeemed....................................... 0
- -------------------------------------------------------------------------------
Net increase in net assets resulting from capital share
transactions..................................................... 3,503,683
- -------------------------------------------------------------------------------
Total increase in net assets...................................... 3,639,667
NET ASSETS
Beginning of period............................................... 0
- -------------------------------------------------------------------------------
End of period..................................................... $3,639,667
- -------------------------------------------------------------------------------
Undistributed net investment income............................... $ 17,081
- -------------------------------------------------------------------------------
</TABLE>
* For the period from September 1, 1998 (commencement of operations) to
September 30, 1998.
See Notes to Financial Statements.
6
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
Notes to Financial Statements
1. ORGANIZATION
The Evergreen Tax Strategic Equity Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management investment company. The Fund is a series of the Evergreen
Equity Trust, a Delaware Business Trust organized on September 18, 1997.
The Fund offers Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class B shares will automatically
convert to Class A shares after seven years. Class C shares are sold subject
to a contingent deferred sales charge payable on shares redeemed within one
year after the month of purchase. Class Y shares are sold at net asset value
and are not subject to contingent deferred sales charges or distribution fees.
Class Y shares are sold only to investment advisory clients of First Union and
its affiliates, certain institutional investors or Class Y shareholders of
record of certain other funds managed by First Union Corporation ("First
Union") and its affiliates as of December 30, 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities--The Fund values securities traded on a national
securities exchange or included on the NASDAQ National Market System ("NMS")
at the last reported sales price on the exchange where primarily traded. The
Fund values securities traded on an exchange or NMS for which there has been
no sale and other securities traded in the over-the-counter market at the mean
between the last reported bid and asked price. Securities for which valuations
are not available from an independent pricing service, including restricted
securities, are valued at fair value as determined in good faith according to
procedures established by the Board of Trustees. Short-term investments with
remaining maturities of 60 days or less are carried at amortized cost, which
approximates market value.
B. Repurchase Agreements--The Fund may invest in repurchase agreements.
Securities pledged as collateral for repurchase agreements are held by the
custodian on the Fund's behalf. The Fund monitors the adequacy of the
collateral daily and will require the seller to provide additional collateral
in the event the market value of the securities pledged falls below the
carrying value of the repurchase agreement, including accrued interest. The
Fund will only enter into repurchase agreements with banks and other financial
institutions which are deemed by the investment advisor to be creditworthy
pursuant to guidelines established by the Board of Trustees.
C. Foreign Currency--The books and records of the Fund are maintained in
United States (U.S.) dollars. Foreign currency amounts are translated into
U.S. dollars as follows: market value of investments, assets and liabilities
at the daily rate of exchange; purchases and sales of investments, income and
expenses at the rate of exchange prevailing on the respective dates of such
transactions. Net unrealized foreign exchange gain or loss resulting from
changes in foreign currency exchange rates is a component of net unrealized
gains or losses on securities and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include: foreign currency gains and losses between trade date and
settlement date on investment securities, foreign currency related
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amounts actually received. Such
gains and losses are included in realized gains or losses on foreign currency
related transactions. The portion of foreign currency gains and losses related
to fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gains or losses on
securities transactions.
D. Security Transactions and Investment Income--Securities transactions are
accounted for no later than one business day after the trade date. Realized
gains and losses are computed on the identified cost basis. Interest income is
recorded on the accrual basis and includes accretion of discounts and
amortization of premiums. Dividend income is recorded on the ex-dividend date
or in the case of some foreign securities, on the date thereafter when the
Fund is made aware of the dividend. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable. Capital gains realized on
some foreign securities maybe subject to foreign taxes and are accrued as
applicable.
E. Federal Taxes--The Fund intends to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code"). As
such, the Fund will not incur any federal income tax liability since it is
expected to distribute all of its net investment company taxable income and
net realized capital gains, if any, to its shareholders. The Fund also intends
to avoid any excise tax liability by making the required distributions under
the Code. Accordingly, no provision for federal income taxes is required. To
the extent that realized capital gains can be offset by capital loss
carryforwards, it is the Fund's policy not to distribute such gains.
F. Distributions--Distributions from net investment income and net realized
capital gains, if any, for the Fund will be declared and paid at least
annually. Distributions to shareholders are recorded at the close of business
on the ex-dividend date. Income and capital gains distributions to
shareholders are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
G. Class Allocations--Income, expenses (other than class specific expenses)
and realized and unrealized gains and losses are prorated among the classes
based on the relative net assets of each class. Currently, class specific
expenses are limited to expenses incurred under the Distribution Plans for
each class.
7
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
3. CAPITAL SHARE TRANSACTIONS
The Fund has an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Fund are
currently divided into Class A, Class B, Class C and Class Y. At September 30,
1998, only Class A and Class Y shares had been sold. Transactions in shares of
the Fund were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
SEPTEMBER 30,
1998
------------------
SHARES AMOUNT
- -------------------------------------------------------------------------------
<S> <C> <C>
CLASS A*
Shares sold................................................. 964 $ 9,623
Shares redeemed............................................. -- --
- -------------------------------------------------------------------------------
Net increase................................................ 964 $ 9,623
- -------------------------------------------------------------------------------
CLASS Y**
Shares sold................................................. 340,703 $3,494,060
Shares redeemed............................................. -- --
- -------------------------------------------------------------------------------
Net increase................................................ 340,703 $3,494,060
- -------------------------------------------------------------------------------
Net increase all Classes of shares.......................... $3,503,683
- -------------------------------------------------------------------------------
</TABLE>
*For the period from September 4, 1998 (commencement of Class A operations)
to September 30, 1998.
**For the period from September 1, 1998 (commencement of Class Y operations)
to September 30, 1998.
4. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were $3,077,201 and $0, respectively, for the period
ended September 30, 1998.
On September 30, 1998, the cost of investments for federal income tax purposes
is $3,376,618. Gross unrealized appreciation and depreciation of investments,
based on identified tax cost at September 30, 1998 were $175,118 and $40,492,
respectively. Net unrealized appreciation was $134,626 at September 30, 1998.
5. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Fund.
The Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit the fund to reimburse
its principal underwriter for costs related to selling shares of the fund and
for various other services. These costs, which consist primarily of
commissions and services fees to broker-dealers who sell shares of the fund,
are paid by shareholders through expenses called "Distribution Plan Expenses".
Each class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the class. Class B and Class C also will pay
distribution fees equal to 0.75% of the average daily net assets of the Class.
Distribution Plan expenses are calculated daily and paid monthly. With respect
to Class B and Class C shares, the principal underwriter may pay 12b-1 fees
greater than the allowable annual amounts the Fund is permitted to pay. The
Fund may reimburse the principal underwriter for such excess amounts in later
years with annual interest at prime rate plus 1.00%.
During the period ended September 30, 1998, amounts paid to EDI pursuant to
the Fund's Class A Distribution Plan were $1. For the period ended September
30, 1998, the Fund did not incur any expenses pursuant to the Distribution
Plans for Class B and Class C shares.
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI.
6. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
Pursuant to an agreement with the Fund's investment advisor, Evergreen Asset
Management Corp. ("EAMC"), a wholly owned subsidiary of First Union, is
entitled to an annual fee equal to 0.95% of average daily net assets of the
Fund. Lieber & Company, an affiliate of First Union, is the investment sub-
advisor to the Fund. Lieber & Company provides these services at no additional
cost to the Fund.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the
administrator and BISYS Fund Services is sub-administrator to the Fund. As
administrator, EIS provides the Fund with facilities, equipment and personnel.
As sub-administrator to the Fund, BISYS Fund Services provides the officers of
the Fund. The administrator and sub-administrator for the Fund are entitled to
an annual fee based on the average daily net assets of the funds administered
by EIS for which First Union or its investment advisory subsidiaries are also
the investment advisors. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The sub-
administration fee is calculated by applying percentage rates, which start at
0.01% and decline to .004% per
8
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
annum as net assets increase, to the average daily net asset value of the
Fund. For the period ended September 30, 1998, the Fund paid $59 to EIS for
providing administrative services.
Lieber & Company also provides brokerage services with respect to
substantially all security transactions of the Fund effected on the New York
or American Stock Exchanges. For the period ended September 30, 1998, the Fund
incurred $5,693 in brokerage commissions with Lieber & Company.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Fund. The Fund has entered into an expense offset arrangement with ESC,
relating to certain cash balances held at First Union for the benefit of the
Evergreen Funds.
Officers of the Fund and affiliated Trustees receive no compensation directly
from the Fund.
7. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an expense offset arrangement with its custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
8. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Fund may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are
allocated to deferral accounts which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees' fees
and expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either
the year in which the Trustee ceases to be a member of the Board of Trustees
or January 1, 2000. As of September 30, 1998, the Trustees had not deferred
fees relating to the Fund.
9
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
Independent Auditors' Report
The Trustees and Shareholders of
Evergreen Tax Strategic Equity Fund
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Evergreen Tax Strategic Equity Fund,
a series of Evergreen Equity Trust, as of September 30, 1998, and the related
statements of operations, changes in net assets and financial highlights, for
Class Y shares, for the period from September 1, 1998 (commencement of
operations) to September 30, 1998 and financial highlights, for Class A
shares, for the period from September 4, 1998 (commencement of Class
operations) to September 30, 1998. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 1998 by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Evergreen Tax Strategic Equity Fund as of September 30, 1998, the results of
its operations, changes in its net assets and financial highlights for the
periods specified in the first paragraph above in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
October 6, 1998
10
<PAGE>
Evergreen Tax Strategic Equity Fund
- -------------------------------------------------------------------------------
YEAR 2000 (UNAUDITED)
Like other investment companies, the Fund could be adversely affected if the
computer systems used by the Fund's investment advisors and the Fund's other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Fund's investment advisors are taking steps
to address this potential year 2000 problem with respect to the computer
systems that they use and to obtain satisfactory assurances that comparable
steps are being taken by the 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 from this problem.
11
<PAGE>
This report must be preceded or accompanied by a prospectus of an Evergreen
fund contained herein. The prospectus contains more complete information,
including fees and expenses, and should be read carefully before investing or
sending money.
NOT May lose value
FDIC
INSURED No bank guarantee
EVERGREEN DISTRIBUTORS, INC.
32991 546606 RV0 10/98
