PROSPECTUS June 1, 1998
EVERGREEN DOMESTIC GROWTH FUNDS
Evergreen Stock Selector Fund (Evergreen Tree Logo)
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
The Evergreen Stock Selector Fund (the "Fund") seeks maximum total
return by investing in a diversified portfolio of common stocks.
This prospectus provides information regarding the Class A, Class B and
Class C shares offered by the Fund. The Fund is a diversified series of an
open-end, management investment company. This prospectus sets forth concise
information about the Fund that a prospective investor should know before
investing. The address of the Fund is 200 Berkeley Street, Boston, Massachusetts
02116.
A Statement of Additional Information for the Fund dated February 1,
1998, as amended June 1, 1998, and as supplemented from time to time, has been
filed with the Securities and Exchange Commission and is incorporated by
reference herein. The Statement of Additional Information provides information
regarding certain matters discussed in this prospectus and other matters which
may be of interest to investors, and may be obtained without charge by calling
the Fund at (800) 343-2898. There can be no assurance that the investment
objective of the Fund will be achieved. Investors are advised to read this
prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is not insured or otherwise
protected by the U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency and involves risk,
including the
possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Keep This Prospectus For Future Reference
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TABLE OF CONTENTS
EXPENSE INFORMATION..........................................................4
FINANCIAL HIGHLIGHTS.........................................................6
DESCRIPTION OF THE FUND......................................................6
INVESTMENT OBJECTIVE AND POLICIES...................................6
INVESTMENT PRACTICES AND RESTRICTIONS...............................7
ORGANIZATION AND SERVICE PROVIDERS..........................................14
ORGANIZATION.......................................................14
SERVICE PROVIDERS..................................................15
DISTRIBUTION PLANS AND AGREEMENTS..................................16
PURCHASE AND REDEMPTION OF SHARES...........................................17
HOW TO BUY SHARES..................................................17
HOW TO REDEEM SHARES...............................................24
EXCHANGE PRIVILEGE.................................................26
SHAREHOLDER SERVICES...............................................28
BANKING LAWS.......................................................29
OTHER INFORMATION...........................................................30
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................30
GENERAL INFORMATION................................................32
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EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION Class A Class B Class C
EXPENSES Shares Shares Shares
<S> <C> <C> <C>
Maximum Sales Charge 4.75% None None
Imposed on Purchases
(as a % of offering
price)
Maximum Sales Charge None None None
Imposed on Reinvested
Dividends (as a % of
offering price)
Maximum Contingent None(1) 5%(2) 1%(2)
Deferred Sales Charge
(as a % of original
purchase price or
redemption proceeds,
whichever is lower)
</TABLE>
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management, distribution and other fees. The
table below shows the Fund's estimated annual operating expenses for the fiscal
period ending September 30, 1998. The examples show what you would pay if you
invested $1,000 over the periods indicated. The examples assume that you
reinvest all of your dividends and that the Fund's average annual return will be
5%. The examples are for illustration purposes only and should not be considered
a representation of past or future expenses or annual return. The Fund's actual
expenses and returns will vary. For a more complete description of the various
costs and expenses borne by the Fund see "Organization and Service Providers."
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<TABLE>
<CAPTION>
Annual Operating Expenses
Class A Class B Class C
<S> <C> <C> <C>
Management Fees (After .65% .65% .65%
Waiver)(3)
12b-1 Fees(4) .25% 1.00% 1.00%
Other Expenses .28% .28%
--------- ---- ----
.28%
Total(3) 1.93% 1.93%
=========== ===== =====
1.18%
</TABLE>
<TABLE>
<CAPTION>
Examples
Assuming Redemption at Assuming no
End of Period Redemption
Class A Class B Class C Class B Class C
<S> <C> <C> <C> <C> <C>
After 1 Year $59 $70 $30 $20 $20
After 3 Years $91 $61 $61 $61
$83
</TABLE>
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(1) Investments of $1 million or more are not subject to a front-end sales
charge, but may be subject to a contingent deferred sales charge upon
redemption within one year after the month of purchase.
(2) The deferred sales charge on Class B shares declines from 5%
to 1% on amounts redeemed within six years after the month
of purchase. The deferred sales charge on Class C shares is
1% on amounts redeemed within one year after the month of
purchase. No sales charge is imposed on redemptions made
thereafter. See "Purchase and Redemption of Shares" for
more information.
(3) The management fee has been reduced from .74% to reflect the voluntary
waiver by the investment adviser. This voluntary waiver can be
terminated at any time. The investment adviser has undertaken to limit
the Fund's Total Annual Operating Expenses for a period of at least two
years from the date of this prospectus to 1.27%, 2.02% and 2.02% of the
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average daily net assets of the Fund's Class A, Class B and Class C
shares, respectively. Absent the management fee waiver and the
limitation on Total Annual Operating Expenses, such estimated expenses
for the fiscal period ended September 30, 1998 will be 1.27%, 2.02% and
2.02% of the average daily net assets of the Fund's Class A, Class B
and Class C shares, respectively.
(4) Long-term shareholders may pay more than the economic equivalent
front-end sales charges permitted by the National Association of
Securities Dealers, Inc.
FINANCIAL HIGHLIGHTS
As of the date of this prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
The Evergreen Stock Selector Fund seeks maximum total return. The
Evergreen Stock Selector Fund strives to provide a total return greater than
broad stock market indices such as the Standard & Poor's 500 Composite Stock
Price Index by investing principally in a diversified portfolio of common stocks
of companies that its investment adviser expects will experience growth in
earnings and price including stocks of companies with large market
capitalizations (i.e., over $5 billion), medium market capitalizations (i.e.,
between $1 billion and $5 billion) and small market capitalizations (i.e., under
$1 billion). In addition, up to 20% of the Evergreen Stock Selector Fund's total
assets may be invested in preferred stocks, securities convertible into common
stock, corporate bonds and notes, warrants (up to 5% of total assets),
short-term obligations and
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foreign securities represented by sponsored and unsponsored
American Depositary Receipts.
Debt securities, which include both secured and unsecured obligations,
will, at the time of investment, be rated within the three highest categories by
Standard & Poor's Ratings Group (AAA, AA and A), by Moody's Investors Service,
Inc. (Aaa, Aa and A), by Fitch Investors Services L.P. (AAA, AA and A), or if
not rated or rated under a different system, will be of comparable quality to
obligations so rated, as determined by the Fund's investment adviser.
The Evergreen Stock Selector Fund may invest in certain types of
derivative instruments, including options and futures contracts, provided that
the Fund may neither purchase futures contracts or options where premiums and
margin deposits exceed 5% of total assets nor enter into futures contracts or
options where its obligations would exceed 20% of its total assets.
The Evergreen Stock Selector Fund also may invest, for temporary
defensive purposes, up to 100% of its assets in short-term obligations. Such
obligations may include master demand notes, U.S. government securities,
commercial paper and notes, bank deposits and other financial institution
obligations.
In addition to the investment policies detailed above, the Evergreen
Stock Selector Fund may employ certain additional investment strategies which
are discussed in "Investment Practices and Restrictions."
INVESTMENT PRACTICES AND RESTRICTIONS
Investment in Small and Mid-Sized Companies. Investments in securities of
little-known, relatively small or mid-sized companies may tend to be speculative
and volatile. A lack of management depth in such companies could increase the
risks associated with the loss of key personnel. Also, the material and
financial resources of such companies may be limited, with the consequence that
funds or external financing necessary for growth may be unavailable. Such
companies may also be involved in the development or marketing of new products
or services for which there are no established markets. If projected markets do
not materialize or only regional markets develop, such companies may be
adversely affected or may be subject to the consequences of local events.
Moreover, such companies may be insignificant factors in their industries and
may become subject to intense competition from larger companies. Securities of
companies in which the Fund may invest will frequently be traded only in the
over-the-counter market or on regional stock exchanges and will
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often be closely held. Securities of this type may have limited liquidity and
may be subject to wide price fluctuations. As a result of the risk factors
described above, to the extent that the Fund invests in the securities of small
and mid-sized companies, the net asset value of the Fund's shares can be
expected to vary significantly. Accordingly, the Fund should not be considered
suitable for investors who are unable or unwilling to assume the associated
risks, nor should investment in the Fund be considered a balanced or complete
investment program.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Investing in securities of issuers in emerging markets countries
involves exposure to economic systems that are generally less mature and
political systems that are generally less stable than those of developed
countries. In addition, investing in companies in emerging markets countries may
also involve exposure to national policies that may restrict investment by
foreigners and undeveloped legal systems governing private and foreign
investments and private property. The typically small size of the markets for
securities issued by companies in emerging markets countries and the possibility
of a low or nonexistent volume of trading in those securities may also result in
a lack of liquidity and in price volatility of those securities.
Downgrades. If any security in which the Fund invests loses its rating or has
its rating reduced after the Fund has purchased it, the Fund is not required to
sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Fund may invest in repurchase
agreements. A repurchase agreement is an agreement by which the
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Fund purchases a security (usually U.S. government securities) for cash and
obtains a simultaneous commitment from the seller (usually a bank or
broker/dealer) to repurchase the security at an agreed-upon price and specified
future date. The repurchase price reflects an agreed-upon interest rate for the
time period of the agreement. The Fund's risk is the inability of the seller to
pay the agreed-upon price on the delivery date. However, this risk is tempered
by the ability of the Fund to sell the security in the open market in the case
of a default. In such a case, the Fund may incur costs in disposing of the
security which would increase Fund expenses. The Fund's investment adviser will
monitor the creditworthiness of the firms with which the Fund enters into
repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to consummate the transaction; if the other party fails to do so, the Fund may
be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
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Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may also borrow an additional 5%
of its total assets from banks and others. The Fund may only borrow as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise subscription
rights. The Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit. The inability of the Fund to dispose of
illiquid investments readily or at a reasonable price could impair the Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest up to 15% of its net assets in
restricted securities, including securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A
establishes a safe harbor from the registration requirements of the 1933 Act for
resale by large institutional investors of securities not publicly traded in the
United States. The Fund's investment adviser determines the liquidity of Rule
144A securities according to guidelines and procedures adopted by Evergreen
Equity Trust's Board of Trustees. The Board of Trustees monitors the investment
adviser's application of those guidelines and procedures. Securities eligible
for resale pursuant to Rule 144A, which the Fund's investment adviser has
determined to be liquid or readily marketable, are not subject to the 15% limit
on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk. The Fund does not use these
transactions for speculation or leverage.
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The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and
listed put options on financial futures contracts for portfolio securities. The
Fund may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
their current income. The Fund will maintain its position in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
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contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead,
it puts down a margin deposit, which is adjusted to reflect changes in the
value of the contract and which remains in effect until the contract is
terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of the underlying securities or
currencies declines and to fall when the value of such securities or currencies
increases. Thus, the Fund sells futures contracts in order to offset a possible
decline in the value of its securities or currencies. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities or currencies increases and to fall when the
value of such securities or currencies declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any
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particular time. As a result, there can be no assurance that the Fund will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the contract and to complete the contract according to its
terms, in which case it would continue to bear market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's return may
be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to changes in the value of its
investments. In these events, the Fund may lose money on the financial futures
contracts or the options on financial futures contracts. It is not certain that
a secondary market for positions in financial futures contracts or for options
on financial futures contracts will exist at all times. Although the Fund's
investment adviser will consider liquidity before entering into financial
futures contracts or options on financial futures contracts, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular financial futures contract or option on a financial futures contract
at any particular time. The Fund's ability to establish and close out financial
futures contracts and options on financial futures contract positions depends on
this secondary market. If the Fund is unable to close out its position due to
disruptions in the market or lack of liquidity, the Fund may lose
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money on the futures contract or option, and the losses to the
Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
ORGANIZATION AND SERVICE PROVIDERS
ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of Trustees that is
responsible for representing the interests of shareholders. The Trustees meet
periodically throughout the year to oversee the Fund's activities, reviewing,
among other things, the Fund's performance and its contractual arrangements with
various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
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The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees. If any matters are to be voted on by shareholders,
each share owned as of the record date for the meeting would be entitled to one
vote for each dollar of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment adviser of Evergreen Stock Selector Fund is
Meridian Investment Company ("Meridian"). Meridian is an indirect subsidiary of
First Union National Bank ("FUNB"). FUNB is a subsidiary of First Union
Corporation ("First Union"). Meridian's address is 55 Valley Stream Parkway,
Malvern, Pennsylvania 19355. Both FUNB and First Union are located at 201 South
College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
Meridian is entitled to receive an annual fee equal to 0.74% of average
daily net assets of Evergreen Stock Selector Fund.
Portfolio Manager. The Portfolio Manager of the Fund is Joseph E. Stocke, CFA.
Mr. Stocke joined Meridian in 1983 as an Assistant Investment Officer and since
1990 has been a Senior Investment Manager/Equities. Mr. Stocke has managed the
Special Equity Fund and Core Equity Fund of CoreFunds, Inc. since 1990.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th
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Street, New York, New York 10019, is the principal underwriter of the Fund.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides the Fund with facilities,
equipment and personnel. For its services as administrator, EIS is entitled to
receive a fee based on the aggregate average daily net assets of the Fund at a
rate based on the total assets of all the mutual funds advised by First Union
subsidiaries. The administration fee is calculated in accordance with the
following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of
$30 billion
DISTRIBUTION PLANS AND AGREEMENTS
Distribution Plans. The Fund's Class A, Class B and Class C shares pay for the
expenses associated with the distribution of such shares according to
distribution plans adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "1940 Act") (each a "Plan" or collectively the "Plans"). Under
the Plans, the Fund may incur distribution-related and shareholder
servicing-related expenses which are based upon a maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the class, as
follows:
Class A shares 0.75% (currently limited to 0.25%)
Class B shares 1.00%
Class C shares 1.00%
Of the amount that each class may pay under its respective Plan, up to
0.25% may constitute a service fee to be used to compensate organizations, which
may include the Fund's investment adviser or its affiliates, for personal
services rendered to shareholders and/or the maintenance of shareholder
accounts. The Fund may not pay any distribution or service fees during any
fiscal period in excess of the amounts set forth above. Amounts paid under the
Distribution Plans are used to compensate the
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Fund's distributor pursuant to the Distribution Agreements entered into by the
Fund.
Distribution Agreements. The Fund has also entered into distribution agreements
(each a "Distribution Agreement" or collectively the "Distribution Agreements")
with EDI. Pursuant to the Distribution Agreements, the Fund will compensate EDI
for its services as distributor based upon the maximum annual rate as a
percentage of the Fund's average daily net assets attributable to the class, as
follows:
Class A shares 0.25%
Class B shares 1.00%
Class C shares 1.00%
The Distribution Agreements provide that EDI will use the distribution
fee received from the Fund for payments (1) to compensate broker-dealers or
other persons for distributing shares of the Fund, including interest and
principal payments made in respect of amounts paid to broker-dealers or other
persons that have been financed (EDI may assign its rights to receive
compensation under the Plans to secure such financings), (2) to otherwise
promote the sale of shares of the Fund, and (3) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. FUNB or its affiliates may finance the payments made by EDI to
compensate broker-dealers or other persons for distributing shares of the Fund.
In the event the Fund acquires the assets of other mutual funds,
compensation paid to EDI under the Distribution Agreements may be paid by EDI to
the distributors of the acquired funds or their predecessors.
Since EDI's compensation under the Distribution Agreements is not
directly tied to the expenses incurred by EDI, the amount of compensation
received by EDI under the Distribution Agreements during any year may be more or
less than its actual expenses and may result in a profit to EDI. Distribution
expenses incurred by EDI in one fiscal year that exceed the level of
compensation paid to EDI for that year may be paid from distribution fees
received from the Fund in subsequent fiscal years.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
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<PAGE>
You may purchase shares of the Fund through broker-dealers, banks or
other financial intermediaries, or directly through EDI. In addition, you may
purchase shares of the Fund by mailing to the Fund, c/o ESC, P.O. Box 2121,
Boston, Massachusetts 02106- 2121, a completed application and a check payable
to the Fund. You may also telephone 1-800-343-2898 to obtain the number of an
account to which you can wire or electronically transfer funds and then send in
a completed application. The minimum initial investment is $1,000, which may be
waived in certain situations. Subsequent investments in any amount may be made
by check, by wiring federal funds, by direct deposit or by an electronic funds
transfer.
There is no minimum amount for subsequent investments. Investments of $25
or more are allowed under the Systematic Investment Plan. See the application
for more information. Only Class A, Class B and Class C shares are offered
through this prospectus. (See "General Information - Other Classes of Shares.")
Class A Shares - Front-End Sales Charge Alternative. You may purchase Class A
shares at net asset value plus an initial sales charge on purchases under
$1,000,000. You may purchase $1,000,000 or more of Class A shares without a
front-end sales charge; however, a contingent deferred sales charge ("CDSC")
equal to the lesser of 1% of the purchase price or the redemption value will be
imposed on shares redeemed during the month of purchase and the 12-month period
following the month of purchase. The schedule of charges for Class A shares is
as follows:
<TABLE>
<CAPTION>
Amount of Purchase As a % of As a % of Commission to
the Net the Dealer/Agent
Amount Offering as a % of
Invested Price Offering Price
<S> <C> <C> <C>
Less than $50,000 4.99% 4.75% 4.25%
$50,000 - $99,999 4.71% 4.50% 4.25%
$100,000 - $249,999 3.90% 3.75% 3.25%
$250,000 - $499,999 2.56% 2.50% 2.00%
$500,000 - $999,999 2.04% 2.00% 1.75%
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<PAGE>
Amount of Purchase As a % of As a % of Commission to
the Net the Dealer/Agent
Amount Offering as a % of
Invested Price Offering Price
$1,000,000 or more None None 1.00% of the
amount
invested up to
$2,999,999;
.50% of the
amount
invested over
$2,999,999, up
to $4,999,999;
and .25% of
the excess
over
$4,999,999
</TABLE>
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisers; (b) investment advisers, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisers or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of FUNB and its affiliates, EDI and any broker-dealer with whom EDI
has entered into an agreement to sell shares of the Fund, and members of the
immediate families of such employees; (g) and upon the initial purchase of an
Evergreen fund by investors reinvesting the proceeds from a redemption within
the preceding thirty days of shares of other mutual funds, provided such shares
were initially purchased with a front-end sales charge or subject to a CDSC.
Certain broker-dealers or other financial institutions may impose a fee on
transactions in shares of the Fund.
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<PAGE>
Class A shares may also be purchased at net asset value by corporate or
certain other qualified retirement plans or a non-qualified deferred
compensation plan or a Title I tax sheltered annuity or TSA plan sponsored by an
organization having 100 or more eligible employees, or a TSA plan sponsored by a
public education entity having 5,000 or more eligible employees.
In connection with sales made to plans of the type described in the
preceding sentence EDI will pay broker-dealers and others concessions at the
rate of 0.50% of the net asset value of the shares purchased. These payments are
subject to reclaim in the event the shares are redeemed within twelve months
after purchase.
When Class A shares are sold, EDI will normally retain a portion of the
applicable sales charge and pay the balance to the broker-dealer or other
financial intermediary through whom the sale was made. EDI may also pay fees to
banks from sales charges for services performed on behalf of the customers of
such banks in connection with the purchase of shares of the Fund. In addition to
compensation paid at the time of sale, entities whose clients have purchased
Class A shares may receive a trailing commission equal to 0.25% of the average
daily net asset value on an annual basis of Class A shares held by their
clients. Certain purchases of Class A shares may qualify for reduced sales
charges in accordance with the Fund's Concurrent Purchases, Rights of
Accumulation, Letters of Intent, certain Retirement Plans and Reinstatement
Privilege. Consult the application for additional information concerning these
reduced sales charges.
Class B Shares - Deferred Sales Charge Alternative. You may purchase Class B
shares at net asset value without an initial sales charge. However, you may pay
a CDSC if you redeem shares within six years after the month of purchase. The
amount of the CDSC (expressed as a percentage of the lesser of the current net
asset value or original cost) will vary according to the number of years from
the month of purchase of Class B shares as set forth below.
CDSC
Redemption Timing Imposed
Month of purchase and the first twelve-month
period following the month of purchase................................5.00%
Second twelve-month period following the
month of purchase.....................................................4.00%
Third twelve-month period following the
month of purchase.....................................................3.00%
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<PAGE>
Fourth twelve-month period following the
month of purchase....................................................3.00%
Fifth twelve-month period following the
month of purchase....................................................2.00%
Sixth twelve-month period following the
month of purchase....................................................1.00%
No CDSC is imposed on amounts redeemed thereafter.
The CDSC is deducted from the amount of the redemption and is paid to
EDI. In the event the Fund acquires the assets of other mutual funds, the CDSC
may be paid by EDI to the distributors of the acquired funds. Class B shares are
subject to higher distribution and/or shareholder service fees than Class A
shares for a period of seven years after the month of purchase (after which it
is expected that they will convert to Class A shares without imposition of a
front-end sales charge). The higher fees mean a higher expense ratio, so Class B
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares. The Fund will not normally accept any purchase of Class B
shares in the amount of $250,000 or more.
At the end of the period ending seven years after the end of the
calendar month in which the shareholder's purchase order was accepted, Class B
shares will automatically convert to Class A shares and will no longer be
subject to the higher distribution and service fees imposed on Class B shares.
Such conversion will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other charge. The
purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long enough for the
Distributor to have been compensated for the expenses associated with the sale
of such shares.
Class C Shares - Level-Load Alternative. Class C shares are only offered through
broker-dealers who have special distribution agreements with EDI. You may
purchase Class C shares at net asset value without any initial sales charge and,
therefore, the full amount of your investment will be used to purchase Fund
shares. However, you will pay a 1.00% CDSC if you redeem shares during the month
of purchase and the 12-month period following the month of purchase. No CDSC is
imposed on amounts redeemed thereafter. Class C shares incur higher distribution
and/or shareholder service fees than Class A shares but, unlike Class B shares,
do not convert to any other class of shares of the Fund. The higher fees mean a
higher expense ratio, so Class C shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares. The Fund will not normally
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<PAGE>
accept any purchase of Class C shares in the amount of $500,000 or more. No CDSC
will be imposed on Class C shares purchased by institutional investors, and
through employee benefit and savings plans eligible for the exemption from
front-end sales charges described under "Class A Shares - Front-End Sales Charge
Alternative" above. Broker-dealers and other financial intermediaries whose
clients have purchased Class C shares may receive a trailing commission equal to
0.75% of the average daily net asset value of such shares on an annual basis
held by their clients more than one year from the date of purchase. Trailing
commissions will commence immediately with respect to shares eligible for
exemption from the CDSC normally applicable to Class C shares.
Contingent Deferred Sales Charge. Certain shares with respect to which the Fund
did not pay a commission on issuance, including shares obtained from dividend or
distribution reinvestment, are not subject to a CDSC. Any CDSC imposed upon the
redemption of Class A, Class B or Class C shares is a percentage of the lesser
of (1) the net asset value of the shares redeemed or (2) the net asset value at
the time of purchase of such shares.
No CDSC is imposed on a redemption of shares of the Fund in the event
of: (1) death or disability of the shareholder; (2) a lump-sum distribution from
a 401(k) plan or other benefit plan qualified under the Employee Retirement
Income Security Act of 1974 ("ERISA"); (3) automatic withdrawals from ERISA
plans if the shareholder is at least 59 1/2 years old; (4) involuntary
redemptions of accounts having an aggregate net asset value of less than $1,000;
(5) automatic withdrawals under the Systematic Withdrawal Plan of up to 1.00%
per month of the shareholder's initial account balance; (6) withdrawals
consisting of loan proceeds to a retirement plan participant; (7) financial
hardship withdrawals made by a retirement plan participant; or (8) withdrawals
consisting of returns of excess contributions or excess deferral amounts made to
a retirement plan participant.
The Fund may also sell Class A, Class B or Class C shares at net asset
value without any initial sales charge or CDSC to certain Directors, Trustees,
officers and employees of the Fund, FUNB, Meridian, Keystone Investment
Management Company ("Keystone"), Evergreen Asset Management Corp. ("Evergreen
Asset"), EDI and certain of their affiliates, and to members of the immediate
families of such persons, to registered representatives of firms with dealer
agreements with EDI, and to a bank or trust company acting as a trustee for a
single account.
-22-
<PAGE>
How the Fund Values Its Shares. The net asset value of each class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value.
General. The decision as to which class of shares is more beneficial to you
depends on the amount of your investment and the length of time you will hold
it. If you are making a large investment, thus qualifying for a reduced sales
charge, you might consider Class A shares. If you are making a smaller
investment, you might consider Class B shares since 100% of your purchase is
invested immediately and since such shares will convert to Class A shares, which
incur lower ongoing distribution and/or shareholder service fees, after seven
years. If you are unsure of the time period of your investment, you might
consider Class C shares since there are no initial sales charges and, although
there is no conversion feature, the CDSC only applies to redemptions made during
the first year after the month of purchase. Consult your financial intermediary
for further information. The compensation received by broker-dealers and agents
may differ depending on whether they sell Class A, Class B or Class C shares.
There is no size limit on purchases of Class A shares.
In addition to the discount or commission paid to broker-dealers, EDI
may from time to time pay to broker-dealers additional cash or other incentives
that are conditioned upon the sale of a specified minimum dollar amount of
shares of the Fund and/or other Evergreen funds. Such incentives will take the
form of payment for attendance at seminars, lunches, dinners, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a broker-dealer and their
immediate family members to urban or resort locations within or outside the
United States. Such a dealer may elect to receive cash incentives of equivalent
amount in lieu of such payments. EDI may also limit the availability of such
incentives to certain specified dealers. EDI from time to time sponsors
promotions involving First Union Brokerage Services, Inc., an affiliate of the
Fund's investment adviser, and select broker-dealers, pursuant to which
incentives are paid, including gift certificates and payments in amounts up to
1% of the dollar amount of shares of the Fund sold. Awards may
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<PAGE>
also be made based on the opening of a minimum number of accounts. Such
promotions are not being made available to all broker-dealers. Certain
broker-dealers may also receive payments from EDI or the Fund's investment
adviser over and above the usual trail commissions or shareholder servicing
payments applicable to a given class of shares.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investor may be prohibited or restricted
from making further purchases in any of the Evergreen funds. The Fund will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least 30 days.
HOW TO REDEEM SHARES
You may "redeem" (i.e., sell) your shares in the Fund to the Fund for
cash at their net redemption value on any day the Exchange is open, either
directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent (less any applicable CDSC) next calculated after the Fund
receives your request in proper form. Proceeds generally will be sent to you
within seven days. However, for shares recently purchased by check, the Fund
will not send proceeds until it is reasonably satisfied that the check has been
collected (which may take up to 15 days). Once a redemption request has been
telephoned or mailed, it is irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value (less any applicable CDSC). Your
financial intermediary is responsible for furnishing all necessary documentation
to the Fund and may charge you for this service. Certain financial
intermediaries may require that you give instructions earlier than 4:00 p.m.
(eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial
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<PAGE>
intermediary, ESC, and many commercial banks. Additional documentation is
required for the sale of shares by corporations, financial intermediaries,
fiduciaries and surviving joint owners. Signature guarantees are required for
all redemption requests for shares with a value of more than $50,000. Currently,
the requirement for a signature guarantee has been waived on redemptions of
$50,000 or less when the account address of record has been the same for a
minimum period of 30 days. The Fund and ESC reserve the right to withdraw this
waiver at any time. A signature guarantee must be provided by a bank or trust
company (not a Notary Public), a member firm of a domestic stock exchange or by
other financial institutions whose guarantees are acceptable under the
Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Redemption requests received
after 4:00 p.m. (eastern time) will be processed using the net asset value
determined on the next business day. Such redemption requests must include the
shareholder's account name, as registered with the Fund, and the account number.
During periods of drastic economic or market changes, shareholders may
experience difficulty in effecting telephone redemptions. If you cannot reach
the Fund by telephone, you should follow the procedures for redeeming by mail or
through a broker-dealer as set forth herein. The telephone redemption service is
not made available to shareholders automatically. Shareholders wishing to use
the telephone redemption service must complete the appropriate section on the
application and choose how the redemption proceeds are to be paid. Redemption
proceeds will either (1) be mailed by check to the shareholder at the address in
which the account is registered or (2) be wired to an account with the same
registration as the shareholder's account in the Fund at a designated commercial
bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are
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<PAGE>
allowed only if the address and bank account of record have been the same for a
minimum period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below $1,000 and
has remained so for 30 days. Shareholders will receive 60 days' written notice
to increase the account value to at least $1,000 before the account is closed.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash, up to the lesser of
$250,000 or 1% of the Fund's total net assets, during any 90 day period for any
one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your shares for shares
of the same class in the other Evergreen funds through your financial
intermediary by calling or writing to ESC or by using the Evergreen Express Line
as described above. If the shares being tendered for exchange are still subject
to a CDSC or are eligible for conversion in a specified time, such remaining
charge or remaining time will carry over to the shares being acquired in the
exchange transaction. Once an exchange request has been telephoned or mailed, it
is irrevocable and may not be modified or canceled. Exchanges will
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<PAGE>
be made on the basis of the relative net asset values of the shares exchanged
next determined after an exchange request is received. An exchange which
represents an initial investment in another Evergreen fund is subject to the
minimum investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
No CDSC will be imposed in the event shares are exchanged for shares of
the same class of other Evergreen funds. If you redeem shares, the CDSC
applicable to the shares of the Evergreen fund originally purchased for cash is
applied. Also, Class B shares will continue to age following an exchange for the
purpose of conversion to Class A shares and for the purpose of determining the
amount of the applicable CDSC.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC
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<PAGE>
if it is believed advisable to do so. Procedures for exchanging Fund shares by
telephone may be modified or terminated at any time. Written requests for
exchanges should follow the same procedures outlined for written redemption
requests in the section entitled "How to Redeem Shares;" however, no signature
guarantee is required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
prospectus. Some services are described in more detail in the application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least $75 and as
much as 1.0% per month or 3.0% per quarter of the total net asset value of the
Fund shares in your account when the Plan was opened. Fund shares will be
redeemed as necessary to meet withdrawal payments. All participants must elect
to have their dividends and capital gains distributions reinvested
automatically.
Investments Through Employee Benefit and Savings Plans. Certain qualified and
non-qualified employee benefit and savings plans may make shares of the Fund and
the other Evergreen funds available to their participants. Investments made by
such employee benefit plans may be exempt from front-end sales charges if they
meet the criteria set forth under "Class A Shares -Front- End Sales Charge
Alternative." Evergreen Asset, Keystone, Meridian or FUNB may provide
compensation to organizations providing administrative and recordkeeping
services to plans
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<PAGE>
which make shares of the Evergreen funds available to their
participants.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit-Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans. For details, including fees and application
forms, call toll free 1-800-247-4075 or write to ESC.
BANKING LAWS
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The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. FUNB and
its affiliates are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB or its affiliates were prevented from
continuing to provide the services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve, a new investment adviser. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute its investment company taxable income
annually and net realized capital gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in computing the
number of shares in both capital gains and income distribution investments.
Because Class A shares bear most of the costs of distribution of such
shares through payment of a front-end sales
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charge, while Class B and Class C shares bear such expenses through a higher
annual distribution fee, expenses attributable to Class B shares and Class C
shares will generally be higher than those of Class A shares, and income
distributions paid by the Fund with respect to Class A shares will generally be
greater than those paid with respect to Class B and Class C shares.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of the Fund who
are subject to United States federal income tax may be entitled, subject to
certain rules and limitations, to claim a federal income tax credit or deduction
for foreign income taxes paid by the Fund. See the SAI for additional details.
The Fund's transactions in options, futures and forward contracts may be subject
to special tax rules. These rules can affect the amount, timing and
characteristics of distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding
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<PAGE>
requirement, each investor must certify on the application, or on a separate
form supplied by the Fund's transfer agent, that the investor's social security
or taxpayer identification number is correct and that the investor is not
currently subject to backup withholding or is exempt from backup withholding.
A shareholder who acquires Class A shares of the Fund and sells or
otherwise disposes of such shares within ninety days of acquisition may not be
allowed to include certain sales charges incurred in acquiring such shares for
purposes of calculating gain and loss realized upon a sale or exchange of shares
of the Fund.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of the Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by the Fund directly affects the transaction costs
relating to the purchase and sale of securities which the Fund bears directly. A
high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of the Fund affecting portfolio
turnover.
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<PAGE>
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are not offered by this prospectus and are only available to (1)
persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset, (2) certain institutional investors and (3)
investment advisory clients of FUNB, Meridian, Evergreen Asset, Keystone or
their affiliates. The dividends payable with respect to Class A, Class B and
Class C shares will be less than those payable with respect to Class Y shares
due to the distribution and shareholder servicing-related expenses borne by
Class A, Class B and Class C shares and the fact that such expenses are not
borne by Class Y shares. Investors should telephone (800) 343-2898 to obtain
more information on other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B, Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides
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<PAGE>
it by the average number of shares entitled to receive dividends, and expresses
the result as an annualized percentage rate based on the Fund's share price at
the end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or sales
literature of the Fund. These advertisements may quote performance rankings or
ratings of the Fund by financial publications or independent organizations such
as Lipper Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also advertise in items of sales
literature an "actual distribution rate" which is computed by dividing the total
ordinary income distributed (which may include the excess of short-term capital
gains over losses) to shareholders for the latest twelve-month period by the
maximum public offering price per share on the last day of the period. Investors
should be aware that past performance may not be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include: publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen Events, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the 1933 Act.
Copies of the Registration Statement may be obtained at a reasonable charge from
the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
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<PAGE>
Investment Adviser
Meridian Investment Company, 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
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<PAGE>
PROSPECTUS June 1, 1998
EVERGREEN DOMESTIC GROWTH FUNDS
Evergreen Stock Selector Fund (Evergreen Tree Logo)
CLASS Y SHARES
The Evergreen Stock Selector Fund (the "Fund") seeks maximum total
return by investing in a diversified portfolio of common stocks.
This prospectus provides information regarding the Class Y, shares
offered by the Fund. The Fund is a diversified series of an open-end, management
investment company. This prospectus sets forth concise information about the
Fund that a prospective investor should know before investing. The address of
the Fund is 200 Berkeley Street, Boston, Massachusetts 02116.
A Statement of Additional Information for the Fund dated February 1,
1998, as amended June 1, 1998, and as supplemented from time to time, has been
filed with the Securities and Exchange Commission and is incorporated by
reference herein. The Statement of Additional Information provides information
regarding certain matters discussed in this prospectus and other matters which
may be of interest to investors, and may be obtained without charge by calling
the Fund at (800) 343-2898. There can be no assurance that the investment
objective of the Fund will be achieved. Investors are advised to read this
prospectus carefully.
An investment in the Fund is not a deposit or obligation of any bank,
is not endorsed or guaranteed by any bank, and is not insured or otherwise
protected by the U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency and involves risk,
including the
possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Keep This Prospectus For Future Reference
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<PAGE>
TABLE OF CONTENTS
EXPENSE INFORMATION..........................................................3
FINANCIAL HIGHLIGHTS.........................................................4
DESCRIPTION OF THE FUND......................................................4
INVESTMENT OBJECTIVE AND POLICIES...................................4
INVESTMENT PRACTICES AND RESTRICTIONS...............................5
ORGANIZATION AND SERVICE PROVIDERS..........................................12
ORGANIZATION.......................................................12
SERVICE PROVIDERS..................................................13
PURCHASE AND REDEMPTION OF SHARES...........................................14
HOW TO BUY SHARES..................................................14
HOW TO REDEEM SHARES...............................................15
EXCHANGE PRIVILEGE.................................................18
SHAREHOLDER SERVICES...............................................19
BANKING LAWS.......................................................20
OTHER INFORMATION...........................................................21
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................21
GENERAL INFORMATION................................................23
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<PAGE>
EXPENSE INFORMATION
The table and examples below are designed to help you understand the
various expenses that you will bear, directly or indirectly, when you invest in
the Fund. Shareholder transaction expenses are fees paid directly from your
account when you buy or sell shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES Class Y
Shares
Sales Charge Imposed on Purchases None
Sales Charge Imposed on Dividend None
Reinvestments
Contingent Deferred Sales Charge None
Annual operating expenses reflect the normal operating expenses of the
Fund, and include costs such as management and other fees. The table below shows
the Fund's estimated annual operating expenses for the fiscal period ending
September 30, 1998. The examples show what you would pay if you invested $1,000
over the periods indicated. The examples assume that you reinvest all of your
dividends and that the Fund's average annual return will be 5%. The examples are
for illustration purposes only and should not be considered a representation of
past or future expenses or annual return. The Fund's actual expenses and returns
will vary. For a more complete description of the various costs and expenses
borne by the Fund see "Organization and Service Providers."
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<PAGE>
<TABLE>
<CAPTION>
Annual Operating Expenses Example
------------------------- -------
<S> <C> <C> <C>
Management Fees After 1
(After Waiver)(1) Year $9
0.65%
Other Expenses
0.28%
----
Total (1) After 3 $30
0.93% Years
----
----
</TABLE>
- -----------------
(1) The management fee has been reduced from 0.74% to reflect the voluntary
waiver by the investment adviser. This voluntary waiver can be terminated
at any time. The investment adviser has undertaken to limit the Fund's
Total Annual Operating Expenses for a period of at least two years from the
date of this prospectus to 1.02% of Class Y shares' average daily net
assets. Absent the management fee waiver and the limitation on Total Annual
Operating Expenses, such estimated expenses for the fiscal period ended
September 30, 1998 will be 1.02% of Class Y shares' average daily net
assets.
FINANCIAL HIGHLIGHTS
As of the date of this prospectus the Fund had not commenced
operations. Consequently, no financial highlights are currently available.
DESCRIPTION OF THE FUND
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is nonfundamental; as a result, the
Fund may change its objective without a shareholder vote. The Fund has also
adopted certain fundamental investment policies which are mainly designed to
limit the Fund's exposure to risk. The Fund's fundamental policies cannot be
changed without a shareholder vote. See the Statement of Additional Information
("SAI") for more information regarding the Fund's fundamental investment
policies or other related investment policies. There can be no assurance that
the Fund's investment objective will be achieved.
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<PAGE>
The Evergreen Stock Selector Fund seeks maximum total return. The
Evergreen Stock Selector Fund strives to provide a total return greater than
broad stock market indices such as the Standard & Poor's 500 Composite Stock
Index by investing principally in a diversified portfolio of common stocks of
companies that its investment adviser expects will experience growth in earnings
and price including stocks of companies with large market capitalizations (i.e.,
over $5 billion), medium market capitalizations (i.e., between $1 billion and $5
billion) and small market capitalizations (i.e., under $1 billion). In addition,
up to 20% of the Evergreen Stock Selector Fund's total assets may be invested in
preferred stocks, securities convertible into common stock, corporate bonds and
notes, warrants (up to 5% of total assets), short-term obligations and foreign
securities represented by sponsored and unsponsored American Depositary
Receipts.
Debt securities, which include both secured and unsecured obligations,
will, at the time of investment, be rated within the three highest categories by
Standar & Poor's Ratings Group (AAA, AA and A), by Moody's Investors Service,
Inc. (Aaa, Aa and A), by Fitch Investors Services LLP (AAA, AA and A), or if not
rated or rated under a different system, will be of comparable quality to
obligations so rated, as determined by the Fund's investment adviser.
The Evergreen Stock Selector Fund may invest in certain types of
derivative instruments, including options and futures contracts, provided that
the Fund may neither purchase futures contracts or options where premiums and
margin deposits exceed 5% of total assets nor enter into futures contracts or
options where its obligations would exceed 20% of its total assets.
The Evergreen Stock Selector Fund also may invest, for temporary
defensive purposes, up to 100% of its assets in short-term obligations. Such
obligations may include master demand notes, U.S. government securities,
commercial paper and notes, bank deposits and other financial institution
obligations.
In addition to the investment policies detailed above, the Evergreen
Stock Selector Fund may employ certain additional investment strategies which
are discussed in "Investment Practices and Restrictions."
INVESTMENT PRACTICES AND RESTRICTIONS
Investment in Small and Mid-Sized Companies. Investments in securities of
little-known, relatively small or mid-sized
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<PAGE>
companies may tend to be speculative and volatile. A lack of management depth in
such companies could increase the risks associated with the loss of key
personnel. Also, the material and financial resources of such companies may be
limited, with the consequence that funds or external financing necessary for
growth may be unavailable. Such companies may also be involved in the
development or marketing of new products or services for which there are no
established markets. If projected markets do not materialize or only regional
markets develop, such companies may be adversely affected or may be subject to
the consequences of local events. Moreover, such companies may be insignificant
factors in their industries and may become subject to intense competition from
larger companies. Securities of companies in which the Fund may invest will
frequently be traded only in the over-the-counter market or on regional stock
exchanges and will often be closely held. Securities of this type may have
limited liquidity and may be subject to wide price fluctuations. As a result of
the risk factors described above, to the extent that the Fund invests in
securities of small and mid-sized companies, the net asset value of the Fund's
shares can be expected to vary significantly. Accordingly, the Fund should not
be considered suitable for investors who are unable or unwilling to assume the
associated risks, nor should investment in the Fund be considered a balanced or
complete investment program.
Foreign Investments. Foreign securities may involve additional risks.
Specifically, they may be affected by the strength of foreign currencies
relative to the U.S. dollar, or by political or economic developments in foreign
countries. Accounting procedures and government supervision may be less
stringent than those applicable to U.S. companies. There may be less publicly
available information about a foreign company than about a U.S. company. Foreign
markets may be less liquid or more volatile than U.S. markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes, which may reduce yield, and may be less marketable than comparable U.S.
securities. All these factors are considered by the Fund's investment adviser
before making any of these types of investments.
Investing in securities of issuers in emerging markets countries
involves exposure to economic systems that are generally less mature and
political systems that are generally less stable than those of developed
countries. In addition, investing in companies in emerging markets countries may
also involve exposure to national policies that may restrict
-41-
<PAGE>
investment by foreigners and undeveloped legal systems governing private and
foreign investments and private property. The typically small size of the
markets for securities issued by companies in emerging markets countries and the
possibility of a low or nonexistent volume of trading in those securities may
also result in a lack of liquidity and in price volatility of those securities.
Downgrades. If any security in which the Fund invests loses its rating or has
its rating reduced after the Fund has purchased it, the Fund is not required to
sell or otherwise dispose of the security, but may consider doing so.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is an agreement by which the Fund purchases a security
(usually U.S. government securities) for cash and obtains a simultaneous
commitment from the seller (usually a bank or broker/dealer) to repurchase the
security at an agreed-upon price and specified future date. The repurchase price
reflects an agreed-upon interest rate for the time period of the agreement. The
Fund's risk is the inability of the seller to pay the agreed-upon price on the
delivery date. However, this risk is tempered by the ability of the Fund to sell
the security in the open market in the case of a default. In such a case, the
Fund may incur costs in disposing of the security which would increase Fund
expenses. The Fund's investment adviser will monitor the creditworthiness of the
firms with which the Fund enters into repurchase agreements.
Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. A reverse repurchase agreement is an agreement by the Fund to sell a
security and repurchase it at a specified time and price. The Fund could lose
money if the market values of the securities it sold decline below their
repurchase prices. Reverse repurchase agreements may be considered a form of
borrowing, and, therefore, a form of leverage. Leverage may magnify gains or
losses of the Fund.
When-Issued, Delayed-Delivery and Forward Commitment Transactions. The Fund may
enter into transactions whereby it commits to buying a security, but does not
pay for or take delivery of the security until some specified date in the
future. The value of these securities is subject to market fluctuation during
this period and no income accrues to the Fund until settlement. At the time of
settlement, a when-issued security may be valued at less than its purchase
price. When entering into these transactions, the Fund relies on the other party
to
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<PAGE>
consummate the transaction; if the other party fails to do so,
the Fund may be disadvantaged.
Securities Lending. To generate income and offset expenses, the Fund may lend
securities to broker-dealers and other financial institutions. Loans of
securities by the Fund may not exceed 30% of the value of the Fund's total
assets. While securities are on loan, the borrower will pay the Fund any income
accruing on the security. Also, the Fund may invest any collateral it receives
in additional securities. Gains or losses in the market value of a lent security
will affect the Fund and its shareholders. When the Fund lends its securities,
it runs the risk that it could not retrieve the securities on a timely basis
possibly losing the opportunity to sell the securities at a desirable price.
Also, if the borrower files for bankruptcy or becomes insolvent, the Fund's
ability to dispose of the securities may be delayed.
Investing in Securities of Other Investment Companies. The Fund may invest in
the securities of other investment companies. As a shareholder of another
investment company, the Fund would pay its portion of the other investment
company's expenses. These expenses would be in addition to the expenses that the
Fund currently bears concerning its own operations and may result in some
duplication of fees.
Borrowing. The Fund may borrow from banks in an amount up to 33 1/3% of its
total assets, taken at market value. The Fund may also borrow an additional 5%
of its total assets from banks and others. The Fund may only borrow as a
temporary measure for extraordinary or emergency purposes such as the redemption
of Fund shares. The Fund will not purchase securities while borrowings are
outstanding except to exercise prior commitments and to exercise subscription
rights. The Fund does not intend to leverage.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid
securities and other securities which are not readily marketable. Repurchase
agreements with maturities longer than seven days will be included for the
purpose of the foregoing 15% limit. The inability of the Fund to dispose of
illiquid investments readily or at a reasonable price could impair the Fund's
ability to raise cash for redemptions or other purposes.
Restricted Securities. The Fund may invest up to 15% of its net assets in
restricted securities, including securities eligible for resale pursuant to Rule
144A under the Securities Act of 1933 (the "1933 Act"). Generally, Rule 144A
establishes a safe harbor from the registration requirements of the 1933 Act for
resale by
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<PAGE>
large institutional investors of securities not publicly traded in the United
States. The Fund's investment adviser determines the liquidity of Rule 144A
securities according to guidelines and procedures adopted by Evergreen Equity
Trust's Board of Trustees. The Board of Trustees monitors the investment
adviser's application of those guidelines and procedures. Securities eligible
for resale pursuant to Rule 144A, which the Fund's investment adviser has
determined to be liquid or readily marketable, are not subject to the 15% limit
on illiquid securities.
Options and Futures. The Fund may engage in options and futures transactions.
Options and futures transactions are intended to enable the Fund to manage
market, interest rate or exchange rate risk. The Fund does not use these
transactions for speculation or leverage.
The Fund may attempt to hedge all or a portion of its portfolio through
the purchase of both put and call options on its portfolio securities and
listed put options on financial futures contracts for portfolio securities. The
Fund may also purchase call options on financial futures contracts. The Fund may
write covered call options on its portfolio securities to attempt to increase
its current income. The Fund will maintain its positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position may be closed out only on
an exchange which provides a secondary market for an option of the same series.
The Fund may write (i.e., sell) covered call and put options. By
writing a call option, the Fund becomes obligated during the term of the option
to deliver the securities underlying the option upon payment of the exercise
price. By writing a put option, the Fund becomes obligated during the term of
the option to purchase the securities underlying the option at the exercise
price if the option is exercised. The Fund also may write straddles
(combinations of covered puts and calls on the same underlying security). The
Fund may only write "covered" options. This means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying securities
subject to the option or, in the case of call options on U.S. Treasury bills,
the Fund might own substantially similar U.S. Treasury bills. The Fund will be
considered "covered" with respect to a put option it writes if, so long as it is
obligated as the writer of the put option, it deposits and maintains with its
custodian in a segregated account liquid assets having a value equal to or
greater than the exercise price of the option.
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<PAGE>
The principal reason for writing call or put options is to obtain,
through a receipt of premiums, a greater current return than would be realized
on the underlying securities alone. The Fund receives a premium from writing a
call or put option which it retains whether or not the option is exercised. By
writing a call option, the Fund might lose the potential for gain on the
underlying security while the option is open, and by writing a put option the
Fund might become obligated to purchase the underlying securities for more than
their current market price upon exercise.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of instrument called for in the
contract ("going short"), and the buyer, who agrees to take delivery of the
instrument ("going long") at a certain time in the future. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government. If the Fund enters into financial futures contracts
directly to hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at an undetermined price (i.e., "go short") to
protect itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding period. The Fund
would agree to purchase securities in the future at a predetermined price (i.e.,
"go long") to hedge against a decline in market interest rates.
The Fund may also enter into currency and other financial futures
contracts and write options on such contracts. The Fund intends to enter into
such contracts and related options for hedging purposes. The Fund will enter
into futures on securities, currencies, or index-based futures contracts in
order to hedge against changes in interest or exchange rates or securities
prices. A futures contract on securities or currencies is an agreement to buy or
sell securities or currencies during a designated month at whatever price exists
at that time. A futures contract on a securities index does not involve the
actual delivery of securities, but merely requires the payment of a cash
settlement based on changes in the securities index. The Fund does not make
payment or deliver securities upon entering into a futures contract. Instead, it
puts down a margin deposit, which is adjusted to reflect changes in the value of
the contract and which remains in effect until the contract is terminated.
The Fund may sell or purchase currency and other financial futures
contracts. When a futures contract is sold by the Fund, the profit on the
contract will tend to rise when the value of
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<PAGE>
the underlying securities or currencies declines and to fall when the value of
such securities or currencies increases. Thus, the Fund sells futures contracts
in order to offset a possible decline in the value of its securities or
currencies. If a futures contract is purchased by the Fund, the value of the
contract will tend to rise when the value of the underlying securities or
currencies increases and to fall when the value of such securities or currencies
declines.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may buy or sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case they would continue to bear
market risk on the transaction.
Risk Characteristics of Options and Futures. Although options and futures
transactions are intended to enable the Fund to manage market, exchange, or
interest rate risks, these investment devices can be highly volatile, and the
Fund's use of them can result in poorer performance (i.e., the Fund's returns
may be reduced). The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities subject to the financial futures contracts and
options on financial futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the financial
futures contract and any related options to react to market changes differently
than the portfolio securities. In addition, the Fund's investment adviser could
be incorrect in its expectations and forecasts about the direction or extent of
market factors, such as interest rates, securities price movements, and other
economic factors. Even if the Fund's investment adviser correctly predicts
interest rate movements, a hedge could be unsuccessful if changes in the value
of the Fund's futures position did not correspond to
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<PAGE>
changes in the value of its investments. In these events, the Fund may lose
money on the financial futures contracts or the options on financial futures
contracts. It is not certain that a secondary market for positions in financial
futures contracts or for options on financial futures contracts will exist at
all times. Although the Fund's investment adviser will consider liquidity before
entering into financial futures contracts or options on financial futures
contracts, there is no assurance that a liquid secondary market on an exchange
will exist for any particular financial futures contract or option on a
financial futures contract at any particular time. The Fund's ability to
establish and close out financial futures contracts and options on financial
futures contract positions depends on this secondary market. If the Fund is
unable to close out its position due to disruptions in the market or lack of
liquidity, the Fund may lose money on the futures contract or option, and the
losses to the Fund could be significant.
Derivatives. Derivatives are financial contracts whose value is based on an
underlying asset, such as a stock or a bond, or an underlying economic factor,
such as an index or an interest rate.
The Fund may invest in derivatives only if the expected risks and
rewards are consistent with its objectives and policies.
Losses from derivatives can sometimes be substantial. This is true
partly because small price movements in the underlying asset can result in
immediate and substantial gains or losses in the value of the derivative.
Derivatives can also cause the Fund to lose money if the Fund fails to correctly
predict the direction in which the underlying asset or economic factor will
move.
ORGANIZATION AND SERVICE PROVIDERS
ORGANIZATION
Fund Structure. The Fund is an investment pool, which invests shareholders'
money toward a specified goal. In technical terms, the Fund is a diversified
series of an open-end, management investment company, called Evergreen Equity
Trust (the "Trust"). The Trust is a Delaware business trust organized on
September 18, 1997.
Board of Trustees. The Trust is supervised by a Board of
Trustees that is responsible for representing the interests of
shareholders. The Trustees meet periodically throughout the year
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to oversee the Fund's activities, reviewing, among other things, the Fund's
performance and its contractual arrangements with various service providers.
Shareholder Rights. All shareholders participate in dividends and distributions
from the Fund's assets and have equal voting, liquidation and other rights.
Shareholders may exchange shares as described under "Exchanges," but will have
no other preference, conversion, exchange or preemptive rights. When issued and
paid for, shares will be fully paid and nonassessable. Shares of the Fund are
redeemable, transferable and freely assignable as collateral. The Fund may
establish additional classes or series of shares.
The Fund does not hold annual shareholder meetings; the Fund may,
however, hold special meetings for such purposes as electing or removing
Trustees, changing fundamental policies and approving investment advisory
agreements or 12b-1 plans. In addition, the Fund is prepared to assist
shareholders in communicating with one another for the purpose of convening a
meeting to elect Trustees. If any matters are to be voted on by shareholders,
each share owned as of the record date for the meeting would be entitled to one
vote for each dollar of net asset value applicable to each share.
SERVICE PROVIDERS
Investment Adviser. The investment adviser of Evergreen Stock Selector Fund is
Meridian Investment Company ("Meridian"). Meridian is an indirect subsidiary of
First Union National Bank ("FUNB"). FUNB is a subsidiary of First Union
Corporation ("First Union"). Meridian's address is 55 Valley Stream Parkway,
Malvern, Pennsylvania 19355. Both FUNB and First Union are located at 201 South
College Street, Charlotte, North Carolina 28288-0630. First Union and its
subsidiaries provide a broad range of financial services to individuals and
businesses throughout the United States.
Meridian is entitled to receive an annual fee equal to 0.74% of average
daily net assets of Evergreen Stock Selector Fund.
Portfolio Manager. The Portfolio Manager of the Fund is Joseph E. Stocke, CFA.
Mr. Stocke joined Meridian in 1983 as an Assistant Investment Officer and since
1990 has been a Senior Investment Manager/Equities . Mr. Stocke has managed
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the Special Equity Fund and Core Equity Fund of CoreFunds, Inc.
since 1990.
Transfer Agent and Dividend Disbursing Agent. Evergreen Service Company ("ESC"),
200 Berkeley Street, Boston, Massachusetts 02116, acts as the Fund's transfer
agent and dividend disbursing agent. ESC is an indirect, wholly-owned subsidiary
of First Union.
Custodian. State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827 acts as the Fund's custodian.
Principal Underwriter. Evergreen Distributor, Inc. ("EDI"), a subsidiary of The
BISYS Group, Inc., located at 125 West 55th Street, New York, New York 10019, is
the principal underwriter of the Fund.
Administrator. Evergreen Investment Services, Inc. ("EIS") serves as
administrator to the Fund. As administrator, and subject to the supervision and
control of the Trust's Board of Trustees, EIS provides the Fund with facilities,
equipment and personnel. For its services as administrator, EIS is entitled to
receive a fee based on the aggregate average daily net assets of the Fund at a
rate based on the total assets of all the mutual funds advised by First Union
subsidiaries. The administration fee is calculated in accordance with the
following schedule:
Administration Fee
0.050% on the first $7 billion
0.035% on the next $3 billion
0.030% on the next $5 billion
0.020% on the next $10 billion
0.015% on the next $5 billion
0.010% on assets in excess of
$30 billion
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
Class Y shares are offered at net asset value without a front-end sales
charge or a contingent deferred sales load. Class Y shares are only offered to
(1) persons who at or prior to December 31, 1994 owned shares in a mutual fund
advised by Evergreen Asset Management Corp. ("Evergreen Asset"), (2) certain
institutional investors and (3) investment advisory clients of
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FUNB, Meridian, Evergreen Asset, Keystone Investment Management Company
("Keystone") or their affiliates.
Eligible investors may purchase Class Y shares of the Fund through
broker-dealers, banks or other financial intermediaries, or directly through
EDI. In addition, you may purchase Class Y shares of the Fund by mailing to the
Fund, c/o ESC, P.O. Box 2121, Boston, Massachusetts 02106-2121, a completed
application and a check payable to the Fund. You may also telephone 1-800-
343-2898 to obtain the number of an account to which you can wire or
electronically transfer funds and then send in a completed application. The
minimum initial investment is $1,000, which may be waived in certain situations.
Subsequent investments in any amount may be made by check, by wiring federal
funds, by direct deposit or by an electronic funds transfer.
There is no minimum amount for subsequent investments. Investments of
$25 or more are allowed under the Systematic Investment Plan. See the
application for more information. Only Class Y shares are offered through this
prospectus (see "General Information -- Other Classes of Shares").
How the Fund Values Its Shares. The net asset value of each class of shares of
the Fund is calculated by dividing the value of the amount of the Fund's net
assets attributable to that class by the number of outstanding shares of that
class. Shares are valued each day the New York Stock Exchange (the "Exchange")
is open as of the close of regular trading (currently 4:00 p.m. eastern time).
The securities in the Fund are valued at their current market values determined
on the basis of market quotations or, if such quotations are not readily
available, such other methods as the Trustees believe would accurately reflect
fair value.
Additional Purchase Information. As a condition of this offering, if a purchase
is canceled due to nonpayment or because an investor's check does not clear, the
investor will be responsible for any loss the Fund or the Fund's investment
adviser incurs. If such investor is an existing shareholder, the Fund may redeem
shares from an investor's account to reimburse the Fund or its investment
adviser for any loss. In addition, such investor may be prohibited or restricted
from making further purchases in any of the Evergreen funds. The Fund will not
accept third party checks other than those payable directly to a shareholder
whose account has been in existence at least 30 days.
HOW TO REDEEM SHARES
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You may "redeem" (i.e., sell) your Class Y shares in the Fund to the
Fund for cash at their net redemption value on any day the Exchange is open,
either directly by writing to the Fund, c/o ESC, or through your financial
intermediary. The amount you will receive is the net asset value adjusted for
fractions of a cent next calculated after the Fund receives your request in
proper form. Proceeds generally will be sent to you within seven days. However,
for shares recently purchased by check, the Fund will not send proceeds until it
is reasonably satisfied that the check has been collected (which may take up to
15 days). Once a redemption request has been telephoned or mailed, it is
irrevocable and may not be modified or canceled.
Redeeming Shares Through Your Financial Intermediary. The Fund must receive
instructions from your financial intermediary before 4:00 p.m. (eastern time)
for you to receive that day's net asset value. Your financial intermediary is
responsible for furnishing all necessary documentation to the Fund and may
charge you for this service. Certain financial intermediaries may require that
you give instructions earlier than 4:00 p.m. (eastern time).
Redeeming Shares Directly by Mail or Telephone. Send a signed letter of
instruction or stock power form to the Fund, c/o ESC, the registrar, transfer
agent and dividend-disbursing agent for the Fund. Stock power forms are
available from your financial intermediary, ESC, and many commercial banks.
Additional documentation is required for the sale of shares by corporations,
financial intermediaries, fiduciaries and surviving joint owners. Signature
guarantees are required for all redemption requests for shares with a value of
more than $50,000. Currently, the requirement for a signature guarantee has been
waived on redemptions of $50,000 or less when the account address of record has
been the same for a minimum period of 30 days. The Fund and ESC reserve the
right to withdraw this waiver at any time. A signature guarantee must be
provided by a bank or trust company (not a Notary Public), a member firm of a
domestic stock exchange or by other financial institutions whose guarantees are
acceptable under the Securities Exchange Act of 1934 and ESC's policies.
Shareholders may redeem amounts of $1,000 or more (up to $50,000) from
their accounts by calling the telephone number on the front page of this
prospectus between the hours of 8:00 a.m. and 6:00 p.m. (eastern time) each
business day (i.e., any weekday exclusive of days on which the Exchange or ESC's
offices are closed). The Exchange is closed on New Years Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
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Redemption requests received after 4:00 p.m. (eastern time) will be processed
using the net asset value determined on the next business day. Such redemption
requests must include the shareholder's account name, as registered with the
Fund, and the account number. During periods of drastic economic or market
changes, shareholders may experience difficulty in effecting telephone
redemptions. If you cannot reach the Fund by telephone, you should follow the
procedures for redeeming by mail or through a broker-dealer as set forth herein.
The telephone redemption service is not made available to shareholders
automatically. Shareholders wishing to use the telephone redemption service must
complete the appropriate section on the application and choose how the
redemption proceeds are to be paid. Redemption proceeds will either (1) be
mailed by check to the shareholder at the address in which the account is
registered or (2) be wired to an account with the same registration as the
shareholder's account in the Fund at a designated commercial bank.
In order to insure that instructions received by ESC are genuine when
you initiate a telephone transaction, you will be asked to verify certain
criteria specific to your account. At the conclusion of the transaction, you
will be given a transaction number confirming your request, and written
confirmation of your transaction will be mailed the next business day. Your
telephone instructions will be recorded. Redemptions by telephone are allowed
only if the address and bank account of record have been the same for a minimum
period of 30 days. The Fund reserves the right at any time to terminate,
suspend, or change the terms of any redemption method described in this
prospectus, except redemption by mail, and to impose fees.
Except as otherwise noted, the Fund, ESC, and EDI will not assume
responsibility for the authenticity of any instructions received by any of them
from a shareholder in writing, over the Evergreen Express Line, or by telephone.
ESC will employ reasonable procedures to confirm that instructions received over
the Evergreen Express Line or by telephone are genuine. The Fund, ESC, and EDI
will not be liable when following instructions received over the Evergreen
Express Line or by telephone that ESC reasonably believes are genuine.
Evergreen Express Line. The Evergreen Express Line offers you specific fund
account information and price and yield quotations as well as the ability to do
account transactions, including investments, exchanges and redemptions. You may
access the Evergreen Express Line by dialing toll free 1-800-346-3858 on any
touch-tone telephone, 24 hours a day, seven days a week.
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General. The sale of shares is a taxable transaction for federal income tax
purposes. The Fund may temporarily suspend the right to redeem its shares when:
(1) the Exchange is closed, other than customary weekend and holiday closings;
(2) trading on the Exchange is restricted; (3) an emergency exists and the Fund
cannot dispose of its investments or fairly determine their value; or (4) the
Securities and Exchange Commission ("SEC") so orders. The Fund reserves the
right to close an account that through redemption has fallen below $1,000 and
has remained so for 30 days. Shareholders will receive 60 days' written notice
to increase the account value to at least $1,000 before the account is closed.
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act pursuant to
which the Fund is obligated to redeem shares solely in cash, up to the lesser of
$250,000 or 1% of the Fund's total net assets, during any 90 day period for any
one shareholder.
EXCHANGE PRIVILEGE
How to Exchange Shares. You may exchange some or all of your Class Y shares for
shares of the same class in the other Evergreen funds through your financial
intermediary by calling or writing to ESC or by using the Evergreen Express Line
as described above. Once an exchange request has been telephoned or mailed, it
is irrevocable and may not be modified or canceled. Exchanges will be made on
the basis of the relative net asset values of the shares exchanged next
determined after an exchange request is received. An exchange which represents
an initial investment in another Evergreen fund is subject to the minimum
investment and suitability requirements of each fund.
Each of the Evergreen funds has different investment objectives and
policies. For complete information, a prospectus of the fund into which an
exchange will be made should be read prior to the exchange. An exchange order
must comply with the requirement for a redemption or repurchase order and must
specify the dollar value or number of shares to be exchanged. An exchange is
treated for federal income tax purposes as a redemption and purchase of shares
and may result in the realization of a capital gain or loss. Shareholders are
limited to five exchanges per calendar year, with a maximum of three per
calendar quarter. This exchange privilege may be modified or discontinued at any
time by the Fund upon 60 days' notice to shareholders and is only available in
states in which shares of the fund being acquired may lawfully be sold.
Exchanges Through Your Financial Intermediary. The Fund must receive exchange
instructions from your financial intermediary
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before 4:00 p.m. (eastern time) for you to receive that day's net asset value.
Your financial intermediary is responsible for furnishing all necessary
documentation to the Fund and may charge you for this service.
Exchanges By Telephone and Mail. Exchange requests received by the Fund after
4:00 p.m. (eastern time) will be processed using the net asset value determined
at the close of the next business day. During periods of drastic economic or
market changes, shareholders may experience difficulty in effecting telephone
exchanges. You should follow the procedures outlined below for exchanges by mail
if you are unable to reach ESC by telephone. If you wish to use the telephone
exchange service you should indicate this on the application. As noted above,
the Fund will employ reasonable procedures to confirm that instructions for the
redemption or exchange of shares communicated by telephone are genuine. A
telephone exchange may be refused by the Fund or ESC if it is believed advisable
to do so. Procedures for exchanging Fund shares by telephone may be modified or
terminated at any time. Written requests for exchanges should follow the same
procedures outlined for written redemption requests in the section entitled "How
to Redeem Shares;" however, no signature guarantee is required.
SHAREHOLDER SERVICES
The Fund offers the following shareholder services. For more
information about these services or your account, contact your financial
intermediary, ESC or call the toll-free number on the front page of this
prospectus. Some services are described in more detail in the application.
Systematic Investment Plan. Under a Systematic Investment Plan, you may invest
as little as $25 per month to purchase shares of the Fund with no minimum
initial investment required.
Telephone Investment Plan. You may make investments into an existing account
electronically in amounts of not less than $100 or more than $10,000 per
investment. Telephone investment requests received by 4:00 p.m. (eastern time)
will be credited to a shareholder's account the day the request is received.
Systematic Withdrawal Plan. When an account of $10,000 or more is opened or when
an existing account reaches that size, you may participate in the Systematic
Withdrawal Plan by filling out the appropriate part of the application. Under
this Plan, you may receive (or designate a third party to receive) a monthly or
quarterly fixed-withdrawal payment in a stated amount of at least
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$75 and as much as 1.0% per month or 3.0% per quarter of the total net asset
value of the Fund shares in your account when the Plan was opened. Fund shares
will be redeemed as necessary to meet withdrawal payments. All participants must
elect to have their dividends and capital gains distributions reinvested
automatically.
Automatic Reinvestment Plan. For the convenience of investors, all dividends and
distributions are automatically reinvested in full and fractional shares of the
Fund at the net asset value per share at the close of business on the record
date, unless otherwise requested by a shareholder in writing. If the transfer
agent does not receive a written request for subsequent dividends and/or
distributions to be paid in cash at least three full business days prior to a
given record date, the dividends and/or distributions to be paid to a
shareholder will be reinvested.
Dollar Cost Averaging. Through dollar cost averaging you can invest a fixed
dollar amount each month or each quarter in any Evergreen fund. This results in
more shares being purchased when the selected fund's net asset value is
relatively low and fewer shares being purchased when the fund's net asset value
is relatively high and may result in a lower average cost per share than a less
systematic investment approach.
Prior to participating in dollar cost averaging, you must establish an
account in a fund. You should designate on the application (1) the dollar amount
of each monthly or quarterly investment you wish to make, and (2) the fund in
which the investment is to be made. Thereafter, on the first day of the
designated month, an amount equal to the specified monthly or quarterly
investment will automatically be redeemed from your initial account and invested
in shares of the designated fund.
Two Dimensional Investing. You may elect to have income and capital gains
distributions from any Evergreen fund shares you own automatically invested to
purchase the same class of shares of any other Evergreen fund. You may select
this service on your application and indicate the Evergreen fund(s) into which
distributions are to be invested.
Tax Sheltered Retirement Plans. The Fund has various retirement plans available
to eligible investors, including Individual Retirement Accounts (IRAs); Rollover
IRAs; Simplified Employee Pension Plans (SEPs); Salary Incentive Match Plan for
Employees (SIMPLEs); Tax Sheltered Annuity Plans; 403(b)(7) Plans; 401(k) Plans;
Keogh Plans; Profit-Sharing Plans; Medical Savings Accounts; Pension and Target
Benefit and Money Purchase Plans.
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For details, including fees and application forms, call toll free 1-800-247-4075
or write to ESC.
BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit member banks of the Federal Reserve System ("Member Banks") or their
non-bank affiliates from sponsoring, organizing, controlling, or distributing
the shares of registered open-end investment companies such as the Fund. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment adviser, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer. FUNB and
its affiliates are subject to and in compliance with the aforementioned laws and
regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB or its affiliates being prevented
from continuing to perform the services required under the investment advisory
contract or from acting as agent in connection with the purchase of shares of
the Fund by its customers. If FUNB or its affiliates were prevented from
continuing to provide the services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve, a new investment adviser. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
OTHER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute its investment company taxable income
annually and net realized capital gains at least annually. Shareholders receive
Fund distributions in the form of additional shares of that class of shares upon
which the distribution is based or, at the shareholder's option, in cash.
Shareholders of the Fund who have not opted to receive cash prior to the payable
date for any dividend from net investment income or the record date for any
capital gains distribution will have the number of such shares determined on the
basis of the Fund's net asset value per share computed at the end of that day
after adjustment for the distribution. Net asset value is used in
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computing the number of shares in both capital gains and income
distribution investments.
Account statements and/or checks, as appropriate, will be mailed within
seven days after the Fund pays a distribution. Unless the Fund receives
instructions to the contrary before the record or payable date, as the case may
be, it will assume that a shareholder wishes to receive that distribution and
future capital gains and income distributions in shares. Instructions continue
in effect until changed in writing.
The Fund intends to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, it
is expected that the Fund will not be required to pay any federal income taxes
on that portion of its investment company taxable income and any net realized
capital gains it distributes to shareholders. The Code imposes a 4%
nondeductible excise tax on regulated investment companies, such as the Fund, to
the extent it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Any taxable dividend declared in October, November or December to
shareholders of record in such a month and paid by the following January 31 will
be includable in the taxable income of shareholders as if paid on December 31 of
the year in which the dividend was declared.
The Fund may be subject to foreign withholding taxes which would reduce
the yield on its investments. Tax treaties between certain countries and the
United States may reduce or eliminate such taxes. Shareholders of the Fund who
are subject to United States federal income tax may be entitled, subject to
certain rules and limitations, to claim a federal income tax credit or deduction
for foreign income taxes paid by the Fund. See the SAI for additional details.
The Fund's transactions in options, futures and forward contracts may be subject
to special tax rules. These rules can affect the amount, timing and
characteristics of distributions to shareholders.
The Fund is required by federal law to withhold 31% of reportable
payments (which may include dividends, capital gains distributions (if any) and
redemptions) paid to certain shareholders. In order to avoid this backup
withholding requirement, each investor must certify on the application, or on a
separate form supplied by the Fund's transfer agent, that the investor's social
security or taxpayer identification number is
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correct and that the investor is not currently subject to backup withholding or
is exempt from backup withholding.
The Fund intends to distribute its net capital gains as capital gains
dividends. Shareholders should treat such dividends as long-term capital gains.
The Fund will designate capital gains distributions as such by a written notice
mailed to each shareholder no later than 60 days after the close of the Fund's
taxable year. If a shareholder receives a capital gain dividend and holds his
shares for six months or less, then any allowable loss on disposition of such
shares will be treated as a long-term capital loss to the extent of such capital
gain dividend.
The foregoing discussion of federal income tax consequences is based on
tax laws and regulations in effect on the date of this prospectus and is subject
to change by legislative or administrative action. As the foregoing discussion
is for general information only, you should also review the discussion of
"Additional Tax Information" contained in the SAI. In addition, you should
consult your own tax adviser as to the tax consequences of investments in the
Fund, including the application of state and local taxes which may be different
from the federal income tax consequences described above.
GENERAL INFORMATION
Portfolio Turnover. The estimated annual portfolio turnover rate for the Fund is
not expected to exceed 100%. A portfolio turnover rate of 100% would occur if
all of the Fund's portfolio securities were replaced in one year. The portfolio
turnover rate experienced by the Fund directly affects the transaction costs
relating to the purchase and sale of securities which the Fund bears directly. A
high rate of portfolio turnover will increase such costs. See the SAI for
further information regarding the practices of the Fund affecting portfolio
turnover.
Portfolio Transactions. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking best price and
execution, the Fund may consider sales of its shares as a factor in the
selection of broker-dealers to enter into portfolio transactions with the Fund.
Other Classes of Shares. The Fund currently offers four classes of shares, Class
A, Class B, Class C and Class Y, and may in the future offer additional classes.
Class Y shares are the only class of shares offered by this prospectus and are
only available to (1) persons who at or prior to December 31, 1994 owned shares
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in a mutual fund advised by Evergreen Asset, (2) certain institutional investors
and (3) investment advisory clients of FUNB, Meridian, Evergreen Asset, Keystone
or their affiliates. The dividends payable with respect to Class A, Class B and
Class C shares will be less than those payable with respect to Class Y shares
due to the distribution and shareholder servicing-related expenses borne by
Class A, Class B and Class C shares and the fact that such expenses are not
borne by Class Y shares. Investors should telephone (800) 343-2898 to obtain
more information on other classes of shares.
Performance Information. From time to time, the Fund may quote its "total
return" or "yield" for a specified period in advertisements, reports or other
communications to shareholders. Total return and yield are computed separately
for Class A, Class B, Class C and Class Y shares. The Fund's total return for
each such period is computed by finding, through the use of a formula prescribed
by the SEC, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, dividends and
capital gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charges applicable to purchases of
the Fund's shares are assumed to have been paid.
Yield is a way of showing the rate of income the Fund earns on its
investments as a percentage of the Fund's share price. The Fund's yield is
calculated according to accounting methods that are standardized by the SEC for
all stock and bond funds. Because yield accounting methods differ from the
method used for other accounting purposes, the Fund's yield may not equal its
distribution rate, the income paid to your account or the net investment income
reported in the Fund's financial statements. To calculate yield, the Fund takes
the interest and dividend income it earned from its portfolio of investments (as
defined by the SEC formula) for a 30-day period (net of expenses), divides it by
the average number of shares entitled to receive dividends, and expresses the
result as an annualized percentage rate based on the Fund's share price at the
end of the 30-day period. This yield does not reflect gains or losses from
selling securities.
Performance data may be included in any advertisement or sales literature
of the Fund. These advertisements may quote performance rankings or ratings of
the Fund by financial publications or independent organizations such as Lipper
Analytical Services, Inc. and Morningstar, Inc. or compare the Fund's
performance to various indices. The Fund may also
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advertise in items of sales literature an "actual distribution rate" which is
computed by dividing the total ordinary income distributed (which may include
the excess of short-term capital gains over losses) to shareholders for the
latest twelve-month period by the maximum public offering price per share on the
last day of the period. Investors should be aware that past performance may not
be indicative of future results.
In marketing the Fund's shares, information may be provided that is
designed to help individuals understand their investment goals and explore
various financial strategies. Such information may include: publications
describing general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; a questionnaire designed to
help create a personal financial profile; and an action plan offering investment
alternatives. The information provided to investors may also include discussions
of other Evergreen funds, products, and services, which may include: retirement
investing; brokerage products and services; the effects of periodic investment
plans and dollar cost averaging; saving for college; and charitable giving. In
addition, the information provided to investors may quote financial or business
publications and periodicals, including model portfolios or allocations, as they
relate to fund management, investment philosophy, and investment techniques. The
materials may also reprint, and use as advertising and sales literature,
articles from Evergreen Events, a quarterly magazine provided free of charge to
Evergreen fund shareholders.
Additional Information. This prospectus and the SAI, which has been incorporated
by reference herein, do not contain all the information set forth in the
Registration Statement filed by the Trust with the SEC under the 1933 Act.
Copies of the Registration Statement may be obtained at a reasonable charge from
the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C.
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Investment Adviser
Meridian Investment Company, 55 Valley Stream Parkway, Malvern,
Pennsylvania 19355
Custodian
State Street Bank and Trust Company, P.O. Box 9021, Boston,
Massachusetts 02205-9827
Transfer Agent
Evergreen Service Company, P.O. Box 2121, Boston, Massachusetts
02106-2121
Legal Counsel
Sullivan & Worcester LLP, 1025 Connecticut Avenue, N.W.,
Washington, D.C. 20036
Independent Auditors
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036
Distributor
Evergreen Distributor, Inc., 125 W. 55th Street, New York, New
York 10019
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EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
DOMESTIC GROWTH FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1998 as amended June 1, 1998
Evergreen Fund ("Evergreen")
Evergreen Micro Cap Fund ("Micro")
Evergreen Aggressive Growth Fund ("Aggressive")
Evergreen Omega Fund ("Omega")
Evergreen Small Company Growth Fund ("Small")
Evergreen Strategic Growth Fund ("Strategic")
Evergreen Stock Selector Fund ("Stock")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of an open-end
management investment company known as
Evergreen Equity Trust (the "Trust").
This Statement of Additional Information as amended ("SAI") pertains to
all classes of shares of the Funds listed above. It is not a prospectus and
should be read in conjunction with the prospectuses of Evergreen, Micro,
Aggressive, Omega, Small and Strategic dated February 1, 1998 and the
prospectuses of Stock dated June 1, 1998, as supplemented from time to time. The
Funds are offered through two separate prospectuses: one offering Class A, Class
B and Class C shares of each Fund and one offering Class Y shares of all but
Strategic. You may obtain any of these prospectuses from Evergreen Distributor,
Inc.
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TABLE OF CONTENTS
FUND INVESTMENTS.............................................................4
GENERAL INFORMATION.................................................4
FUNDAMENTAL POLICIES................................................9
INVESTMENT GUIDELINES..............................................10
MANAGEMENT OF THE TRUST.....................................................11
PRINCIPAL HOLDERS OF FUND SHARES............................................14
INVESTMENT ADVISORY AND OTHER SERVICES......................................17
INVESTMENT ADVISER.................................................17
INVESTMENT ADVISORY AGREEMENTS.....................................18
DISTRIBUTOR........................................................19
DISTRIBUTION PLANS AND AGREEMENTS..................................19
ADDITIONAL SERVICE PROVIDERS.......................................21
BROKERAGE...................................................................21
BROKERAGE COMMISSIONS..............................................21
SELECTION OF BROKERS...............................................22
SIMULTANEOUS TRANSACTIONS..........................................22
TRUST ORGANIZATION..........................................................23
FORM OF ORGANIZATION...............................................23
DESCRIPTION OF SHARES..............................................23
VOTING RIGHTS......................................................23
LIMITATION OF TRUSTEES' LIABILITY..................................23
PURCHASE, REDEMPTION AND PRICING OF SHARES..................................23
HOW THE FUNDS OFFER SHARES TO THE PUBLIC...........................24
CONTINGENT DEFERRED SALES CHARGE...................................25
SALES CHARGE WAIVERS OR REDUCTIONS.................................25
EXCHANGES..........................................................27
CALCULATION OF NET ASSET VALUE PER SHARE...........................27
VALUATION OF PORTFOLIO SECURITIES..................................27
SHAREHOLDER SERVICES...............................................28
PRINCIPAL UNDERWRITER.......................................................28
ADDITIONAL TAX INFORMATION..................................................29
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT
COMPANY.....................................................................29
TAXES ON DISTRIBUTIONS.............................................29
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES.......................30
OTHER TAX CONSIDERATIONS...........................................31
FINANCIAL INFORMATION.......................................................31
EXPENSES ..........................................................31
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BROKERAGE COMMISSIONS PAID.........................................33
COMPUTATION OF CLASS A OFFERING PRICE..............................33
PERFORMANCE........................................................34
ADDITIONAL INFORMATION......................................................36
APPENDIX A..................................................................A-1
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FUND INVESTMENTS
GENERAL INFORMATION
The investment objective of each Fund and a description of the
securities in which each Fund may invest are set forth in each Fund's
prospectus. The following expands upon the discussion in the prospectuses
regarding certain investments of the Fund.
U.S. Government Securities
Each Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive financial
support from the U.S. Government. Examples of such agencies are:
(i) Farm Credit System, including the National Bank for
Cooperatives, Farm Credit Banks and Banks for Cooperatives;
(ii) Farmers Home Administration;
(iii) Federal Home Loan Banks;
(iv) Federal Home Loan Mortgage Corporation;
(v) Federal National Mortgage Association; and
(vi) Student Loan Marketing Association.
Securities Issued by the Government National Mortgage Association ("GNMA")
The Funds may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. Government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
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Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Funds may purchase securities on a when-issued or delayed delivery
basis and may purchase or sell securities on a forward commitment basis.
Settlement of such transactions normally occurs within a month or more after the
purchase or sale commitment is made.
The Funds may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, a Fund may be required to pay more
at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis, a Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions are a form of leveraging and may
involve the risk that yields secured at the time of commitment may be lower than
otherwise available by the time settlement takes place, causing an unrealized
loss to the Fund. Leverage may cause any gains or losses of a Fund to be
magnified. In addition, when a Fund engages in such purchases, it relies on the
other party to consummate the sale. If the other party fails to perform its
obligations, the Fund may miss the opportunity to obtain a security at a
favorable price or yield.
Loans of Securities
To generate income, each Fund may lend to broker-dealers and other
financial institutions portfolio securities valued at up to 30% of a Fund's
total assets. A Fund will require borrowers to provide collateral in cash or
government securities at least equal to the value of the securities loaned. A
Fund may invest such collateral in additional portfolio securities, such as U.S.
Treasury notes, certificates of deposit, other high-grade, short-term
obligations or interest-bearing cash equivalents. While securities are on loan,
the borrower will pay a Fund any income accruing on the security.
Each Fund may make loans only to borrowers which meet credit standards
set by the Board of Trustees. Income to be earned from the loan must justify the
attendant risks. If a borrower fails financially, a Fund may have difficulty
recovering the securities lent or may lose its right to the collateral.
Each Fund has the right to call a loan and obtain the securities lent
upon giving notice of not more than five business days.
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Repurchase Agreements
The Funds may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. Government securities or other financial institutions believed by the
Adviser (as defined later) to be creditworthy. In a repurchase agreement, a Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within a period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
A Fund or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from a
Fund, a Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. Each Fund's Adviser believes that under the regular
procedures normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Fund and allow retention or disposition of such securities. The
Funds will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker-dealers, which are deemed by the
investment adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Reverse Repurchase Agreements
Each Fund may enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement, a
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable a Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options (Evergreen, Omega, Small, Strategic and Stock)
The Funds may buy or sell (i.e., write) put and call options on
securities they hold or intend to acquire. The Funds may also buy and sell
options on financial futures contracts. The Funds will use options as a hedge
against decreases or increases in the value of securities they hold or intends
to acquire. The Funds may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series.
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The Funds may write only covered options. With regard to a call option,
this means that a Fund will own, for the life of the option, the securities
subject to the call option. Each Fund will cover put options by holding, in a
segregated account, liquid assets having a value equal to or greater than the
price of securities subject to the put option. If a Fund is unable to effect a
closing purchase transaction with respect to the covered options it has sold, it
will not be able to sell the underlying securities or dispose of assets held in
a segregated account until the options expire or are exercised.
Futures Transactions (Evergreen, Omega, Small, Strategic and Stock)
Each Fund may enter into financial futures contracts and write options
on such contracts. Each Fund intends to enter into such contracts and related
options for hedging purposes. Each Fund will enter into futures contracts on
securities or indices in order to hedge against changes in interest or exchange
rates or securities prices. A futures contract on securities is an agreement to
buy or sell securities at a specified price during a designated month. A futures
contract on a securities index does not involve the actual delivery of
securities, but merely requires the payment of a cash settlement based on
changes in the securities index. A Fund does not make payment or deliver
securities upon entering into a futures contract. Instead, it puts down a margin
deposit, which is adjusted to reflect changes in the value of the contract and
which continues until the contract is terminated.
Each Fund may sell or purchase futures contracts. When a futures
contract is sold by a Fund, the value of the contract will tend to rise when the
value of the underlying securities declines and to fall when the value of such
securities increases. Thus, each Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by a Fund, the value of the contract will tend to rise when the value
of the underlying securities increases and to fall when the value of such
securities declines. Each Fund intends to purchase futures contracts in order to
establish what is believed by the Adviser to be a favorable price and rate of
return for securities the Fund intends to purchase.
Each Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by a Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by a Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires a Fund to pay a premium. In exchange for the premium, a Fund becomes
entitled to exercise the benefits, if any, provided by the futures contract, but
is not required to take any action under the contract. If the option cannot be
exercised profitably before it expires, a Fund's loss will be limited to the
amount of the premium and any transaction costs.
Each Fund may enter into closing purchase and sale transactions in
order to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. A Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that a Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If a
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable a Fund
to manage market or interest rate risk, unanticipated changes in interest rates
or market prices could result in
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poorer performance than if it had not entered into these transactions. Even if
the Adviser correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of a Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between a Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying a Fund's futures position and the securities held by or to
be purchased for a Fund. Each Fund's Adviser will attempt to minimize these
risks through careful selection and monitoring of the Fund's futures and options
positions.
The Funds do not intend to use futures transactions for speculation or
leverage. Each Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by a Fund.
Each Fund will not change these policies without supplementing the information
in the prospectus and SAI.
The Funds will not maintain open positions in futures contracts they
have sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of their securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, each Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
"Margin" in Futures Transactions (Evergreen, Omega, Small, Strategic and Stock)
Unlike the purchase or sale of a security, the Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather, each Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by a Fund to finance the transactions. Initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned to a Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day, a Fund pays or
receives cash, called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by a Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value, a Fund
will mark-to-market its open futures positions. The Funds are also required to
deposit and maintain margin when they write call options on futures contracts.
Foreign Securities (Omega, Small, Strategic and Stock)
Each Fund may invest in foreign securities or U.S. securities traded in
foreign markets. Permissible investments may consist of obligations of foreign
branches of U.S. banks and of foreign banks, including European certificates of
deposit, European time deposits, Canadian time deposits and Yankee certificates
of deposit, and investments in Canadian commercial paper, foreign securities and
Europaper. These instruments may subject a Fund to investment risks that differ
in some respects from those related to investments in obligations of U.S.
issuers. Such risks include future adverse political and economic developments;
the possible imposition of
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withholding taxes on interest or other income; the possible seizure,
nationalization, or expropriation of foreign deposits; the possible
establishment of exchange controls or taxation at the source; greater
fluctuations in value due to changes in exchange rates; or the adoption of other
foreign governmental restrictions which might adversely affect the payment of
principal and interest on such obligations. Such investments may also entail
higher custodial fees and sales commissions than domestic investments. Foreign
issuers of securities or obligations are often subject to accounting treatment
and engage in business practices different from those respecting domestic
issuers of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks.
Foreign Currency Transactions (Omega, Small and Strategic)
As one way of managing exchange rate risk, each Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency a Fund will deliver and receive when the contract is
completed) is fixed when a Fund enters into the contract. A Fund usually will
enter into these contracts to stabilize the U.S. dollar value of a security it
has agreed to buy or sell. Each Fund intends to use these contracts to hedge the
U.S. dollar value of a security it already owns, particularly if a Fund expects
a decrease in the value of the currency in which the foreign security is
denominated. Although each Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the Adviser's
ability to predict accurately the future exchange rates between foreign
currencies and the U.S. dollar. The value of a Fund's investments denominated in
foreign currencies will depend on the relative strengths of those currencies and
the U.S. dollar, and a Fund may be affected favorably or unfavorably by changes
in the exchange rates or exchange control regulations between foreign currencies
and the U.S. dollar. Changes in foreign currency exchange rates also may affect
the value of dividends and interest earned, gains and losses realized on the
sale of securities and net investment income and gains, if any, to be
distributed to shareholders by each Fund. Each Fund may also purchase and sell
options related to foreign currencies in connection with hedging strategies.
FUNDAMENTAL POLICIES
The Funds have adopted the fundamental investment restrictions set
forth below which may not be changed without the vote of a majority of each
Fund's outstanding shares, as defined in the Investment Company Act of 1940 (the
"1940 Act"). Unless otherwise stated, all references to the assets of a Fund are
in terms of current market value.
Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in a particular industry (other than securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities).
Issuing Senior Securities
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Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Underwriting
Each Fund may not underwrite securities of other issuers, except
insofar as each Fund may be deemed an underwriter in connection with the
disposition of its portfolio securities.
Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, each Fund may invest in (a) securities that
are directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities except to the extent that each Fund may engage in financial futures
contacts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law, and without registering as a
commodity pool operator under the Commodity Exchange Act.
Loans to Other Persons
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
INVESTMENT GUIDELINES
Unlike the Fundamental Policies above, the following guidelines may be
changed by the Trust's Board of Trustees without shareholder approval. Unless
otherwise stated, all references to the assets of a Fund are in terms of current
market value.
Diversification
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities.
Borrowings
Each Fund may borrow money from banks or enter into reverse repurchase
agreements in an amount up to one third of its total assets. Each Fund may also
borrow an additional 5% of its total
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assets from banks or others. Each Fund may borrow only as a temporary measure
for extraordinary or emergency purposes. Each Fund will not purchase securities
while borrowings are outstanding except to exercise prior commitments and to
exercise subscription rights. Each Fund may obtain such short-term credit as may
be necessary for the clearance of purchases and sales of portfolio securities.
Each Fund may purchase securities on margin to the extent permitted by
applicable law.
Concentration
For purposes of the investment restriction on concentration, the phrase
"securities of issuers primarily engaged in any particular industry" includes
industrial development bonds from the same facility or similar types of
facilities. Otherwise, each Fund may invest more than 25% of its assets in
industrial development bonds. Also, governmental issuers are not considered to
be members of an industry for concentration purposes.
Illiquid and Restricted Securities
Each Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when a Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which each Fund has the investment on its books.
Each Fund may invest in "restricted securities," i.e., securities
subject to restrictions on resale under federal securities laws. Rule 144A under
the Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining a Fund's
compliance with the limit on illiquid securities indicated above. In determining
the liquidity of Rule 144A securities, the Trustees will consider: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
Each Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, each Fund may not (1) own more
than 3% of the outstanding voting stock of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, each Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as each Fund.
Short Sales
Each Fund may not make short sales of securities or maintain a short
position unless, at all times when a short position is open, it owns an equal
amount of such securities or of securities which, without payment of any further
consideration, are convertible into or exchangeable for securities of the same
issue as, and equal in amount to, the securities sold short. Each Fund may
effect a short sale in connection with an underwriting in which a Fund is a
participant.
MANAGEMENT OF THE TRUST
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Set forth below are the Trustees and officers of the Trust and their
principal occupations and some of their affiliations over the last five years.
Unless otherwise indicated, the address for each Trustee and officer is 200
Berkeley Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of
each of the other Trusts in the Evergreen fund complex.
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<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
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Laurence B. Ashkin Trustee Real estate developer and construction consultant;
(DOB: 2/2/28) and President of Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.;
(DOB: 10/23/34) and former Managing Director, Seaward
Management
Corporation (investment advice).
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of the Finance
(DOB: 10/12/38) Committee, Cambridge College; Chairman Emeritus
and
Director,
American
Institute
of Food and
Wine;
Chairman
and
President,
Oldways
Preservation
and
Exchange
Trust
(education);
former
Chairman of
the Board,
Director,
and
Executive
Vice
President,
The London
Harness
Company;
former
Managing
Partner,
Roscommon
Capital
Corp.;
former
Chief
Executive
Officer,
Gifford
Gifts of
Fine Foods;
and former
Chairman,
Gifford,
Drescher &
Associates
(environmental
consulting).
James S. Howell Chairman of the Former Chairman of the Distribution Foundation for
(DOB: 8/13/24) Board of Trustees the Carolinas; and former Vice President of Lance
Inc. (food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer,
(DOB: 2/14/39) Carson Products Company; Director of Phoenix
Total
Return Fund
and
Equifax,
Inc.;
Trustee of
Phoenix
Series
Fund,
Phoenix
Multi-Portfolio
Fund, and
The Phoenix
Big Edge
Series
Fund; and
former
President,
Morehouse
College.
Gerald M. McDonnell Trustee Sales Representative with Nucor-Yamoto, Inc.
(DOB: 7/14/39) (steel producer).
Thomas L. McVerry Trustee Former Vice President and Director of Rexham
(DOB: 8/2/39) Corporation; and former Director of Carolina
Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
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Name Position with Trust Principal Occupations for Last Five Years
- ------------------------------- -------------------------- -------------------------------------------------------------
David M. Richardson Trustee Vice Chair and former Executive Vice President,
(DOB: 9/14/41) DHR International, Inc. (executive recruitment);
former Senior Vice President, Boyden International
Inc. (executive recruitment); and Director,
Commerce and Industry Association of New
Jersey, 411 International, Inc., and J&M Cumming
Paper Co.
Russell A. Salton, III MD Trustee Medical Director, U.S. Health Care/Aetna Health
(DOB: 6/2/47) Services; former Managed Health Care Consultant;
and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc.
(DOB: 8/11/39) (insurance agency); Executive Consultant, Drake
Beam Morin,
Inc.
(executive
outplacement);
Director of
Connecticut
Natural Gas
Corporation,
Hartford
Hospital,
Old State
House
Association,
Middlesex
Mutual
Assurance
Company,
and Enhance
Financial
Services,
Inc.;
Chairman,
Board of
Trustees,
Hartford
Graduate
Center;
Trustee,
Greater
Hartford
YMCA;
former
Director,
Vice
Chairman
and Chief
Investment
Officer,
The
Travelers
Corporation;
former
Trustee,
Kingswood-
Oxford
School; and
former
Managing
Director
and
Consultant,
Russell
Miller,
Inc.
William J. Tomko* President and Senior Vice President and Operations Executive,
(DOB:8/30/58) Treasurer BYSIS Fund Services.
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former
(DOB: 6/6/63) Assistant Treasurer Assistant Vice President, Evergreen Asset
Management
Corp./First
Union
National
Bank;
former
Senior Tax
Consulting/Acting
Manager,
Investment
Companies
Group,
Price
Waterhouse,
LLP, New
York.
Bryan Haft * Vice President Team Leader, Fund Administration, BISYS Fund
(DOB: 1/23/65) Services.
D'Ray Moore* Secretary Vice President, Client Services, BISYS Fund
(DOB: 3/30/59) Services.
</TABLE>
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
Trustee Compensation
-13-
<PAGE>
Listed below is the Trustee compensation for the twelve-month period
ended September 30, 1997.
<TABLE>
<CAPTION>
Compensation from
Trustee Compensation from Trust and Fund
Trust Complex
<S> <C> <C>
Laurence B. Ashkin $29,301 $63,400
Charles A. Austin III $14,709 $41,400
K. Dun Gifford $13,462 $38,700
James S. Howell $38,651 $100,542
Leroy Keith Jr. $13,504 $37,800
Gerald M. McDonnell $34,939 $87,051
Thomas L. McVerry $36,363 $91,101
William Walt Pettit $35,613 $89,101
David M. Richardson $14,709 $41,400
Russell A. Salton, III $34,876 $90,701
Michael S. Scofield $34,052 $87,801
Richard J. Shima $21,849 $61,125
</TABLE>
PRINCIPAL HOLDERS OF FUND SHARES
As of the date of this SAI, the officers and Trustees of the Trust
owned as a group less than 1% of the outstanding of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of a class of a
Fund's outstanding shares as of December 31, 1997. As of June 1, 1998, no person
to Stock's knowledge owned beneficially or of record more than 5% of a class of
the Fund's outstanding shares.
Evergreen Class A
None
Evergreen Class B
None
Evergreen Class C
None
Evergreen Class Y
-14-
<PAGE>
First Union National Bank/EB/INT 23.667%
Reinvest Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl CMG 1151
Charlotte, NC 28202-1911
First Union National Bank/EB/INT 8.399%
Cash Account
Attn: Trust Operations Fund Group
401 S. Tryon St. 3rd Fl CMG 1151
Charlotte, NC 28202-1911
Micro Class A
Charles Schwab & Co. Inc. 6.524%
Special Custody Account for the
Exclusive Benefit of Customers
Reinvest Account Mut Fds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
First Union Brokerage Services 5.787%
The B Scott White Trust
A/C 8685-5058
Rt 2 Box 181A
Castlewood, VA 24224
Micro Class B
MLPF&S for the sole 6.591%
benefit of its customers.
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Micro Class C
None
Micro Class Y
Stephen A. Lieber 12.168%
1210 Greacen Point Rd.
Mamaroneck, NY 10543-4693
Constance E. Lieber 8.705%
1210 Greacen Point Rd.
Mamaroneck, NY 10543-4693
Citibank NA 7.729%
Delta Airlines Master Trust 308235
Joe Villella Citicorp Services
1410 N. Westshore Blvd. Fl 5
Tampa, FL 33607-4519
-15-
<PAGE>
Charles Schwab & Co. Inc. 7.571%
Special Custody Account for the
Exclusive Benefit of Customers
Reinvest Account Mut Fds Dept
101 Montgomery St.
San Francisco, CA 94104-4122
Omega Class A
None
Omega Class B
MLPF&S for the sole 7.725%
benefit of its customers.
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Omega Class C
MLPF&S for the sole 28.770%
benefit of its customers.
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Omega Class Y
SSB C/F IRA Regular 99.550%
Nancy A. Lavalley
2048 Clairmont Terrace
Atlanta, GA 30345-2312
Strategic Class A
None
Strategic Class B
None
Strategic Class C
None
Aggressive Class A
MLPF&S for the sole 11.525%
benefit of its customers.
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Aggressive Class B
None
Aggressive Class C
-16-
<PAGE>
MLPF&S for the sole 23.805%
benefit of its customers.
Attn: Fund Administration
4800 Deer Lake Dr E 3rd Fl
Jacksonville, FL 32246-6484
Michael J. Grimaldi 7.775%
7 Edgeworth Pl.
New Brunswick, NJ 08902-3021
Lavedna Ellingson 7.255%
Douglas Ellingson Jt Wros
8510 McClintock
Tempe, AZ 85284-2527
Aggressive Class Y
First Union National Bank 82.163%
Trust Accounts
Attn: Ginny Batten
11th Floor, CMG-1151
301 S. Tryon St.
Charlotte, NC 28288-0002
Small Class A
N/A
Small Class B
MLPF&S For the Sole benefit of its 9.524%
customers.
Attn: Fund Administration
4800 Deer Lake Drive E, 3rd Floor
Jacksonville, FL 32246-6484
ROFE & Co. 5.394%
C/O State Street Bank & Trust Co.
For Sub Account
Kokusai Securities Co. Ltd.
P.O. Box 5061
Boston, MA 02206-5061
Small Class C
None
Small Class Y
None
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
-17-
<PAGE>
The investment adviser to each Fund (the "Adviser") is a subsidiary of
First Union Corporation ("First Union"). First Union is a bank holding company
headquartered at 301 South College Street, Charlotte, North Carolina 28288.
First Union and its subsidiaries provide a broad range of financial services to
individuals and businesses throughout the United States.
The Adviser to Evergreen and Micro is Evergreen Asset Management Corp.
("Evergreen Asset"), 2500 Westchester Avenue, Purchase, New York 10577.
Evergreen Asset is entitled to receive from each Fund an annual fee based on
each Fund's average daily net assets, as follows: 1.00% of the first $750
million; plus 0.90% of the next $250 million; plus 0.80% of assets over $1
billion. Under an agreement with Evergreen Asset, Lieber & Company, a First
Union subsidiary at the same address as Evergreen Asset, serves as subadviser to
each Fund at no additional cost to either Fund. Lieber & Company is paid for its
services by Evergreen Asset.
The Adviser to Aggressive is the Capital Management Group ("CMG") of
First Union National Bank ("FUNB"). CMG is entitled to receive from Aggressive
an annual fee equal to 0.60% of the Fund's average daily net assets.
The Adviser to Omega, Small and Strategic is Keystone Investment
Management Company ("Keystone"), 200 Berkeley Street, Boston, Massachusetts
02116. Keystone is entitled to receive from Omega an annual fee based on the
aggregate net asset value of the Fund's shares, as follows: 0.75% of the first
$250 million; plus 0.675% of the next $250 million; plus 0.60% of the next $500
million; plus 0.50% of assets over $1 billion, all computed as of the close of
business each business day and payable monthly. Keystone is entitled to receive
from Small and Strategic an annual fee based on the aggregate net asset value of
each Fund's shares, as follows: 0.70% of the first $100 million; plus 0.65% of
the next $100 million; plus 0.60% of the next $100 million; plus 0.55% of the
next $100 million; plus 0.50% of the next $100 million; plus 0.45% of the next
$500 million; plus 0.40% of the next $500 million; plus 0.35% of assets over
$1.5 billion, all computed as of the close of business each business day and
payable monthly.
The Adviser to Stock is Meridian Investment Company ("Meridian"), 550
Valley Stream Parkway, Malvern, Pennsylvania 19355. Meridian is entitled to
receive from Stock an annual fee equal to 0.74% of the Fund's average daily net
assets.
INVESTMENT ADVISORY AGREEMENTS
On behalf of each of its Funds, the Trust has entered into an
investment advisory agreement with the Adviser (the "Advisory Agreements") .
Under the Advisory Agreements, and subject to the supervision of the Trust's
Board of Trustees, the Adviser furnishes to the appropriate Fund investment
advisory, management and administrative services, office facilities, and
equipment in connection with its services for managing the investment and
reinvestment of the Fund's assets. The Adviser pays for all of the expenses
incurred in connection with the provision of its services. Each Fund pays for
all charges and expenses, other than those specifically referred to as being
borne by the Adviser, including, but not limited to, (1) custodian charges and
expenses; (2) bookkeeping and auditors' charges and expenses; (3) transfer agent
charges and expenses; (4) fees and expenses of Independent Trustees; (5)
brokerage commissions, brokers' fees and expenses; (6) issue and transfer taxes;
(7) costs and expenses under the Distribution Plan (as applicable) (8) taxes and
trust fees payable to governmental agencies; (9) the cost of share certificates;
(10) fees and expenses of the registration and qualification of such Fund and
its shares with the Securities and Exchange Commission ("SEC") or under state or
other securities laws; (11) expenses of preparing, printing and mailing
prospectuses, SAIs, notices, reports and proxy materials to shareholders of each
Fund; (12) expenses of shareholders' and Trustees' meetings; (13) charges and
expenses of legal counsel for each Fund and for the Independent
-18-
<PAGE>
Trustees of the Trust on matters relating to such Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and all extraordinary charges and expenses of such Fund. (See also the section
entitled "Financial Information.")
Each Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of
each Fund's outstanding shares. In either case, the terms of the Advisory
Agreement and continuance thereof must be approved by the vote of a majority of
the Independent Trustees (Trustees who are not interested persons of a Fund, as
defined in the 1940 Act) cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreements may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. Each Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit a Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union is an investment adviser. The Rule 17a-7 Procedures also allow the Funds
to buy or sell securities from other advisory clients for whom a subsidiary of
First Union is an investment adviser. The Funds may engage in such transactions
if they are equitable to each participant and consistent with each participant's
investment objective.
DISTRIBUTOR
Evergreen Distributor, Inc. (the "Distributor") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
DISTRIBUTION PLANS AND AGREEMENTS
Distribution fees are accrued daily and paid monthly on Class A, Class
B and Class C shares and are charged as class expenses, as accrued. The
distribution fees attributable to the Class B and Class C shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of a front-end sales charge, while at the same time permitting the
Distributor to compensate broker-dealers in connection with the sale of such
shares. In this regard, the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the Class B shares are
the same as those of the front-end sales charge and distribution fee with
respect to the Class A shares in that in each case the sales charge and/or
distribution fee provide for the financing of the distribution of the Fund's
shares.
Under the Rule 12b-1 Distribution Plans that have been adopted by each
Fund with respect to each of its Class A, Class B and Class C shares (each a
"Plan" and collectively, the "Plans"), the Treasurer of the Trust reports the
amounts expended under the Plans for each Fund and the purposes for which such
expenditures were made to the Trustees of the Trust for their review on a
quarterly basis. Also, each Plan provides that the selection and nomination of
the Independent Trustees are committed to the discretion of such Independent
Trustees then in office.
The Adviser may from time to time from its own funds or such other
resources as may be permitted by rules of the SEC make payments for distribution
services to the Distributor; the
-19-
<PAGE>
latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Each Plan and Distribution Agreement will continue in effect for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by the Trustees of the Trust or by vote
of the holders of a majority of the outstanding voting securities of that class
and, in either case, by a majority of the Independent Trustees of the Trust who
have no direct or indirect financial interest in the operation of the Plan or
any agreement related thereto.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B and Class C
shares. The Plans are designed to (i) stimulate brokers to provide distribution
and administrative support services to each Fund and holders of Class A, Class B
and Class C shares and (ii) stimulate administrators to render administrative
support services to the Fund and holders of Class A, Class B and Class C shares.
The administrative services are provided by a representative who has knowledge
of the shareholder's particular circumstances and goals, and include, but are
not limited to providing office space, equipment, telephone facilities, and
various personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding Class
A, Class B and Class C shares; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests for its Class A, Class B and Class C shares.
FUNB or its affiliates may finance the payments made by the Distributor
to compensate broker-dealers or other persons for distributing shares of a Fund.
In the event that a Plan or Distribution Agreement is terminated or not
continued with respect to one or more classes of a Fund, (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor with respect to that class or classes, and (ii) the Fund
would not be obligated to pay the Distributor for any amounts expended under the
Distribution Agreement not previously recovered by the Distributor from
distribution services fees in respect of shares of such class or classes through
deferred sales charges.
All material amendments to any Plan or Distribution Agreement must be
approved by a vote of the Trustees of the Trust or the holders of the Fund's
outstanding voting securities, voting separately by class, and in either case,
by a majority of the Independent Trustees, cast in person at a meeting called
for the purpose of voting on such approval; and any Plan or Distribution
Agreement may not be amended in order to increase materially the costs that a
particular class of shares of a Fund may bear pursuant to the Plan or
Distribution Agreement without the approval of a majority of the holders of the
outstanding voting shares of the Class affected. Any Plan or Distribution
Agreement may be terminated (i) by a Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities of the Fund,
voting separately by class or by a majority vote of the Independent Trustees, or
(ii) by the Distributor. To terminate any Distribution Agreement, any party must
give the other parties 60 days' written notice; to terminate a Plan only, the
Fund need give no notice to the Distributor. Any Distribution Agreement will
terminate automatically in the event of its assignment. (See also the section
entitled "Financial Information.")
-20-
<PAGE>
ADDITIONAL SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator to
Aggressive and Stock, subject to the supervision and control of the Trust's
Board of Trustees. EIS provides each Fund with facilities, equipment and
personnel and is entitled to receive a fee from the Fund based on the total
assets of all mutual funds advised by First Union subsidiaries, as follows:
0.050% of the first $7 billion; 0.035% of the next $3 billion; 0.030% of the
next $5 billion; 0.020% of the next $10 billion; 0.015% of the next $5 billion
and 0.010% of assets in excess of $30 billion.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union, is the
Funds' transfer agent. The transfer agent issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is Box 2121, Boston,
Massachusetts 02106-2121.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the annual financial statements of Omega, Small, Strategic and Stock.
Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York,
10036, audits the annual financial statements of Evergreen, Micro and
Aggressive.
Custodian
State Street Bank and Trust Company is the Funds' custodian. The bank
keeps custody of each Fund's securities and cash and performs other related
duties. The custodian's address is 225 Franklin Street, Boston, Massachusetts
02110.
Legal Counsel
Sullivan & Worcester LLP provides legal advice to the Funds. Its address is
1025 Connecticut Avenue, N.W., Washington, D.C. 20036.
BROKERAGE
Due to regulatory developments affecting the securities exchanges and
brokerage practices, the Board of Trustees may modify or eliminate any of the
following policies.
BROKERAGE COMMISSIONS
Generally, each Fund expects to purchase and sell its equity securities
through brokerage transactions for which commissions are payable. Purchases from
underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
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<PAGE>
over-the-counter market, each Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
Each Fund expects to buy and sell its fixed income securities directly
from the issuer or an underwriter or market maker for the securities. Generally,
each Fund will not pay brokerage commissions for such purchases. When a Fund
buys a security from an underwriter, the purchase price will usually include an
underwriting commission or concession. The purchase price for securities bought
from dealers serving as market makers will similarly include the dealer's mark
up or reflect a dealer's mark down. When a Fund executes transactions in the
over-the-counter market, it will deal with primary market makers unless more
favorable prices are otherwise obtainable.
SELECTION OF BROKERS
When buying and selling portfolio securities, each Adviser seeks
brokers who can provide the most benefit to the Fund or Funds for which a trade
is being made. When selecting a broker, an Adviser primarily will look for the
best price at the lowest commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and
analyses concerning issuers, industries, securities and
economic factors and (b) other information useful in making
investment decisions.
Under each Advisory Agreement, each Fund may pay higher brokerage
commissions to a broker providing it with research services, as defined in item
6, above. Pursuant to Section 28(e) of the Securities Exchange Act of 1934, this
practice is permitted if the commission is reasonable in relation to the
brokerage and research services provided. Research services provided by a broker
to an Adviser do not replace, but supplement, the services an Adviser is
required to deliver to a Fund under the Advisory Agreement. It is impracticable
for an Adviser to allocate the cost, value and specific application of such
research services among its clients because research services intended for one
client may indirectly benefit another.
When selecting a broker for portfolio trades, an Adviser may also
consider the amount of Fund shares a broker has sold, subject to the other
requirements described above.
Lieber & Company, an affiliate of Evergreen Asset, and a member of the
New York and American Stock Exchanges, will, to the extent practicable, effect
substantially all of the portfolio transactions for Evergreen and Micro effected
on those exchanges.
SIMULTANEOUS TRANSACTIONS
Each Adviser makes investment decisions for each Fund independently of
decisions made for its other clients. When a security is suitable for the
investment objective of more than one client, it may be prudent for an Adviser
to engage in a simultaneous transaction, that is, buy or sell the same security
for more than one client. Each Adviser strives for an equitable result in such
transactions by using an allocation formula. The high volume involved in some
simultaneous
-22-
<PAGE>
transactions can result in greater value to the Funds, but the ideal price or
trading volume may not always be achieved for an individual Fund.
TRUST ORGANIZATION
FORM OF ORGANIZATION
Each Fund is a series of an open-end management investment company,
known as "Evergreen Equity Trust" (the "Trust"). The Trust was formed as a
Delaware business trust on September 18, 1997 (the "Declaration of Trust"). A
copy of the Declaration of Trust is on file as an exhibit to the Trust's
Registration Statement, of which this SAI is a part. This summary is qualified
in its entirety by reference to the Declaration of Trust.
DESCRIPTION OF SHARES
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
each Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
VOTING RIGHTS
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of net asset value applicable to such share. Shares generally vote together as
one class on all matters. Classes of shares of each Fund have equal voting
rights. No amendment may be made to the Declaration of Trust that adversely
affects any class of shares without the approval of a majority of the votes
applicable to the shares of that class. Shares have non-cumulative voting
rights, which means that the holders of more than 50% of the votes applicable to
shares voting for the election of Trustees can elect 100% of the Trustees to be
elected at a meeting and, in such event, the holders of the remaining 50% or
less of the shares voting will not be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law, unless and until such time as less than a majority of the Trustees
holding office have been elected by shareholders, at which time the Trustees
then in office will call a shareholders' meeting for the election of Trustees.
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
PURCHASE, REDEMPTION AND PRICING OF SHARES
-23-
<PAGE>
HOW THE FUNDS OFFER SHARES TO THE PUBLIC
You may buy shares of a Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. Each Fund offers four classes of shares (except
Strategic, which offers three) that differ primarily with respect to sales
charges and distribution fees. Depending upon the class of shares, you will pay
an initial sales charge when you buy a Fund's shares, a contingent deferred
sales charge (a "CDSC") when you redeem a Fund's shares or no sales charges at
all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay
a maximum sales charge of 4.75%. (The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. See also the section in this SAI entitled
"Financial Information" for an example of the method of computing the offering
price of Class A shares.) If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Funds will charge a CDSC
of 1.00% if you redeem during the month of your purchase and the 12-month period
following the month of your purchase. See "Contingent Deferred Sales Charge,"
below.
Class B Shares
The Funds offer Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Funds will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIMING CDSC RATE
Month of purchase and the first twelve-month
period following the month of purchase...........................5.00%
Second twelve-month period following the month of purchase................4.00%
Third twelve-month period following the month of purchase.................3.00%
Fourth twelve-month period following the month of purchase................3.00%
Fifth twelve-month period following the month of purchase.................2.00%
Sixth twelve-month period following the month of purchase.................1.00%
Thereafter................................................................0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. (Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.)
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Funds
offer Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Funds will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
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<PAGE>
Class Y Shares (Not Offered by Strategic)
No CDSC is imposed on the redemption of Class Y shares. Class Y shares are
not offered to the general public and are available only to (1) persons who at
or prior to December 31, 1994 owned shares in a mutual fund advised by Evergreen
Asset, (2) certain institutional investors and (3) investment advisory clients
of CMG, Evergreen Asset, Keystone, Meridian or their affiliates. Class Y shares
are offered at net asset value without a front-end or back-end sales charge and
do not bear any Rule 12b-1 distribution expenses.
CONTINGENT DEFERRED SALES CHARGE
The Funds charge a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that they have incurred in connection
with the sale of their shares (see "Distribution Plans and Agreements," above).
If imposed, the Funds deduct the CDSC from the redemption proceeds you would
otherwise receive. The CDSC is a percentage of the lesser of (1) the net asset
value of the shares at the time of redemption or (2) the shareholder's original
net cost for such shares. Upon request for redemption, to keep the CDSC a
shareholder must pay as low as possible, a Fund will first seek to redeem shares
not subject to the CDSC and/or shares held the longest, in that order. The CDSC
on any redemption is, to the extent permitted by the National Association of
Securities Dealers, Inc. ("NASD"), paid to the Distributor or its predecessor.
SALES CHARGE WAIVERS OR REDUCTIONS
Reducing Class A Front-end Loads
With a larger purchase, there are several ways that you can combine
multiple purchases of Class A shares in the Evergreen funds and take advantage
of lower sales charges.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen funds. For example, if you invested $75,000 in each
of two different Evergreen funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen fund during the period will qualify as Letter of
Intent purchases.
-25-
<PAGE>
Waiver of Initial Sales Charges
The Funds may sell their shares at net asset value without an initial
sales charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax
sheltered annuity or TSA plan sponsored by an organization
having 100 or more eligible employees (a "Qualifying Plan") or
a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust
departments and registered investment advisers;
4. investment advisers, consultants or financial planners who
place trades for their own accounts or the accounts of their
clients and who charge such clients a management, consulting,
advisory or other fee;
5. clients of investment advisers or financial planners who place
trades for their own accounts if the accounts are linked to
the master account of such investment advisers or financial
planners on the books of the broker-dealer through whom shares
are purchased;
6. institutional clients of broker-dealers, including retirement
and deferred compensation plans and the trusts used to fund
these plans, which place trades through an omnibus account
maintained with a Fund by the broker-dealer;
7. employees of FUNB, its affiliates, the Distributor, any
broker-dealer with whom the Distributor has entered into an
agreement to sell shares of the Funds, and members of the
immediate families of such employees;
8. certain Directors, Trustees, officers and employees of the
Evergreen funds, the Distributor or their affiliates and to
the immediate families of such persons; or
9. a bank or trust company in a single account in the name of
such bank or trust company as trustee if the initial
investment in or any Evergreen fund made pursuant to this
waiver is at least $500,000 and any commission paid at the
time of such purchase is not more than 1% of the amount
invested.
With respect to items 8 and 9 above, each Fund will only sell shares to
these parties upon the purchasers' written assurance that the purchases are for
their personal investment purposes only. Such purchasers may not resell the
securities except through redemption by the Fund. The Funds will not charge any
CDSC on redemptions by such purchasers.
Waiver of CDSCS
The Funds do not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such shares;
-26-
<PAGE>
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of
dividend income and capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit
plan qualified under the Employee Retirement Income Security
Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder who
is a least 591/2 years old;
6. shares in an account that we have closed because the account
has an aggregate net asset value of less than $1,000;
7. an automatic withdrawal under an Systematic Income Plan of up
to 1.0% per month of your initial account balance;
8. a withdrawal consisting of loan proceeds to a retirement plan
participant;
9. financial hardship withdrawals made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan
that purchased Class C shares (this waiver is not available in
the event a Qualifying Plan, as a whole, redeems substantially
all of its assets).
EXCHANGES
Investors may exchange shares of a Fund for shares of the same class of
any other Evergreen fund, as described under the section entitled "Exchanges" in
the prospectus. Before you make an exchange, you should read the prospectus of
the Evergreen fund into which you want to exchange. The Trust's Board of
Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
CALCULATION OF NET ASSET VALUE PER SHARE ("NAV")
Each Fund computes its NAV once daily on Monday through Friday, as
described in the prospectus. A Fund will not compute its NAV on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The NAV of each class of shares of a Fund is calculated by dividing the
value of a Fund's net assets attributable to that class by the number of all
shares issued for that class.
VALUATION OF PORTFOLIO SECURITIES
Current values for a Fund's portfolio securities are determined as
follows:
-27-
<PAGE>
(1) Securities that are traded on a national securities exchange or
the over-the-counter National Market System ("NMS") are valued on the
basis of the last sales price on the exchange where primarily traded
or on the NMS prior to the time of the valuation, provided that a sale
has occurred.
(2) Securities traded on a national securities exchange or in the
over-the-counter market for which there has been no sale and other
securities traded in the over-the-counter market are valued at the mean
of the bid and asked prices at the time of valuation.
(3) Short-term investments maturing in more than sixty days, for which
market quotations are readily available, are valued at current market
value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market
quotations are not readily available; listed securities or those on NMS
if, in a Fund's opinion, the last sales price does not reflect a
current market value; and other assets are valued at prices deemed in
good faith to be fair under procedures established by the Board of
Trustees.
SHAREHOLDER SERVICES
As described in the prospectus, a shareholder may elect to receive his
or her dividends and capital grains distributions in cash instead of shares.
However, ESC will automatically convert a shareholder's distribution option so
that the shareholder reinvests all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. The Funds will hold the returned distribution or redemption proceeds in
a non interest-bearing account in the shareholder's name until the shareholder
updates his or her address. No interest will accrue on amounts represented by
uncashed distribution or redemption checks.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of each Fund. The Trust has entered into a Principal
Underwriting Agreement ("Underwriting Agreement") with the Distributor with
respect to each class of each Fund. The Distributor is a subsidiary of The BISYS
Group, Inc.
The Distributor, as agent, has agreed to use its best efforts to find
purchasers for the shares. The Distributor may retain and employ representatives
to promote distribution of the shares and may obtain orders from broker-dealers,
and others, acting as principals, for sales of shares to them. The Underwriting
Agreement provides that the Distributor will bear the expense of preparing,
printing, and distributing advertising and sales literature and prospectuses
used by it.
All subscriptions and sales of shares by the Distributor are at the
public offering price of the shares, which is determined in accordance with the
provisions of the Trust's Declaration of Trust, By-Laws, current prospectuses
and SAI. All orders are subject to acceptance by the Trust and the Trust
reserves the right, in its sole discretion, to reject any order received. Under
the Underwriting Agreement, the Trust is not liable to anyone for failure to
accept any order.
-28-
<PAGE>
The Distributor has agreed that it will, in all respects, duly conform
with all state and federal laws applicable to the sale of the shares. The
Distributor has also agreed that it will indemnify and hold harmless the Trust
and each person who has been, is, or may be a Trustee or officer of the Trust
against expenses reasonably incurred by any of them in connection with any
claim, action, suit, or proceeding to which any of them may be a party that
arises out of or is alleged to arise out of any misrepresentation or omission to
state a material fact on the part of the Distributor or any other person for
whose acts the Distributor is responsible or is alleged to be responsible,
unless such misrepresentation or omission was made in reliance upon written
information furnished by the Trust.
The Underwriting Agreement provides that it will remain in effect as
long as its terms and continuance are approved annually (i) by a vote of a
majority of the Trust's Independent Trustees, and (ii) by vote of a majority of
the Trust's Trustees, in each case, cast in person at a meeting called for that
purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment" as that term is defined in the
1940 Act.
From time to time, if, in the Distributor's judgment, it could benefit
the sales of shares, the Distributor may provide to selected broker-dealers
promotional materials and selling aids, including, but not limited to, personal
computers, related software, and data files.
ADDITIONAL TAX INFORMATION
REQUIREMENTS FOR QUALIFICATION AS A REGISTERED INVESTMENT
COMPANY
Each Fund intends to qualify for and elect the tax treatment applicable
to a regulated investment company (a "RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). (Such qualification does not
involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, a Fund must, among
other things, (i) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
Government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies). By so qualifying, a Fund is not subject to federal income tax if it
timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on a Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. Each Fund anticipates meeting such distribution requirements.
TAXES ON DISTRIBUTIONS
-29-
<PAGE>
Distributions will be taxable to shareholders whether made in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share of a Fund on the
reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. The Fund anticipates that all or a portion of ordinary
dividends which it pays will qualify for the 70% dividends-received deduction
for corporations. The Fund will inform shareholders of the amounts that so
qualify.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its net short-term capital loss to shareholders
(i.e., capital gain dividends). For federal tax purposes, shareholders must
include such capital gain dividends when calculating their net long-term capital
gains. Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares. The Fund
will inform shareholders of the portion, if any, of a capital gain distribution
which qualifies for the new 20% maximum federal rate.
Distributions by a Fund reduce its NAV. A distribution that reduces the
Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax adviser to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of a Fund's total assets at the end of a
fiscal year is represented by securities of foreign corporations and a Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on a Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
TAXES ON THE SALE OR EXCHANGE OF FUND SHARES
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gains on assets
-30-
<PAGE>
held for more than eighteen months are generally subject to a maximum federal
income tax rate of 20% for an individual. The maximum capital gains tax rate for
capital assets held by an individual for more than twelve months but not more
than eighteen months is generally 28%. Generally, the Code will not allow a
shareholder to realize a loss on shares he or she has sold or exchanged and
replaced within a sixty-one-day period beginning thirty days before and ending
thirty days after he or she sold or exchanged the shares. The Code will not
allow a shareholder to realize a loss on the sale of Fund shares held by the
shareholder for six months or less to the extent the shareholder received
exempt-interest dividends on such shares. Moreover, the Code will treat a
shareholder's loss on shares held for six months or less as a long-term capital
loss to the extent the shareholder received capital gain dividends on such
shares.
Shareholders who fail to furnish their taxpayer identification numbers
to a Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisers about the applicability of the backup withholding provisions.
OTHER TAX CONSIDERATIONS
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). It does not reflect the special
tax consequences to certain taxpayers (e.g., banks, insurance companies, tax
exempt organizations and foreign persons). Shareholders are encouraged to
consult their own tax advisers regarding specific questions relating to federal,
state and local tax consequences of investing in shares of a Fund. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and foreign tax consequences of ownership of shares of a
Fund, including the possibility that such a shareholder may be subject to a U.S.
withholding tax at a rate of 30% (or at a lower rate under a tax treaty) on
amounts treated as income from U.S. sources under the Code.
FINANCIAL INFORMATION
EXPENSES
The table below shows the total dollar amounts paid by each Fund for
services rendered during the fiscal periods specified. It is anticipated that
Stock will commence operations on or about July 24, 1998. For more information
on specific expenses, see "Investment Advisory and Other Services,"
"Distribution Plans and Agreements," "Principal Underwriter" and "Purchase,
Redemption and Pricing of Shares."
<TABLE>
<CAPTION>
1997 Fund Expenses
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fund Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
===================== ================ ================ ================= ================ =============== =============
<S> <C> <C> <C> <C> <C> <C>
Evergreen (1) $13,089,112 $299,430 $3,629,968 $72,777 $1,464,361 $129,417
31
<PAGE>
1997 Fund Expenses
Total Underwriting
Advisory Class A Class B Class C Underwriting Commissions
Fund Fees 12b-1 Fees 12b-1 Fees 12b-1 Fees Commissions Retained
===================== ================ ================ ================= ================ =============== ================
Aggressive (1) $1,013,344 $251,302 $289,795 $19,048 $278,145 $21,472
Micro (1) $428,047 $3,314 $13,933 $400 $2,223 $300
Omega (2) $1,480,178 $153,219 $739,237 $120,064 $254,113 $19,806
Small (3a) $2,387,425 N/A $4,928,079* N/A $878,274 $22,796
=========
Small (3b) $7,788,033 N/A $16,641,755* N/A $17,885,604 $13,187,854
Strategic (4) $3,205,7 N/A $1,790,6 N/A -- --
53 75*
===================== ================ ================ ================= ================ =============== ================
(1) Year ended 9/30/97
(2) Nine months ended 9/30/97
(3a) Four months ended 9/30/97
(3b) Year ended 5/31/97
(4) Eleven months ended 9/30/97
* Not multiple class during this period; amount reflects all 12b-1 fees.
1996 Fund Expenses
Total Underwri
Underwri ting
Class A Class B Class C ting Commiss
Advisory 12b-1 12b-1 12b-1 Commiss ions
Fund Fees Fees Fees Fees ions Retained
===================== ================ ================ ================= ================ =============== ================
Evergreen (1) $9,145,2 $149,92 $1,185,9 $1,462, $157,23
87 2 57 $10,292 012 3
Aggressive (1) $612,49 $197,50 $185,83
2 7 $26,469 $3,308 5 $22,742
Micro (1) $510,42
1 $2,471 $12,608 $310 $2,963 $188
Omega (2) $1,831,1 $186,59 $168,74 $983,62 $759,39
42 6 $814,977 8 1 4
- --------------------- --------------- ----------------
Small (3) $8,473,1 $18,458, $15,690 ($5,933,
39 N/A 861* N/A ,812 719)
32
<PAGE>
1996 Fund Expenses
Total Underwri
Underwri ting
Class A Class B Class C ting Commiss
Advisory 12b-1 12b-1 12b-1 Commiss ions
Fund Fees Fees Fees Fees ions Retained
===================== ================ ================ ================= ================ =============== ================
Evergreen (1) $9,145,2 $149,92 $1,185,9 $1,462, $157,23
87 2 57 $10,292 012 3
Aggressive (1) $612,49 $197,50 $185,83
2 7 $26,469 $3,308 5 $22,742
Micro (1) $510,42
1 $2,471 $12,608 $310 $2,963 $188
Omega (2) $1,831,1 $186,59 $168,74 $983,62 $759,39
42 6 $814,977 8 1 4
- --------------------- --------------- ----------------
Small (3) $8,473,1 $18,458, $15,690 ($5,933,
39 N/A 861* N/A ,812 719)
=====================
Strategic (4) $2,994,5 N/A $4,845,3 N/A $4,093, $2,049,
00 52* 912 519
===================== ================ ================ ================= ================ =============== ================
(1) Year ended 9/30/96
(2) Year ended 12/31/96
(3) Year ended 5/31/96
(4) Year ended 10/31/96
* Not multiple class during this period; amount reflects all 12b-1 fees.
</TABLE>
1995 Fund Expenses
Total Underwri
Underwri ting
ting Commiss
Advisory Commiss ions
Fund Fees ions Retained
==================== ================ ================ ================
$5,472,4 $586,70
Evergreen (1) 39 1 $72,923
Aggressive $106,04
(2) 1 $70,327 $89,909
$800,64
Micro (1) 2 $3,418 $495
$1,280,4 $548,38 $1,167,4
Omega (3) 36 6 86
- --------------------
$6,037,5 $10,076, $2,257,7
Small (4) 04 379 95
Strategic (5) $2,799,5 $3,911,7 $288,67
44 44 1
(1) Nine months ended 9/30/95
(2) Two months ended 9/30/95
(3) Year ended 12/31/95
33
<PAGE>
(4) Year ended 5/31/95
(5) Year ended 10/31/95
BROKERAGE COMMISSIONS PAID
The table below shows (1) total amounts paid by each Fund in brokerage
commissions and (2) amounts paid to Lieber & Company, an affiliate of FUNB,
during each of the last three years.
<TABLE>
<CAPTION>
Evergreen Aggressive Micro Omega Small Strategic
====================== =================== ================ ============== ============== =============== ==============
<S> <C> <C> <C> <C> <C> <C>
1997 $ 503,276 $677,86 $ $403,2 $1,891, $1,144,
Aggregate 0 91,568 94 397 065
Dollar
Amount
1997 Dollar $ 416,953 -- $ -- -- --
Amount Paid 61,717
to Lieber
1996 $590,105 -- $ $829,4 $2,853, $1,990,
Aggregate 317,05 79 950 208
Dollar 8
Amount
1996 Dollar $515,522 -- $153,5 -- -- --
Amount Paid 96
to Lieber
1995 $342,559 -- $414,0 $735,2 $1,445, $871,0
Aggregate 48 03 066 00
Dollar
Amount
- ----------------------
1995 Dollar $252,069 -- $125,3 -- -- --
Amount Paid 47
to Lieber
====================== =================== ================ ============== ============== =============== ==============
</TABLE>
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase
34
<PAGE>
of Class A shares of each Fund aggregating less than $100,000 based upon the NAV
of each Fund's Class A shares at the end of each Fund's latest fiscal period.
<TABLE>
<CAPTION>
Fund* Date Net Asset Value Per Share Sales Offering Price Per
<S> <C> <C> <C> <C>
Charge Share
Evergreen 9/30/97 $22.96 4.75% $24.10
Aggressive 9/30/97 $23.48 4.75% $24.65
Micro 9/30/97 $26.68 4.75% $28.01
Omega Fund 9/30/97 $22.69 4.75% $23.82
========================= ========================= ======================== ======================== =====================
</TABLE>
*Excludes Strategic and Small, which did not offer Class A at the end of their
latest fiscal periods and Stock which is expected to commence operations on or
about July 24, 1998.
PERFORMANCE
Total Return
Total return quotations for a class of shares of a Fund as they may
appear from time to time in advertisements are calculated by finding the average
annual compounded rates of return over one, five and ten year periods, or the
time periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods.
The annual total returns as of September 30, 1997 for each class of shares of
the Funds (including applicable sales charges) are as follows:
<TABLE>
<CAPTION>
Ten Years
or Since Inception
One Year Five Years Inception Date
<S> <C> <C> <C> <C>
Evergreen
Class A 27.37% -- 27.63% Jan. 3, 1995
Class B 27.69% -- 28.32% Jan. 3, 1995
Class C 31.67% -- 29.01% Jan. 3, 1995
Evergreen
Class Y 34.08% 19.88% 12.64% Oct. 15, 1971
Aggressive
Class A 6.30% 16.77% 14.73% Apr. 15, 1983
35
<PAGE>
Ten Years
or Since Inception
One Year Five Years Inception Date
Class B 5.96% -- 19.49% July 7, 1995
Class C 9.92% -- 19.22% Aug. 3, 1995
Class Y 11.76% -- 21.67% July 11, 1995
Micro
Class A 46.81% -- 20.43% Jan. 3, 1995
Class B 48.13% -- 20.91% Jan. 3, 1995
Class C 52.07% -- 21.72% Jan. 3, 1995
Class Y 54.64% 14.19% 11.46% June 1, 1983
Omega
Class A 20.60% 16.86% 14.31% Apr. 29, 1968
Class B 20.45% -- 15.45% Aug. 2, 1993
Class C 24.41% -- 15.78% Aug. 2, 1993
Class Y -- -- -- Jan. 13, 1997
Strategic
Class B 37.33% 18.73% 11.76% Jul. 15, 1935
Small 15.48% 20.55% 13.95% Jul. 15, 1935
Class B
============================= =================== =================== =================== ===================
</TABLE>
Non-Standardized Performance
In addition to the performance information described above, a Fund may
provide total return information for designated periods, such as for the most
recent six months or most recent twelve months. This total return information is
computed as described under "Total Return" above except that no annualization is
made.
General
From time to time, a Fund may quote its performance in advertising and other
types of literature as compared to the performance of the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, Russell 2000
Index, or any other commonly quoted index of common stock prices. The Standard &
Poor's 500 Composite Stock Price Index, the Dow Jones Industrial Average and the
Russell 2000 Index are unmanaged indices of selected common stock prices. A
Fund's performance may also be compared to those of other mutual funds having
similar objectives. This comparative performance would be expressed as a ranking
prepared by Lipper Analytical Services, Inc. or similar independent services
monitoring mutual fund performance. A Fund's performance will be calculated by
assuming, to the extent applicable, reinvestment of all
36
<PAGE>
capital gains distributions and income dividends paid. Any such comparisons may
be useful to investors who wish to compare a Fund's past performance with that
of its competitors. Of course, past performance cannot be a guarantee of future
results.
Financial Statements
The audited financial statements and the reports thereon are hereby
incorporated by reference to each Fund's Annual Report, a copy of which may be
obtained without charge from ESC, P.O. Box 2121, Boston, Massachusetts
02106-2121.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, each Fund
reserves the right to change the terms of the offer stated in its prospectus
without shareholder approval, including the right to impose or change fees for
services provided.
No dealer, salesman or other person is authorized to give any information or
to make any representation not contained in a Fund's prospectus, SAI or in
supplemental sales literature issued by such Fund or the Distributor, and no
person is entitled to rely on any information or representation not contained
therein.
Each Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
22987
37
<PAGE>
APPENDIX A
S&P AND MOODY'S BOND RATINGS
S&P Bond Ratings
An S&P bond rating is a current assessment of the creditworthiness of an
obligor, including obligors outside the U.S., with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees. Ratings of foreign obligors do not take into
account currency exchange and related uncertainties. The ratings are based on
current information furnished by the issuer or obtained by S&P from other
sources it considers reliable.
The ratings are based, in varying degrees, on the following considerations:
1. Likelihood of default and capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by and relative position of the obligation in the
event of bankruptcy reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
PLUS (+) OR MINUS (-): To provide more detailed indications of credit
quality, ratings from "AA" to "BBB" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
A provisional rating is sometimes used by S&P. It assumes the successful
completion of the project being financed by the debt being rated and indicates
that payment of debt service requirements is largely or entirely dependent upon
the successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion.
S&P bond ratings are as follows:
1. AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
2. AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
3. A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
4. BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic
<PAGE>
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories.
5. BB, B, CCC, CC and C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's Bond Ratings
Moody's ratings are as follows:
1. Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
2. Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
3. A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
4. Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
5. Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
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6. B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
7. Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.
8. Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other market
shortcomings.
9. C - Bonds which are rated as C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Baa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
MONEY MARKET INSTRUMENTS
Money market securities are instruments with remaining maturities of one year
or less such as bank certificates of deposit, bankers' acceptances, commercial
paper (including variable rate master demand notes), and obligations issued or
guaranteed by the U.S. government, its agencies or instrumentalities, some of
which may be subject to repurchase agreements.
Commercial Paper
Commercial paper will consist of issues rated at the time of purchase A-1, by
S&P, or Prime-1 by Moody's or F-1 by Fitch; or, if not rated, will be issued by
companies which have an outstanding debt issue rated at the time of purchase
Aaa, Aa or A by Moody's, or AAA, AA or A by S&P or Fitch, or will be determined
by a Fund's investment adviser to be of comparable quality.
A. S&P Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
Ratings are graded into four categories, ranging from "A" for the highest
quality obligations to "D" for the lowest. The top category is as follows:
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1. A: Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
2. A-1: This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
B. Moody's Ratings
The term "commercial paper" as used by Moody's means promissory obligations
not having an original maturity in excess of nine months. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
promissory obligations not having an original maturity in excess of nine months.
Moody's employs the following designation, judged to be investment grade, to
indicate the relative repayment capacity of rated issuers.
1. The rating Prime-1 is the highest commercial paper rating assigned by
Moody's. Issuers rated Prime-1 (or related supporting institutions) are deemed
to have a superior capacity for repayment of short term promissory obligations.
Repayment capacity of Prime-1 issuers is normally evidenced by the following
characteristics:
1) leading market positions in well-established industries;
2) high rates of return on funds employed;
3) conservative capitalization structures with moderate reliance on debt and
ample asset protection;
4) broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
5) well established access to a range of financial markets and assured
sources of alternate liquidity.
In assigning ratings to issuers whose commercial paper obligations are
supported by the credit of another entity or entities, Moody's evaluates the
financial strength of the affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment.
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