1933 Act Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14AE
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
[ ] Pre-Effective [ ] Post-Effective
Amendment No. Amendment No.
EVERGREEN EQUITY TRUST
(Evergreen Fund and Evergreen Micro Cap Fund)
[Exact Name of Registrant as Specified in Charter)
Area Code and Telephone Number: (617) 210-3200
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------
(Address of Principal Executive Offices)
Michael H. Koonce, Esq.
200 Berkeley Street
Boston, Massachusetts 02116
-----------------------------------------
(Name and Address of Agent for Service)
Copies of All Correspondence to:
Robert N. Hickey, Esq.
Sullivan & Worcester LLP 1025 Connecticut Avenue,
N.W.
Washington, D.C. 20036
Approximate date of proposed public offering: As soon as possible after
the effective date of this Registration Statement.
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the InvestmentCompany
Act of 1940 (File No. 333-); accordingly, no fee is payable herewith. Pursuant
to Rule 429, this Registration Statement relates to the aforementioned
registration on Form N-1A. A Rule 24f-2 Notice for the Registrant's fiscal year
ended September 30, 1998 will be filed with the Commission on or about October
29, 1998.
It is proposed that this filing will become effective on May 13, 1999
pursuant to Rule 488 of the Securities Act of 1933.
EVERGREEN EQUITY TRUST
CROSS REFERENCE SHEET
Pursuant to Rule 481(a) under the Securities Act of 1933
Location in Prospectus/
Item of Part A of Form N-14 Proxy Statement
- --------------------------- -----------------------
1. Beginning of Registration Cross Reference Sheet;
Statement and Outside Cover Page
Front Cover Page of
Prospectus
2. Beginning and Outside Table of Contents
Back Cover Page of
Prospectus
3. Fee Table, Synopsis and Comparison of Fees and
Risk Factors Expenses; Summary;
Comparison of Investment
Objectives and Policies;
Risks
4. Information About the Summary; Reasons for the
Transaction Reorganizations;
Comparative Information on
Shareholders' Rights;
Exhibits A-1 and A-2
(Agreements and Plans of
Reorganization)
5. Information about the Cover Page; Summary;
Registrant Risks; Comparison of
Investment Objectives and
Policies; Comparative
Information on
Shareholders' Rights;
Additional Information
6. Information about the Cover Page; Summary;
Company Being Acquired Risks; Comparison of
Investment Objective and
Policies; Comparative
Information on
Shareholders' Rights;
Additional Information
7. Voting Information Cover Page; Summary;
Voting Information
Concerning the Meeting
8. Interest of Certain Financial Statements and
Persons and Experts Experts; Legal Matters
9. Additional Information Inapplicable
Required for Reoffering
by Persons Deemed to be
Underwriters
10. Cover Page Cover Page
11. Table of Contents Omitted
12. Additional Information Statement of Additional
About the Registrant Information of the
Evergreen Equity Trust-Evergreen
Fund dated February 1, 1999
13. Additional Information Statement of Additional
about the Company Being Information of the Evergreen
Acquired Equity Trust-Evergreen Micro
Cap Fund dated
February 1, 1999;
14. Financial Statements Financial Statements of Evergreen
Fund dated September 30, 1998;
Financial Statements of Evergreen
Evergreen Micro Cap Fund dated
September 30, 1998
Location in Prospectus/
Item of Part C of Form N-14 Proxy Statement
- --------------------------- -----------------------
Incorporated by Reference
15. Indemnification to Part A Caption -
"Comparative Information
on Shareholders' Rights -
Liability and
Indemnification of
Trustees"
16. Exhibits Item 16. Exhibits
17. Undertakings Item 17. Undertakings
<PAGE>
PART A PROSPECTUS/PROXY STATEMENT
<PAGE>
[Buckslip Insert: E-Mail & Telephone Voting Instructions]
Two New Low-Cost Ways
to Vote Your Proxy
Save [Money Symbol]! It's Fast And Convenient.
The accompanying Proxy Statement outlines important issues affecting
your Evergreen fund. Help us save time and postage costs - savings we pass along
to you - by voting through the Internet or by telephone. Each method is
generally available 24 hours a day and will ensure that your vote is confirmed
and posted immediately.
Do not mail the Proxy Card if you are voting by Internet or telephone.
Save [Time Symbol]!
To Vote By Internet:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Go to website www.proxyvote.com or to the "Proxy Voting" link on
www.evergreen-funds.com.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple instructions.
To Vote By Telephone:
1. Read the Proxy Statement and have your Proxy Card at hand.
2. Call toll-free 1-800-343-2898.
3. Enter the 12-digit Control Number found on your Proxy Card.
4. Follow the simple recorded instructions
Your proxy vote
is important! [Logo]
<PAGE>
LOGO
June 2, 1999
Dear Shareholder,
As a shareholder of Evergreen Micro Cap Fund ("Micro Cap Fund"), you are
invited to vote on an important matter affecting your Fund. Specifically, you
are invited to vote on a proposal to merge Micro Cap Fund into Evergreen Fund.
Evergreen Fund is another mutual fund managed by Evergreen Asset Management
Corp. that invests primarily in equity securities of small, mid-size and large
companies.
If the merger is approved you will receive shares of Evergreen Fund having
the same total value as the shares of Micro Cap Fund you currently own. Details
about Evergreen Fund's investment objective, portfolio management team,
performance, etc., along with additional information about the proposed merger,
are contained in the attached Prospectus/Proxy Statement. You will not incur any
Federal income taxes as a result of the merger.
The Board of Trustees of Evergreen Equity Trust has approved the merger and
recommends that you vote FOR this proposal.
I realize that the attached Prospectus/Proxy Statement will take time to
review, but your vote is very important. Please take the time to familiarize
yourself with this information. Votes on the proposal will be cast at a special
meeting of Micro Cap Fund shareholders to be held on July 23, 1999. Although you
are welcome to attend the meeting in person, you do not need to do so in order
to vote your shares. If you do not expect to attend the meeting, please
complete, date, sign and return the enclosed proxy card in the enclosed postage
paid envelope. Instructions on how to complete the proxy card are included
immediately after the Notice of Special Meeting.
If you have any questions about the proposal or the proxy card, please call
Evergreen Service Company at 800-343-2898. You may also FAX your completed and
signed proxy card to Alamo Direct, our proxy tabulator, at 800-796-9932.
Thank you for taking this matter seriously and participating in this
important process.
Sincerely,
[Signature]
William M. Ennis
Managing Director
Evergreen Funds
<PAGE>
[SUBJECT TO COMPLETION, APRIL 12, 1999 - PRELIMINARY COPY]
EVERGREEN MICRO CAP FUND
200 Berkeley Street
Boston, Massachusetts 02116
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
Notice is hereby given that a Special Meeting (the "Meeting") of
Shareholders of Evergreen Micro Cap Fund (the "Micro Cap Fund"), a series of
Evergreen Equity Trust, will be held at the offices of the Evergreen funds, 26th
Floor, 200 Berkeley Street, Boston, Massachusetts 02116, on July 23, 1999 at
2:00 p.m. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization
(the "Plan") dated as of April 30, 1999, providing for the acquisition of
all of the assets of Micro Cap Fund by Evergreen Fund, a series of
Evergreen Equity Trust, in exchange for shares of Evergreen Fund and the
assumption by Evergreen Fund of the identified liabilities of Micro Cap
Fund. The Plan also provides for distribution of these shares of Evergreen
Fund to shareholders of Micro Cap Fund in liquidation and subsequent
termination of Micro Cap Fund. A vote in favor of the Plan is a vote in
favor of the liquidation and dissolution of Micro Cap Fund.
2. To transact any other business which may properly come before the
Meeting or any adjournment or adjournments thereof.
On behalf of Micro Cap Fund, the Trustees of Evergreen Equity Trust have
fixed the close of business on May 5, 1999 as the record date for the
determination of shareholders of the Fund entitled to notice of and to vote at
the Meeting or any adjournment thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND IN PERSON ARE URGED TO SIGN WITHOUT DELAY AND RETURN THE
ENCLOSED PROXY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE, SO THAT
THEIR SHARES MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE
ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By Order of the Board of Trustees
Michael H. Koonce
Secretary
June 2, 1999
<PAGE>
INSTRUCTIONS FOR EXECUTING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and may help to avoid the time and expense involved in validating your vote
if you fail to sign your proxy card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the
Registration on the proxy card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party
signing should conform exactly to a name shown in the Registration on the
proxy card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the
proxy card should be indicated unless it is reflected in the form of
Registration. For example:
REGISTRATION VALID SIGNATURE
CORPORATE ACCOUNTS
(1) ABC Corp. ABC Corp.
(2) ABC Corp. John Doe, Treasurer
(3) ABC Corp. John Doe, Treasurer
c/o John Doe, Treasurer
(4) ABC Corp. Profit Sharing Plan John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee Jane B. Doe
u/t/d 12/28/78
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust. John B. Smith
F/b/o John B. Smith, Jr. UGMA
(2) John B. Smith John B. Smith, Jr., Executor
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 2, 1999
Acquisition of Assets of
EVERGREEN MICRO CAP FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
By and in Exchange for Shares of
EVERGREEN FUND
a series of
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
This Prospectus/Proxy Statement is being sent to shareholders of Evergreen
Micro Cap Fund ("Micro Cap Fund") to ask them to approve the Agreement and Plan
of Reorganization (the "Plan") at a Special Meeting of Shareholders to be held
on July 23, 1999 at 2:00 p.m. at the offices of the Evergreen Funds, 200
Berkeley Street, 26th Floor, Boston, Massachusetts 02116, and any adjournments
thereof (the "Meeting").
Under the Plan, Micro Cap Fund will be merged into Evergreen Fund. This
will be accomplished by Evergreen Fund acquiring all of the assets of Micro Cap
Fund in exchange for shares of Evergreen Fund. Along with acquiring the assets
of Micro Cap Fund, Evergreen Fund will also assume the identified liabilities of
Micro Cap Fund. This transaction will be referred to as the "Merger" for the
rest of this Prospectus/Proxy Statement. Micro Cap Fund and Evergreen Fund are
sometimes referred to each as the "Fund" or together as the "Funds" in this
Prospectus/Proxy Statement. After the Merger, Micro Cap Fund shareholders will
receive shares of Evergreen Fund and Micro Cap Fund will be terminated. Micro
Cap Fund shareholders will receive Evergreen Fund shares that have the same
letter description (i.e. Class A, Class B, Class C or Class Y), and the same
distribution-related fees, shareholder servicing-related fees and contingent
deferred sales charges ("CDSCs"), if any, as the shares they currently hold
("Corresponding Shares"). Micro Cap Fund shareholders will incur no fees in
connection with receiving the Corresponding Shares. Micro Cap Fund shareholders
will receive Corresponding Shares that have the same aggregate net asset value
as the shares they hold. The Merger is being structured as a tax-free
reorganization for federal income tax purposes.
Micro Cap Fund and Evergreen Fund are each a separate series of Evergreen
Equity Trust, an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The investment
objective of Evergreen Fund is to seek capital appreciation. The investment
objective of Micro Cap Fund is the same--to seek capital appreciation.
This Prospectus/Proxy Statement, which should be kept for future reference,
sets forth concisely the information about Evergreen Fund that Micro Cap Fund
shareholders should know before voting on the Merger. Certain relevant documents
listed below, which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated in whole or in part by reference to (which means,
legally considered to be part of) this Prospectus/Proxy Statement. A Statement
of Additional Information dated June 2, 1999 relating to this Prospectus/Proxy
Statement and the Merger, which includes the most recent annual and semi-annual
financial statements of Evergreen Fund and Micro Cap Fund, has been filed with
the SEC and is legally considered to be part of this Prospectus/Proxy Statement.
A copy of such Statement of Additional Information is available upon request and
without charge by writing to Evergreen Fund at 200 Berkeley Street, Boston,
Massachusetts 02116 or by calling toll-free 1-800-343-2898.
The two Prospectuses of Evergreen Fund, one offering Class A, Class B and
Class C shares and the other offering Class Y shares, dated February 1, 1999,
its Annual Report for the fiscal year ended September 30, 1998 and its
Semi-Annual Report for the six month period ended March 31, 1999 are legally
considered to be part of this Prospectus/Proxy Statement insofar as they relate
to Evergreen Fund only and not to any other fund described therein. Along with
this Prospectus/Proxy Statement, shareholders of Micro Cap Fund will receive
copies of the Prospectus pertaining to the class of shares of Evergreen Fund
that they will receive as a result of the Merger. Additional information about
Evergreen Fund is contained in its Statement of Additional Information dated
February 1, 1999, which has been filed with the SEC and which is available upon
request and without charge by writing to or calling Evergreen Fund at the
address or telephone number listed in the paragraph above.
The two Prospectuses of Micro Cap Fund, one offering Class A, Class B and
Class C shares and the other offering Class Y shares, dated February 1, 1999 are
legally considered to be part of this Prospectus/Proxy Statement insofar as they
relate to Micro Cap Fund only and not to any other fund described therein.
Copies of the Prospectuses, the related Statement of Additional Information, the
Annual Report for the fiscal year ended September 30, 1998 and the Semi-Annual
Report for the six month period ended March 31, 1999 are available upon request
and without charge by writing to Micro Cap Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-343-2898.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The shares offered by this Prospectus/Proxy Statement are not deposits or
obligations of any bank and are not insured or otherwise protected by the U.S.
government, the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency and involve investment risk, including possible
loss of capital.
<PAGE>
TABLE OF CONTENTS
Page
COMPARISON OF FEES AND EXPENSES.......................................... 7
SUMMARY . 10
Proposed Plan of Reorganization..................................... 10
Tax Consequences.................................................... 11
Investment Objectives and Policies of the Funds..................... 11
Comparative Performance Information for each Fund................... 11
Management of the Funds............................................. 12
Investment Advisors................................................. 12
Portfolio Management................................................ 12
Distribution of Shares.............................................. 13
Purchase and Redemption Procedures.................................. 14
Exchange Privileges................................................. 14
Dividend Policy..................................................... 15
Risks............................................................... 15
REASONS FOR THE MERGER................................................... 16
Agreement and Plan of Reorganization................................ 17
Federal Income Tax Consequences..................................... 18
Pro-forma Capitalization............................................ 19
Shareholder Information............................................. 20
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES......................... 20
INFORMATION ON SHAREHOLDERS' RIGHTS...................................... 21
Form of Organization................................................ 21
Capitalization...................................................... 21
Shareholder Liability............................................... 21
Shareholder Meetings and Voting Rights.............................. 22
Liquidation or Dissolution.......................................... 22
Liability and Indemnification of Trustees........................... 22
ADDITIONAL INFORMATION................................................... 22
VOTING INFORMATION CONCERNING THE MEETING................................ 23
FINANCIAL STATEMENTS AND EXPERTS......................................... 24
LEGAL MATTERS............................................................ 24
OTHER BUSINESS........................................................... 25
EXHIBIT A................................................................ A-1
EXHIBIT B................................................................ B-1
<PAGE>
COMPARISON OF FEES AND EXPENSES
The amounts of fees and expenses for Class A, Class B, Class C and Class Y
shares of Evergreen Fund and Micro Cap Fund are set forth in the following
tables and in the examples. The amounts given are based on the actual expenses
of Evergreen Fund for the fiscal year ended September 30, 1998 and Micro Cap
Fund estimated expenses for the fiscal year ending September 30, 1999. The pro
forma amounts for Class A, Class B, Class C and Class Y shares of Evergreen Fund
are based on what the estimated combined expenses of Evergreen Fund would be for
the fiscal year ended September 30, 1998.
The following tables show:
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B,
Class C and Class Y shares of each Micro Cap Fund and Evergreen
Fund, and
o the shareholder transaction expenses and annual fund operating
expenses associated with an investment in the Class A, Class B,
Class C and Class Y shares of Evergreen Fund assuming the Merger
takes place ("Evergreen Fund Pro Forma").
Comparison of
Class A, Class B, Class C and Class Y Shares of Evergreen Fund
With
Class A, Class B, Class C and Class Y Shares of Micro Cap Fund
<TABLE>
<CAPTION>
Evergreen Micro Cap
Fund Fund
Class A Class B Class C Class Y Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shareholder
Transaction
Expenses
Maximum Sales
Load Imposed on
Purchases (as a
Percentage of
Offering price)...... 4.75% None None None 4.75% None None None
Contingent Deferred
Sales Charge (as
a percentage of
original purchase
price or
redemption
proceeds,
whichever is
lower)............... None(1) 5.00% in 1.00% in None None(1) 5.00% in 1.00% in None
the the first year the first the first
first and 0.00% year year
year thereafter declining to and 0.00%
declining 1.00% in thereafter
to the sixth
1.00% in year and
the sixth 0.00%
year and thereafter
0.00%
thereafter
Evergreen Micro Cap
Fund Fund
Class A Class B Class C Class Y
Class A Class B Class C Class Y
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses (as a
Percentage of average daily net assets)
Management Fee ........................... 0.89% 0.89% 0.89% 0.89% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees (2) ........................... 0.25% 1.00% 1.00% None 0.25% 1.00% 1.00% None
Other Expenses............................ 0.30% 0.30% 0.30% 0.29% 0.40% 0.40% 0.40% 0.39%
----- ----- ----- ----- ----- ----- ----- -----
Annual Fund Operating Expenses ........... 1.44% 2.19% 2.19% 1.18% 1.65% 2.40% 2.40% 1.39%
Evergreen Fund Pro Forma
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)...................... 4.75% None None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower)...................... None(1) 5.00% in the 1.00% in the first None
first year and 0.00%
year declining thereafter
to 1.00% in the sixth year
and 0.00% thereafter
Annual Fund Operating Expenses (as a
percentage of average daily net assets)
Management Fee........................................ 0.89% 0.89% 0.89% 0.89%
12b-1 Fees (2)........................................ 0.25% 1.00% 1.00% None
Other Expenses........................................ 0.30% 0.30% 0.30% 0.30%
----- ----- ----- -----
Annual Fund Operating Expenses........................ 1.44% 2.19% 2.19% 1.19%
(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 of 1.00%
upon redemption within one year after the month of purchase.
(2) Class A shares can pay up to 0.75% of average daily net assets as a 12b-1
fee. For the foreseeable future, the Class A 12b-1 fees will be limited to
0.25% of average daily net assets.
</TABLE>
<PAGE>
Examples. The following tables show for Evergreen Fund and Micro Cap Fund,
and for Evergreen Fund pro forma, assuming the Merger takes place, examples of
the cumulative effect of shareholder transaction expenses and annual fund
operating expenses indicated above on a $10,000 investment in each class of
shares for the periods specified, assuming (i) a 5% annual return, and (ii)
redemption at the end of such period. For Class B and Class C shares, the tables
also show the effect of shareholder expenses assuming the shares are not
redeemed. In the case of Evergreen Fund pro forma, the examples do not reflect
the imposition of the 4.75% maximum sales load on purchases since Micro Cap Fund
shareholders who receive Class A shares of Evergreen Fund in the Merger will not
incur any sales load.
<TABLE>
<CAPTION>
Evergreen Fund
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class A........................................................ $615 $909 $1,225 $2,117
Class B (assuming redemption at the end of the period)......... $722 $985 $1,375 $2,245
Class B (assuming no redemption at the end of the period)...... $222 $685 $1,175 $2,245
Class C (assuming redemption at the end of the period)......... $322 $685 $1,175 $2,524
Class C (assuming no redemption at the end of the period)...... $222 $685 $1,175 $2,524
Class Y........................................................ $120 $375 $649 $1,432
Micro Cap Fund
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class A........................................................ $635 $971 $1,329 $2,337
Class B (assuming redemption at the end of the period)......... $743 $1,048 $1,480 $2,463
Class B (assuming no redemption at the end of the period)...... $243 $748 $1,280 $2,463
Class C (assuming redemption at the end of the period)......... $343 $748 $1,280 $2,736
Class C (assuming no redemption at the end of the period)...... $243 $748 $1,280 $2,736
Class Y........................................................ $142 $440 $761 $1,669
Evergreen Fund Pro Forma
Three Five
One Year Years Years Ten Years
<S> <C> <C> <C> <C>
Class A........................................................ $147 $456 $787 $1,724
Class B (assuming redemption at the end of the period)......... $722 $985 $1,375 $2,245
Class B (assuming no redemption at the end of the period)...... $222 $685 $1,175 $2,245
Class C (assuming redemption at the end of the period)......... $322 $685 $1,175 $2,524
Class C (assuming no redemption at the end of the period)...... $222 $685 $1,175 $2,524
Class Y........................................................ $121 $378 $654 $1,443
</TABLE>
The purpose of the foregoing examples is to assist Micro Cap Fund
shareholders in understanding the various costs and expenses that an investor in
Evergreen Fund as a result of the Merger would bear directly and indirectly, as
compared with the various direct and indirect expenses currently borne by a
shareholder in Micro Cap Fund. These examples should not be considered a
representation of past or future expenses or annual return. Actual expenses may
be greater or less than those shown.
<PAGE>
SUMMARY
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectuses of Evergreen Fund and Micro Cap Fund dated February 1, 1999 (which
are legally considered to be a part of this Prospectus/Proxy Statement) and the
Plan, the form of which is attached to this Prospectus/Proxy Statement as
Exhibit A.
Proposed Plan of Reorganization
The Plan generally provides for the following:
o the transfer of all of the assets of Micro Cap Fund in exchange for
shares of Evergreen Fund, and
o the assumption by Evergreen Fund of the identified liabilities of Micro
Cap Fund. (The identified liabilities consist only of those liabilities
reflected on Micro Cap Fund's statement of assets and liabilities
determined immediately preceding the Merger.)
The Plan also calls for the distribution of shares of Evergreen Fund to
Micro Cap Fund's shareholders in liquidation of Micro Cap Fund as part of the
Merger. After the Merger, the shareholders of Micro Cap Fund will own
Corresponding Shares of Evergreen Fund having the same aggregate net asset value
as that of the shareholders' shares of Micro Cap Fund, as of the close of
business immediately prior to the date that Micro Cap Fund's assets are
exchanged for shares of Evergreen Fund. See "Reasons for the Merger--Agreement
and Plan of Reorganization."
The Trustees of Evergreen Equity Trust, including the Trustees who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Trustees"), have concluded that the Merger would be in the best interests of
Micro Cap Fund shareholders, and that their interests will not be diluted as a
result of the Merger. Accordingly, the Trustees have submitted the Plan for the
approval of Micro Cap Fund's shareholders.
THE BOARD OF TRUSTEES OF EVERGREEN EQUITY TRUST
RECOMMENDS APPROVAL BY SHAREHOLDERS OF MICRO CAP FUND
OF THE PLAN EFFECTING THE MERGER.
The Trustees of Evergreen Equity Trust have also approved the Plan on
behalf of Evergreen Fund.
Approval of the Merger will require the following:
o In order to have the Meeting, at least 25% (a "quorum") of the
outstanding shares of Micro Cap Fund entitled to vote must be
represented at the Meeting in person or by shareholders sending in a
proxy card.
o All classes of Micro Cap Fund will vote together as if they were a single
class. o A majority (greater than 50%) of Micro Cap Fund shares voted must vote
FOR the Merger.
See "Voting Information Concerning the Meeting."
The Merger is scheduled to take place on or about July 30, 1999. If Micro
Cap Fund shareholders do not vote to approve the Merger, the Trustees will
consider other possible courses of action in the best interests of shareholders.
<PAGE>
Tax Consequences
Prior to or at the completion of the Merger, Micro Cap Fund will have
received an opinion of Sullivan & Worcester LLP that the Merger has been
structured so that no gain or loss will be realized by the Fund or its
shareholders for federal income tax purposes as a result of receiving Evergreen
Fund shares in connection with the Merger. The holding period and aggregate tax
basis of shares of Evergreen Fund that are received by Micro Cap Fund's
shareholders will be the same as the holding period and aggregate tax basis of
shares of the Fund previously held by such shareholders, provided that shares of
the Fund are held as capital assets. In addition, the holding period and tax
basis of the assets of Micro Cap Fund in the hands of Evergreen Fund as a result
of the Merger will be the same as in the hands of the Fund immediately prior to
the Merger, and no gain or loss will be recognized by Evergreen Fund upon the
receipt of the assets of the Fund in exchange for shares of Evergreen Fund and
the assumption by Evergreen Fund of Micro Cap Fund's identified liabilities.
Investment Objectives and Policies of the Funds
The investment objectives of Evergreen Fund and Micro Cap Fund are
substantially similar.
The investment objective of Evergreen Fund is to seek capital appreciation
by investing primarily in common stocks and securities convertible into or
exchangeable for common stocks of companies that (1) have innovative and
entreprenurial management and that exhibit sound financial business practices;
(2) are limited to a regional market whose securities are held mostly by a few
shareholders that do not frequently trade them, (3) have small shares of their
intended markets compared to either companies in their fields, or that serve
limited markets, and/or (4) in the opinion of the Fund's managers, have growth
potential due to a recent or anticipated change in structure, management,
product or service. The Fund seeks long-term gains from investments in
securities of small, mid-size and large companies.
The investment objective of Micro Cap Fund is to seek capital appreciation
by investing primarily in common stocks of very small companies (generally
between $1 million and $150 million in market capitalization which have a
relatively limited trading market (traded over-the-counter or on a regional
securities exchange). The Fund seeks companies with promising products or
services and the potential for rapid growth. The Fund's managers look for
investment opportunities not widely recognized by industry analysts due to the
small size of the companies and the resulting limited amounts of information on
the companies. The Fund focuses on investing in companies with high returns on
equity and consistent earnings growth.
Comparative Performance Information for each Fund
Discussions of the manner of calculation of total return are contained in
the Prospectuses and Statement of Additional Information of the Funds. The
following tables set forth, as applicable, the total return of the Class A,
Class B, Class C and Class Y shares of Evergreen Fund and Micro Cap Fund for the
periods of time specified below. The calculations of total return assume the
reinvestment of all dividends and capital gains distributions on the
reinvestment date and the deduction of all recurring expenses (including sales
charges) that were charged to shareholders' accounts.
Average Annual Total Return
<TABLE>
<CAPTION>
1 Year Ended 5 Years Ended 10 Years Ended From
Inception Inception March 31, 1999 March 31, March 31,
1999 To March 31, 1999 Date
1999
<S> <C> <C> <C> <C> <C>
Evergreen Fund(1)
Class A shares..... -8.16% 16.73% 12.55% 16.05% 1/3/95
Class B shares..... -8.92% 17.0% 12.78% 16.14% 1/3/95
Class C shares..... -5.07% 17.20% 12.77% 16.14% 1/3/95
Class Y shares..... -3.19% 18.20% 13.25% 16.32% 10/15/71
Micro Cap Fund(1)
Class A shares..... 36.05% 2.35% 7.32% 11.10% 1/3/95
Class B shares..... -36.62% 2.40% 7.50% 11.22% 1/3/95
Class C shares..... -35.96% 2.74% 7.52% 11.23% 1/3/95
Class Y shares..... -32.69% 3.54% 7.94% 7.51% 6/1/83
</TABLE>
(1) Historical performance shown for Classes A, B and C prior to their
inception is based on the performance of Class Y, the original
class offered. These historical returns for Classes A, B, and C
have not been adjusted to reflect the effect of each class' 12b-1
fees. These fees for Classes A, B, and C are .25%, 1.00%, and
1.00%, respectively. Class Y does not pay a 12b-1 fee. If these
fees had been reflected, returns would have been lower.
Important information about Evergreen Fund is also contained in
management's discussion of Evergreen Fund's performance, attached hereto as
Exhibit B. This information also appears in Evergreen Fund's most recent Annual
Report.
Management of the Funds
The overall management of Evergreen Fund and of Micro Cap Fund is the
responsibility of, and is supervised by, the Board of Trustees of Evergreen
Equity Trust.
Investment Advisors
The investment advisor to Evergreen Fund and Micro Cap Fund is Evergreen
Asset Management Corp. ("Evergreen Asset"). Evergreen Asset is an indirect
wholly owned subsidiary of First Union National Bank ("FUNB"). FUNB is a
subsidiary of First Union Corporation ("First Union"), the 6th largest bank
holding company in the United States based on total assets as of March 31, 1999.
Evergreen Asset, with its predecessors, has served as an investment advisor to
the Funds since 1971, and currently manages over $18.7 billion in assets for 21
of the Evergreen Funds. Evergreen Asset is located at 2500 Westchester Avenue,
Purchase, New York 10577. Leiber & Company is sub-advisor to the Funds. Leiber &
Company is an indirect, wholly-owned subsidiary of FUNB and is located at 2500
Westchester Avenue, Purchase, New York 10577. Evergreen Asset and its affiliates
manage the Evergreen family of mutual funds with assets of approximately $237
billion as of December 31, 1998. For further information regarding Evergreen
Asset, FUNB and First Union, see "General Information-The Funds' Investment
Advisors" in the Prospectuses of Evergreen Fund and Micro Cap Fund.
Evergreen Asset manages investments and supervises the daily business
affairs of Evergreen Fund and Micro Cap Fund subject to the authority of the
Trustees. Evergreen Asset is entitled to receive from each of the Funds an
annual fee equal to 1.00% of the first $750 million of the Fund's average daily
net assets, plus 0.90% of the next $250 million, plus 0.80% of the amounts over
$1 billion.
Evergreen Asset may, at its discretion, reduce or waive its fee or
reimburse a Fund for certain of its other expenses in order to reduce its
expense ratios. Evergreen Asset may also reduce or cease these voluntary waivers
and reimbursements at any time.
Year 2000 Risks. Like other investment companies, financial and business
organizations and individuals around the world, Evergreen Fund could be
adversely affected if the computer systems used by Evergreen Asset and the
Fund's other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." Evergreen Asset is taking steps to
address the Year 2000 Problem with respect to the computer systems that it uses
and to obtain assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact on the Fund.
Portfolio Management
The day-to-day management of Evergreen Fund is handled by Stephen A. Lieber and
Nola Maddox Falcone, CFA. Mr. Lieber is Chairman and Co-Chief Executive
Officer of Evergreen Asset. He was a founding partner of Lieber & Company, the
original sponsor of the Evergreen Funds, when it was established in 1969. He has
been with Evergreen Asset and its predecessor since 1971 and has been in the
investment management profession since 1952. Ms. Falcone is President and Co-
Chief Executive Officer of Evergreen Asset. She joined Lieber & Company as
Senior Portfolio Manager in 1974, and was a General Partner from January 1981 to
June 1994.
The day-to-day management of the Micro Cap Fund is handled by a committee of
portfolio managers and stock analysts including Stephen A. Lieber and Edwin A.
Miska. Mr. Lieber is Chairman and Co-Chief Executive Officer of Evergreen Asset
He was a founding partner of Lieber & Company, the original sponsor of the
Evergreen Funds, when it was established in 1969. He has been with Evergreen
Asset and its predecessor since 1971 and has been in the investment management
profession since 1952. Mr. Miska has been an analyst and portfolio manager with
Evergreen Asset and its predecessor since 1989.
Distribution of Shares
Evergreen Distributor, Inc. ("EDI"), an affiliate of BISYS Fund Services
("BISYS"), acts as underwriter of shares of Evergreen Fund and Micro Cap Fund.
EDI distributes each Fund's shares directly or through broker-dealers, banks
(including FUNB), or other financial intermediaries. Each Fund each offers four
classes of shares: Class A, Class B, Class C and Class Y. Each class has
separate distribution arrangements and bears its own distribution expenses. (See
"Distribution-Related and Shareholder Servicing-Related Expenses" below.)
In the proposed Merger, Micro Cap Fund shareholders will receive the
Corresponding Shares of Evergreen Fund. The Corresponding Shares of Evergreen
Fund that Micro Cap Fund shareholders will receive have identical arrangements
with respect to the imposition of Rule 12b-1 distribution and service fees as
the shares they currently hold. Because the Merger will be effected at net asset
value without the imposition of a sales charge, Micro Cap Fund shareholders will
receive Evergreen Fund shares without paying any initial sales charge or CDSC as
a result of the Merger. Evergreen Fund Class B and Class C shares received by
Micro Cap Fund shareholders as a result of the merger will continue to be
subject to a CDSC upon subsequent redemption, but the CDSC upon subsequent
redemption, will be based on the date of the original purchase of Micro Cap Fund
shares.
The following is a summary description of charges and fees for the Class A,
Class B, Class C and Class Y shares of Evergreen Fund which will be received by
Micro Cap Fund shareholders in the Merger. More detailed descriptions of the
distribution arrangements applicable to the classes of shares are contained in
the Evergreen Fund and Micro Cap Fund Prospectuses and in the Funds' Statement
of Additional Information.
Class A Shares. Class A shares are sold at net asset value plus an initial
sales charge and, as indicated below, are subject to distribution-related fees.
For a description of the initial sales charges applicable to purchases of Class
A shares, see "General Information - How to Choose the Share Class that Best
Suits You" in the applicable Prospectus of Evergreen Fund. No initial sales
charge will be imposed on Class A shares of Evergreen Fund received by Micro Cap
Fund's shareholders in the Merger.
Class B Shares. Class B shares are sold without an initial sales charge but
are subject to a CDSC, which ranges from 5% to 1%, if shares are redeemed during
the first six years after the month of purchase. In addition, Class B shares are
subject to distribution-related fees and shareholder servicing-related fees as
described below. For purposes of determining when Class B shares issued in the
Merger to shareholders of Micro Cap Fund will convert to Class A shares, such
shares will be deemed to have been purchased as of the date Class B shares of
Micro Cap Fund were originally purchased.
Class B shares are subject to higher distribution-related fees than the
corresponding Class A shares on which a front-end sales charge is imposed (until
they convert to Class A shares). 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 of the Fund.
Class C Shares. Class C shares are sold without initial sales charges but,
as indicated below, are subject to distribution and shareholder
servicing-related fees. Class C shares are subject to a 1% CDSC if such shares
are redeemed within 13 months of purchase. No CDSC is imposed on amounts
redeemed thereafter. Class C shares incur higher distribution-related and
shareholder servicing-related fees than Class A shares, but unlike Class B
shares, do not convert to any other class of shares.
Class Y Shares. Class Y shares are sold at net asset value without any
initial or deferred sales charge and are not subject to distribution-related or
shareholder servicing-related fees. Class Y shares are only available to certain
classes of investors as is more fully described in the Class Y Prospectus for
Evergreen Fund.
Additional information regarding the classes of shares of each Fund is
included in its Prospectuses and Statement of Additional Information.
Distribution-Related and Shareholder Servicing-Related Expenses. Each Fund
has adopted a Rule 12b-1 plan with respect to its Class A shares under which the
Class may pay for distribution-related expenses at an annual rate which may not
exceed 0.75% of average daily net assets attributable to the Class. Payments
with respect to Class A shares are currently limited to 0.25% of average daily
net assets attributable to the Class. This amount may be increased to the full
plan rate for each Fund by the Trustees without shareholder approval.
Each Fund has also adopted a 12b-1 plan with respect to its Class B and
Class C shares under which the Class may pay for distribution-related expenses
at an annual rate which may not exceed 1.00%. Of the total 1.00% 12b-1 fees, up
to 0.25% may be for payment in respect of "shareholder services." Consistent
with the requirements of Rule 12b-1 and the applicable rules of the National
Association of Securities Dealers, Inc., following the Merger Evergreen Fund may
make distribution-related and shareholder servicing-related payments with
respect to Micro Cap Fund shares sold prior to the Merger.
Additional information regarding the Rule 12b-1 plans adopted by each Fund
is included in its Prospectuses and Statement of Additional Information.
No 12b-1 plan has been adopted for the Class Y shares of either Fund.
Purchase and Redemption Procedures
Information concerning applicable sales charges and distribution-related
and shareholder servicing-related fees is provided above. Investments in the
Funds are not insured. The minimum initial purchase requirement for each Fund is
$1,000. There is no minimum for subsequent purchases of shares of either Fund.
Each Fund provides for telephone, mail or wire redemption of shares at net asset
value, less any CDSC, as next determined after receipt of a redemption request
on each day the New York Stock Exchange ("NYSE") is open for trading. Additional
information concerning purchases and redemptions of shares, including how each
Fund's net asset value is determined, is contained in the Funds' Prospectuses.
Each Fund may involuntarily redeem shareholders' accounts that have less than
$1,000 of invested funds. All funds invested in each Fund are invested in full
and fractional shares. The Funds reserve the right to reject any purchase order.
Exchange Privileges
Holders of shares of a class of each Fund may exchange their shares for
shares of the same class of any other Evergreen fund. Each Fund limits exchanges
to five per calendar year and three per calendar quarter. No sales charge is
imposed on an exchange. An exchange which represents an initial investment in
another Evergreen fund must amount to at least $1,000. The current exchange
privileges, and the requirements and limitations attendant thereto, are
described in the Funds' Prospectuses and Statement of Additional Information.
Dividend Policy
Each Fund distributes its investment company taxable income annually and
its net realized gains at least annually. Shareholders begin to earn dividends
on the first business day after shares are purchased unless shares were not paid
for, in which case dividends are not earned until the next business day after
payment is received. Dividends and distributions are reinvested in additional
shares of the same class of the respective Fund, or paid in cash, as a
shareholder has elected. See the Funds' Prospectuses for further information
concerning dividends and distributions.
After the Merger, shareholders of Micro Cap Fund who have elected to have
their dividends and/or distributions reinvested will have dividends and/or
distributions received from Evergreen Fund reinvested in shares of Evergreen
Fund. Shareholders of Micro Cap Fund who have elected to receive dividends
and/or distributions in cash will receive dividends and/or distributions from
Evergreen Fund in cash after the Merger, although they may, after the Merger,
elect to have such dividends and/or distributions reinvested in additional
shares of Evergreen Fund.
Each of Evergreen Fund and Micro Cap Fund has qualified and intends to
continue to qualify to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"). While so qualified, so
long as each Fund distributes all of its net investment company taxable income
and any net realized gains to shareholders, it is expected that a Fund will not
be required to pay any federal income taxes on the amounts so distributed. A 4%
nondeductible excise tax will be imposed on amounts not distributed if a Fund
does not meet certain distribution requirements by the end of each calendar
year. Each Fund anticipates meeting such distribution requirements.
Risks
Many of the risks involved in investing in each Fund's shares are similar.
There is no assurance that investment performances will be positive and that the
Funds will meet their investment objectives. For a discussion of each Fund's
objectives and policies, see "Comparison of Investment Objectives and Policies."
Both Funds invest substantially all of their assets in common stocks of
companies with innovative and promising products which have the potential for
growth. Evergreen Fund may invest in securities of relatively well-known and
large companies as well as small and medium-sized specialty companies. Micro Cap
Fund invests primarily in common stocks of very small companies (generally
between $1 million and $150 million in market capitalization) which have a
relatively limited trading market (traded over-the-counter or on a regional
securities exchange). Since both Funds invest in small companies, both Funds may
be subject to special risks associated with investing in securities issued by
small companies. Smaller, less established companies tend to be more dependent
on individual managers and limited products and product lines. Additionally,
securities issued by small companies also tend to fluctuate in value more
dramatically than those of larger companies.
Micro Cap Fund may also be subject to special risks associated with
investing in securities issued by very small companies. Investments in very
small companies may accentuate the risks normally associated with small company
investing.
In addition, the Funds are subject to stock market risk. Investment in the
Funds will be affected by general economic conditions such as prevailing
economic growth, inflation and interest rates. When economic growth slows, or
interest or inflation rates increase, securities tend to decline in value. Such
events could also cause companies to decrease the dividends they pay. If these
events were to occur, the value of and dividend yield and total return earned on
your investment would likely decline. Even if general economic conditions do not
change, your investment may decline in value if the particular industries,
issuers or sectors the Funds invest in do not perform well.
Both Funds may employ the strategies of engaging in options and futures
transactions and short sales. Such practices are used to hedge a Fund's
portfolio to protect against changes in interest rates and to adjust the
portfolio's duration. Although this is intended to increase returns, these
practices may actually reduce returns or increase volatility. The risks involved
in these strategies are described in the Prospectuses and Statement of
Additional Information of the Funds.
REASONS FOR THE MERGER
At a regular meeting held on March 12, 1999, all of the Trustees of
Evergreen Equity Trust, including the Independent Trustees, considered and
approved the Merger as in the best interests of shareholders of Micro Cap Fund
and determined that the interests of existing shareholders of Micro Cap Fund
will not be diluted as a result of the transactions contemplated by the Merger.
During their consideration of the Merger the Trustees met with Fund counsel to
the Independent Trustees regarding the legal issues involved.
Before approving the Plan, the Trustees reviewed various factors about the
Funds and the proposed Merger. The Trustees considered among other things:
o the terms and conditions of the Merger;
o whether the Merger would result in the dilution of shareholders' interests; o
expense ratios, fees and expenses of Evergreen Fund and Micro Cap Fund; o the
comparative performance records of each of the Funds; o compatibility of their
investment objectives and policies; o the investment experience, expertise and
resources of Evergreen Asset; o the service and distribution resources available
to the Evergreen funds and
the broad array of investment alternatives available to shareholders of the
Evergreen funds;
o the personnel and financial resources of First Union and its affiliates; o the
fact that FUNB will bear the expenses incurred by Micro Cap Fund in connection
with the Merger; o the fact that Evergreen Fund will assume the identified
liabilities of Micro Cap Fund; o the expected federal income tax consequences of
the Merger. and o alternatives available to shareholders of Micro Cap Fund,
including the ability to redeem their shares.
In approving the Merger, the Trustees considered in particular the relative
size of Micro Cap Fund as well as compared the expenses of the Funds and their
historical performance returns. The Trustees also evaluated the potential
economies of scale associated with larger mutual funds and concluded that
operational efficiencies may be achieved by combining Micro Cap Fund with
Evergreen Fund. As of December 31, 1998, Micro Cap Fund's total assets were
approximately $51.1 million and Evergreen Fund's total assets were approximately
$2,199.8 billion. The annual expenses of Micro Cap Fund are currently running,
and for the past two years have run, higher than those of Evergreen Fund. The
Trustees also compared the relative performance of the Funds. Evergreen Fund's
performance has consistently been higher than the performance of Micro Cap Fund.
In addition, the alternative to the Merger would be to propose that Micro
Cap Fund be liquidated. Due to its relative size, expenses and performance,
Micro Cap Fund would not be viable on its own. Accordingly, for the reasons
noted above and recognizing that there can be no assurance that any economies of
scale or other benefits will be realized, the Trustees believe that the proposed
Merger would be in the best interests of each Fund and its shareholders.
THE TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMEND
THAT THE SHAREHOLDERS OF MICRO CAP FUND APPROVE
THE PROPOSED MERGER.
Agreement and Plan of Reorganization
The following summary is qualified in its entirety by reference to the Plan
(Exhibit A hereto).
The Plan provides that Evergreen Fund will acquire all of the assets of
Micro Cap Fund in exchange for shares of Evergreen Fund and the assumption by
Evergreen Fund of the identified liabilities of Micro Cap Fund on or about July
30, 1999 or such other date as may be agreed upon by the parties (the "Closing
Date"). Prior to the Closing Date, Micro Cap Fund will endeavor to discharge all
of its known liabilities and obligations. Evergreen Fund will not assume any
liabilities or obligations of Micro Cap Fund other than those reflected in an
unaudited statement of assets and liabilities of Micro Cap Fund prepared as of
the close of regular trading on the NYSE, currently 4:00 p.m. Eastern time, on
the business day immediately prior to the Closing Date. The number of full and
fractional shares of each class of Evergreen Fund to be received by the
shareholders of Micro Cap Fund will be determined by multiplying the respective
outstanding class of shares of Micro Cap Fund by a factor which shall be
computed by dividing the net asset value per share of the respective class of
shares of Micro Cap Fund by the net asset value per share of the respective
class of shares of Evergreen Fund. Such computations will take place as of the
close of regular trading on the NYSE on the business day immediately prior to
the Closing Date. The net asset value per share of each class will be determined
by dividing assets, less liabilities, in each case attributable to the
respective class, by the total number of outstanding shares.
State Street Bank and Trust Company, the custodian for the Funds, will
compute the value of each Fund's respective portfolio securities. The method of
valuation employed will be consistent with the procedures set forth in the
Prospectuses and Statement of Additional Information of Evergreen Fund, Rule
22c-1 under the 1940 Act, and with the interpretations of such Rule by the SEC's
Division of Investment Management.
At or prior to the Closing Date, Micro Cap Fund will have declared a
dividend or dividends and distribution or distributions which, together with all
previous dividends and distributions, shall have the effect of distributing to
the Fund's shareholders (in shares of the Fund, or in cash, as the shareholder
has previously elected) all of the Fund's net investment company taxable income
for the taxable period ending on the Closing Date (computed without regard to
any deduction for dividends paid) and all of its net capital gains realized in
all taxable periods ending on the Closing Date (after reductions for any capital
loss carryforward).
As soon after the Closing Date as conveniently practicable, Micro Cap Fund
will liquidate and distribute pro rata to shareholders of record as of the close
of business on the Closing Date the full and fractional shares of Evergreen Fund
received by Micro Cap Fund. Such liquidation and distribution will be
accomplished by the establishment of accounts in the names of the Micro Cap
Fund's shareholders on Evergreen Fund's share records of its transfer agent.
Each account will represent the respective pro rata number of full and
fractional shares of Evergreen Fund due to the Fund's shareholders. All issued
and outstanding shares of Micro Cap Fund, including those represented by
certificates, will be canceled. The shares of Evergreen Fund to be issued will
have no preemptive or conversion rights. After these distributions and the
winding up of its affairs, Micro Cap Fund will be terminated.
The consummation of the Merger is subject to the conditions set forth in
the Plan, including approval by Micro Cap Fund's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel,
including opinions with respect to those matters referred to in "Federal Income
Tax Consequences" below. Notwithstanding approval of Micro Cap Fund's
shareholders, the Plan may be terminated (a) by the mutual agreement of Micro
Cap Fund and Evergreen Fund; or (b) at or prior to the Closing Date by either
party (i) because of a breach by the other party of any representation,
warranty, or agreement contained therein to be performed at or prior to the
Closing Date if not cured within 30 days, or (ii) because a condition to the
obligation of the terminating party has not been met and it reasonably appears
that it cannot be met.
Whether or not the Merger is consummated, FUNB will pay the expenses
incurred by Micro Cap Fund in connection with the Merger (including the cost of
any proxy soliciting agent). No portion of the expenses will be borne directly
or indirectly by Micro Cap Fund or its shareholders.
If Micro Cap Fund shareholders do not approve the Merger, the Trustees will
consider other possible courses of action which may be in the best interests of
shareholders.
Federal Income Tax Consequences
The Merger is intended to qualify for federal income tax purposes as a
tax-free reorganization under section 368(a) of the Code. As a condition to the
closing of the Merger, Micro Cap Fund will receive an opinion of Sullivan &
Worcester LLP to the effect that, on the basis of the existing provisions of the
Code, U.S. Treasury regulations issued thereunder, current administrative rules,
pronouncements and court decisions, for federal income tax purposes, upon
consummation of the Merger:
(1) The transfer of all of the assets of Micro Cap Fund solely in
exchange for shares of Evergreen Fund and the assumption by Evergreen Fund
of the identified liabilities, followed by the distribution of Evergreen
Fund's shares by Micro Cap Fund in dissolution and liquidation of Micro Cap
Fund, will constitute a "reorganization" within the meaning of section
368(a)(1)(C) of the Code, and Evergreen Fund and Micro Cap Fund will each
be a "party to a reorganization" within the meaning of section 368(b) of
the Code;
(2) No gain or loss will be recognized by Micro Cap Fund on the
transfer of all of its assets to Evergreen Fund solely in exchange for
Evergreen Fund's shares and the assumption by Evergreen Fund of the
identified liabilities of Micro Cap Fund or upon the distribution of
Evergreen Fund's shares to Micro Cap Fund's shareholders in exchange for
their shares of Micro Cap Fund;
(3) The tax basis of the assets transferred will be the same to
Evergreen Fund as the tax basis of such assets to Micro Cap Fund
immediately prior to the Merger, and the holding period of such assets in
the hands of Evergreen Fund will include the period during which the assets
were held by Micro Cap Fund;
(4) No gain or loss will be recognized by Evergreen Fund upon the
receipt of the assets from Micro Cap Fund solely in exchange for the shares
of Evergreen Fund and the assumption by Evergreen Fund of the identified
liabilities of Micro Cap Fund;
(5) No gain or loss will be recognized by Micro Cap Fund's
shareholders upon the issuance of the shares of Evergreen Fund to them,
provided they receive solely such shares (including fractional shares) in
exchange for their shares of Micro Cap Fund; and
(6) The aggregate tax basis of the shares of Evergreen Fund, including
any fractional shares, received by each of the shareholders of Micro Cap
Fund pursuant to the Merger will be the same as the aggregate tax basis of
the shares of Micro Cap Fund held by such shareholder immediately prior to
the Merger, and the holding period of the shares of Evergreen Fund,
including fractional shares, received by each such shareholder will include
the period during which the shares of Micro Cap Fund exchanged therefor
were held by such shareholder (provided that the shares of Micro Cap Fund
were held as a capital asset on the date of the Merger).
Opinions of counsel are not binding upon the Internal Revenue Service or
the courts. If the Merger is consummated but does not qualify as a tax-free
reorganization under the Code, a shareholder of Micro Cap Fund would recognize a
taxable gain or loss equal to the difference between his or her tax basis in his
or her Fund shares and the fair market value of Evergreen Fund shares he or she
received. Shareholders of Micro Cap Fund should consult their tax advisers
regarding the effect, if any, of the proposed Merger in light of their
individual circumstances. It is not anticipated that the securities of the
combined portfolio will be sold in significant amounts in order to comply with
the policies and investment practices of Evergreen Fund. Since the foregoing
discussion relates only to the federal income tax consequences of the Merger,
shareholders of Micro Cap Fund should also consult their tax advisers as to the
state and local tax consequences, if any, of the Merger.
Capital loss carryforwards of Micro Cap Fund will be available to Evergreen
Fund to offset capital gains recognized after the Merger, subject to limitations
imposed by the Code. These limitations provide generally that the amount of loss
carryforward which may be used in any year following the closing is an amount
equal to the value of all of the outstanding stock of Micro Cap Fund immediately
prior to the Merger, multiplied by a long-term tax-exempt bond rate determined
monthly by the Internal Revenue Service. The rate for April, 1999 was 4.78%. A
capital loss carryforward may generally be used without any limit to offset
gains recognized on sale of assets transferred by Micro Cap Fund to Evergreen
Fund pursuant to the Merger, to the extent of the excess of the value of any
such asset on the Closing Date over its tax basis.
Pro-forma Capitalization
The following table sets forth the capitalizations of Micro Cap Fund and
Evergreen Fund as of September 30, 1998 and the capitalization of Evergreen Fund
on a pro forma basis as of that date, giving effect to the proposed acquisition
of assets at net asset value. The pro forma data reflects an exchange ratio of
approximately 0.941734, 0.927474, 0.929774, and 0.943529 for Class A, Class B,
Class C and Class Y shares, respectively, of Evergreen Fund issued for each
Class A, Class B, Class C and Class Y share, respectively, of Micro Cap Fund.
Capitalization of Micro Cap Fund,
Evergreen Fund and Evergreen
Fund (Pro Forma)
Micro Cap Evergreen Fund Evergreen Fund
Fund (After Merger)
Net Assets
Class A.................. $4,741,438 $182,590,060 $187,331,498
Class B.................. $4,235,649 $623,644,288 $627,879,937
Class C.................. $3,093,122 $12,620,017 $15,713,139
Class Y.................. $39,112,439 $1,028,475,653 $1,067,588,092
----------- -------------- --------------
Total Net Assets... $51,182,648 $1,847,330,018 $1,898,512,666
Net Asset Value Per Share
Class A.................. $19.88 $21.11 $21.11
Class B.................. $19.31 $20.82 $20.82
Class C.................. $19.33 $20.79 $20.79
Class Y.................. $20.05 $21.25 $21.25
Shares Outstanding
Class A.................. 238,535 8,648,992 8,873,629
Class B.................. 219,404 29,947,478 30,150,970
Class C.................. 160,013 607,099 755,875
Class Y.................. 1,951,003 48,390,516 50,231,344
--------- ---------- ----------
All Classes.............. 2,568,955 87,594,085 90,011,818
The table set forth above should not be relied upon to reflect the number
of shares to be received in the Merger; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Merger.
Shareholder Information
As of May 5, 1999 (the "Record Date "), the following number of each Class
of shares of beneficial interest of Micro Cap Fund was outstanding:
Class of Shares
Class A........
Class B........
Class C........
Class Y........
All Classes....
As of the Record Date, the officers and Trustees of Evergreen Equity Trust
beneficially owned as a group less than 1% of the outstanding shares of Micro
Cap Fund. To Evergreen Equity Trust's knowledge, the following persons owned
beneficially or of record more than 5% of Micro Cap Fund's total outstanding
shares as of the Record Date:
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares of Shares of
Class Before Class After
Name and Class No. of Shares Merger Merger
Address
[ to be supplied]
<S> <C> <C> <C> <C> <C>
</TABLE>
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion is based upon and qualified in its entirety by the
descriptions of the respective investment objectives, policies and restrictions
set forth in the Prospectuses and Statement of Additional Information of the
Funds. The investment objectives, policies and restrictions of each Fund can be
found in the Prospectuses for Evergreen Fund and Micro Cap Fund under the
caption "Fund Summaries." The Prospectuses for Evergreen Fund and Micro Cap Fund
also offer additional funds advised by FUNB or its affiliates. These additional
funds are not involved in the Merger, their investment objectives and policies
are not discussed in this Prospectus/Proxy Statement and their shares are not
offered hereby. The investment objective of each Fund is non-fundamental and can
be changed by the Board of Trustees without shareholder approval.
The investment objective of Evergreen Fund is also to seek capital
appreciation. The Fund invests primarily in common stocks and securities
convertible into or exchangeable for common stocks of companies that (1) have
innovation and entreprenurial management and that exhibit sound financial
business practices; (2) are limited to a regional market whose securities are
held mostly by a few shareholders that do not frequently trade them, (3) have
small shares of their intended markets compared to either companies in their
fields, or that serve limited markets, and/or (4) in the opinion of the Fund's
managers, have growth potential due to a recent or anticipated change in
structure, management, product or service. The Fund seeks long-term gains from
investments in securities of small, mid-size and large companies.
The investment objective of Micro Cap Fund is also to seek capital
appreciation. The Fund invests primarily in common stocks of very small
companies (generally between $1 million and $150 million in market
capitalization) which have a relatively limited trading market (traded
over-the-counter or on a regional securities exchange). The Fund seeks companies
with promising products or services and the potential for rapid growth. The
Fund's managers look for investment opportunities not widely recognized by
industry analysts due to the small size of the companies and the resulting
limited amounts of information on the companies. The Fund focuses on investing
in companies with high returns on equity and consistent earnings growth.
The Fund's investment objective is the same - to seek capital appreciation.
Both Funds invest substantially all of their assets in common stocks of
companies which have potential for growth. However, the Evergreen Fund invests
in securities of companies which have a broad market capitalization range
(small, mid-size and large), and Micro Cap Fund invest primarily in securities
of very small companies.
The characteristics of each investment policy and the associated risks are
described in the Funds' Prospectuses and in the Statement of Additional
Information. The Funds have other investment policies and restrictions which are
also set forth in the Statement of Additional Information.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
Evergreen Equity Trust is an open-end management investment company
registered with the SEC under the 1940 Act, which continuously offers shares to
the public. Evergreen Equity Trust is organized as a Delaware business trust and
is governed by its Declaration of Trust, By-Laws, a Board of Trustees and by
applicable Delaware and federal law. Evergreen Fund and Micro Cap Fund are
series of Evergreen Equity Trust.
Capitalization
The beneficial interests in Evergreen Fund and Micro Cap Fund are
represented by an unlimited number of transferable shares of beneficial
interest, $.001 par value per share. Evergreen Equity Trust's Declaration of
Trust permits the Trustees to allocate shares into an unlimited number of
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by either Fund. Each
Fund's shares represent equal proportionate interests in the assets belonging to
the Funds. Shareholders of each Fund are entitled to receive dividends and other
amounts as determined by the Trustees. Shareholders of each Fund vote
separately, by class, as to matters, such as approval of or amendments to Rule
12b-1 distribution plans, that affect only their particular class and by Fund as
to matters, such as approval of or amendments to investment advisory agreements
or proposed mergers, that affect only their particular Fund.
Shareholder Liability
Under Delaware law, shareholders of a Delaware business trust are entitled
to the same limitation of personal liability extended to stockholders of
Delaware corporations. No similar statutory or other authority limiting business
trust shareholder liability exists in any other state. As a result, to the
extent that Evergreen Equity Trust or a shareholder is subject to the
jurisdiction of courts in those states, it is possible that a court may not
apply Delaware law, and may thereby subject shareholders of Evergreen Equity
Trust to liability. To guard against this risk, the Declaration of Trust of
Evergreen Equity Trust (a) provides that any written obligation of the Trust may
contain a statement that such obligation may only be enforced against the assets
of the Trust or the particular series in question and the obligation is not
binding upon the shareholders of the Trust; however, the omission of such a
disclaimer will not operate to create personal liability for any shareholder;
and (b) provides for indemnification out of Trust property of any shareholder
held personally liable for the obligations of the Trust. Accordingly, the risk
of a shareholder of Evergreen Equity Trust incurring financial loss beyond that
shareholder's investment because of shareholder liability is limited to
circumstances in which: (i) the court refuses to apply Delaware law; (ii) no
contractual limitation of liability was in effect; and (iii) the Trust itself is
unable to meet its obligations. In light of Delaware law, the nature of the
Trust's business, and the nature of its assets, the risk of personal liability
to a shareholder of Evergreen Equity Trust is remote.
Shareholder Meetings and Voting Rights
Evergreen Equity Trust on behalf of Evergreen Fund and Micro Cap Fund is
not required to hold annual meetings of shareholders. However, a meeting of
shareholders for the purpose of voting upon the question of removal of a Trustee
must be called when requested in writing by the holders of at least 10% of the
outstanding shares of Evergreen Equity Trust. In addition, Evergreen Equity
Trust is required to call a meeting of shareholders for the purpose of electing
Trustees if, at any time, less than a majority of the Trustees then holding
office were elected by shareholders. Evergreen Equity Trust does not currently
intend to hold regular shareholder meetings. Cumulative voting is not permitted.
Except when a larger quorum is required by applicable law, with respect to both
Funds, 25% of the outstanding shares entitled to vote constitutes a quorum for
consideration of such matter. For each Fund, a majority (greater than 50%) of
the votes cast and entitled to vote is sufficient to act on a matter (unless
otherwise specifically required by the applicable governing documents or other
law, including the 1940 Act).
Under the Declaration of Trust of Evergreen Equity Trust, each share of
Evergreen Fund and Micro Cap Fund will be entitled to one vote for each dollar
of net asset value applicable to such share.
Liquidation or Dissolution
In the event of the liquidation of Evergreen Fund or Micro Cap Fund, the
shareholders are entitled to receive, when and as declared by the Trustees, the
excess of the assets belonging to such Fund or attributable to the class over
the liabilities belonging to the Fund or attributable to the class. In either
case, the assets so distributable to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them and recorded on the books of the Fund.
Liability and Indemnification of Trustees
Under the Declaration of Trust of Evergreen Equity Trust, a Trustee is
liable to the Trust and its shareholders only for such Trustee's own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of the office of Trustee or the discharge of such
Trustee's functions. As provided in the Declaration of Trust, each Trustee of
the Trust is entitled to be indemnified against all liabilities against him or
her, including the costs of litigation, unless it is determined that the Trustee
(i) did not act in good faith in the reasonable belief that such Trustee's
action was in or not opposed to the best interests of the Trust; (ii) had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
such Trustee's duties; and (iii) in a criminal proceeding, had reasonable cause
to believe that such Trustee's conduct was unlawful (collectively, "disabling
conduct"). A determination that the Trustee did not engage in disabling conduct
and is, therefore, entitled to indemnification may be based upon the outcome of
a court action or administrative proceeding or by (a) a vote of a majority of
those Trustees who are neither "interested persons" within the meaning of the
1940 Act nor parties to the proceeding or (b) an independent legal counsel in a
written opinion. The Trust may also advance money for such litigation expenses
provided that the Trustee undertakes to repay the Trust if his or her conduct is
later determined to preclude indemnification and certain other conditions are
met.
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of Evergreen Equity Trust, its By-Laws
and Delaware law and is not a complete description of those documents or law.
Shareholders should refer to the provisions of such Declaration of Trust,
By-Laws and Delaware law directly for more complete information.
ADDITIONAL INFORMATION
Evergreen Fund. Information concerning the operation and management of
Evergreen Fund is incorporated herein by reference from the Prospectuses dated
February 1, 1999, copies of which are enclosed, and Statement of Additional
Information of the same date. A copy of such Statement of Additional Information
is available upon request and without charge by writing to Evergreen Fund at the
address listed on the cover page of this Prospectus/Proxy Statement or by
calling toll-free 1-800-343-2898.
Micro Cap Fund. Information about the Fund is included in its current
Prospectuses dated February 1, 1999 and in the Statement of Additional
Information of the same date, that have been filed with the SEC, all of which
are incorporated herein by reference. Copies of the Prospectuses and Statement
of Additional Information are available upon request and without charge by
writing to Micro Cap Fund at the address listed on the cover page of this
Prospectus/Proxy Statement or by calling toll-free 1-800-343-2898.
Evergreen Fund and Micro Cap Fund are each subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in
accordance therewith file reports and other information including proxy
material, and charter documents with the SEC. These items can be inspected and
copies obtained at the Public Reference Facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices
located at Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511 and Seven World Trade Center, Suite 1300, New York, New York 10048.
The SEC maintains a Web site (http://www.sec.gov) that contains the Funds'
Statement of Additional Information and other material incorporated by reference
herein together with other information regarding Evergreen Fund and Micro Cap
Fund.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of Micro Cap
Fund in connection with a solicitation of proxies by the Trustees of the Trust,
to be used at the Special Meeting of Shareholders to be held at 2:00 p.m., July
23, 1999, at the offices of the Evergreen funds, 200 Berkeley Street, 26th
Floor, Boston, Massachusetts 02116, and at any adjournments thereof. This
Prospectus/Proxy Statement, along with a Notice of the Meeting and a proxy card,
is first being mailed to shareholders of Micro Cap Fund on or about June 2,
1999. Only shareholders of record as of the close of business on the Record Date
will be entitled to notice of, and to vote at, the Meeting or any adjournment
thereof. The holders of 25% of the outstanding shares entitled to vote at the
close of business on the Record Date present in person or represented by proxy
will constitute a quorum for the Meeting. If the enclosed form of proxy is
properly executed and returned in time to be voted at the Meeting, the proxies
named therein will vote the shares represented by the proxy in accordance with
the instructions marked thereon. Unmarked proxies will be voted FOR the proposed
Merger and FOR any other matters deemed appropriate. Proxies that reflect
abstentions and "broker non-votes" (i.e., shares held by brokers or nominees as
to which (i) instructions have not been received from the beneficial owners or
the persons entitled to vote or (ii) the broker or nominee does not have
discretionary voting power on a particular matter) will be counted as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum, but will not have the effect of being counted as votes against the
Plan, which must be approved by a majority of the votes cast and entitled to
vote. A proxy may be revoked at any time on or before the Meeting by written
notice to the Secretary of Evergreen Equity Trust at the address set forth on
the cover of this Prospectus/Proxy Statement. Unless revoked, all valid proxies
will be voted in accordance with the specifications thereon or, in the absence
of such specifications, FOR approval of the Plan and the Merger contemplated
thereby.
Approval of the Plan will require the affirmative vote of a majority of the
votes cast and entitled to vote, with all classes voting together as a single
class at the Meeting at which a quorum of the Fund's shares is present. Each
share outstanding is entitled to one vote for each dollar of net asset value
applicable to such share.
Proxy solicitations will be made primarily by mail, but proxy solicitations
may also be made by telephone, email or personal solicitations conducted by
officers and employees of FUNB, its affiliates or other representatives of Micro
Cap Fund (who will not be paid for their soliciting activities). If you wish to
participate in the Meeting, you may submit the proxy card included with this
Prospectus/Proxy Statement, vote by fax or attend in person. Any proxy given by
you is revocable.
In the event that sufficient votes to approve the Merger are not received
by July 23, 1999, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy at the Meeting. The persons
named as proxies will vote upon such adjournment after consideration of all
circumstances which may bear upon a decision to adjourn the Meeting.
A shareholder who objects to the proposed Merger will not be entitled under
either Delaware law or the Declaration of Trust of Evergreen Equity Trust to
demand payment for, or an appraisal of, his or her shares. However, shareholders
should be aware that the Merger as proposed is not expected to result in
recognition of gain or loss to shareholders for federal income tax purposes and
that, if the Merger is consummated, shareholders will be free to redeem the
shares of Evergreen Fund which they receive in the transaction at their
then-current net asset value. Shares of Micro Cap Fund may be redeemed at any
time prior to the consummation of the Merger. Shareholders of Micro Cap Fund may
wish to consult their tax advisers as to any differing consequences of redeeming
Fund shares prior to the Merger or exchanging such shares in the Merger.
Micro Cap Fund does not hold annual shareholder meetings. If the Merger is
not approved, shareholders wishing to submit proposals to be considered for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of Evergreen Equity Trust at the
address set forth on the cover of this Prospectus/Proxy Statement so that they
will be received by the Fund in a reasonable period of time prior to the
meeting.
The votes of the shareholders of Evergreen Fund are not being solicited by
this Prospectus/Proxy Statement and are not required to carry out the Merger.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Micro Cap Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of Evergreen Fund as of September 30, 1998, and the
financial statements and financial highlights for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of PricewaterhouseCoopers LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The Annual Report of Micro Cap Fund as of September 30, 1998, and the
financial highlights and financial statements for the periods indicated therein,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of PricewaterhouseCoopers LLP, independent certified
public accountants, incorporated by reference herein and upon the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of Evergreen Fund
will be passed upon by Sullivan & Worcester LLP, Washington, D.C.
OTHER BUSINESS
The Trustees of Evergreen Equity Trust do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
THE TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMEND APPROVAL OF THE PLAN AND
ANY UNMARKED PROXIES WITHOUT INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
June 2, 1999
<PAGE>
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 30th day of April, 1999, by and between Evergreen Equity Trust, a Delaware
business trust, with its principal place of business at 200 Berkeley Street,
Boston, Massachusetts 02116 (the "Trust"), with respect to its Evergreen Fund
series (the "Acquiring Fund"), and the Trust, with respect to its Evergreen
Micro Cap Fund series (the "Selling Fund").
This Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of the
United States Internal Revenue Code of 1986, as amended (the "Code"). The
reorganization will consist of (i) the transfer of all of the assets of the
Selling Fund in exchange solely for Class A, Class B, Class C and Class Y shares
of beneficial interest, $.001 par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund; and (iii) the distribution, after
the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, both Funds are authorized to issue their shares of beneficial
interest;
WHEREAS, the Trustees of the Trust have determined that the exchange of all
of the assets of the Selling Fund for Acquiring Fund Shares and the assumption
of the identified liabilities of the Selling Fund by the Acquiring Fund on the
terms and conditions hereinafter set forth are in the best interests of the
Acquiring Fund's shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and the identified liabilities for Acquiring
Fund Shares and that the interests of the existing shareholders of the Selling
Fund will not be diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES
AND LIQUIDATION OF THE SELLING FUND
1.1 The Exchange. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange
therefor (i) to deliver to the Selling Fund the number of Acquiring Fund Shares,
including fractional Acquiring Fund Shares, determined by multiplying the shares
outstanding of each class of the Selling Fund by the ratio computed by dividing
the net asset value per share of each such class of the Selling Fund by the net
asset value per share of the corresponding class of Acquiring Fund Shares
computed in the manner and as of the time and date set forth in paragraph 2.2;
and (ii) to assume the identified liabilities of the Selling Fund, as set forth
in paragraph 1.3. Such transactions shall take place at the closing provided for
in paragraph 3.1 (the "Closing Date").
1.2 Assets to be Acquired. The assets of the Selling Fund to be acquired by
the Acquiring Fund shall consist of all property, including, without limitation,
all cash, securities, commodities, interests in futures and dividends or
interest receivables, that is owned by the Selling Fund and any deferred or
prepaid expenses shown as an asset on the books of the Selling Fund on the
Closing Date.
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses. The
Selling Fund reserves the right to sell any of such securities, but will not,
without the prior written approval of the Acquiring Fund, acquire any additional
securities other than securities of the type in which the Acquiring Fund is
permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time prior to
the Closing Date, furnish the Acquiring Fund with a list of its portfolio
securities and other investments. In the event that the Selling Fund holds any
investments that the Acquiring Fund may not hold, the Selling Fund, if requested
by the Acquiring Fund, will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the Selling Fund and the Acquiring
Fund portfolios, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Selling Fund if requested by the Acquiring Fund will dispose of
a sufficient amount of such investments as may be necessary to avoid violating
such limitations as of the Closing Date. Notwithstanding the foregoing, nothing
herein will require the Selling Fund to dispose of any investments or securities
if, in the reasonable judgment of the Selling Fund, such disposition would
adversely affect the tax-free nature of the Reorganization or would violate the
Selling Fund's fiduciary duty to its shareholders.
1.3 Liabilities to be Assumed. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume only those liabilities, expenses, costs, charges and
reserves reflected on a Statement of Assets and Liabilities of the Selling Fund
prepared on behalf of the Selling Fund, as of the Valuation Date (as defined in
paragraph 2.1), in accordance with generally accepted accounting principles
consistently applied from the prior audited period. The Acquiring Fund shall
assume only those liabilities of the Selling Fund reflected in such Statement of
Assets and Liabilities and shall not assume any other liabilities, whether
absolute or contingent, known or unknown, accrued or unaccrued, all of which
shall remain the obligation of the Selling Fund.
In addition, upon completion of the Reorganization, for purposes of
calculating the maximum amount of sales charges (including asset based sales
charges) permitted to be imposed by the Acquiring Fund under the National
Association of Securities Dealers, Inc. Conduct Rule 2830 ("Aggregate NASD
Cap"), the Acquiring Fund will add to its Aggregate NASD Cap immediately prior
to the Reorganization the Aggregate NASD Cap of the Selling Fund immediately
prior to the Reorganization, in each case calculated in accordance with such
Rule 2830.
1.4 Liquidation and Distribution. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to dissolve as
set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 Ownership of Shares. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the combined Prospectus and Proxy
Statement on Form N-14 to be distributed to shareholders of the Selling Fund as
described in paragraph 5.7.
1.6 Transfer Taxes. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 Reporting Responsibility. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 Termination. The Selling Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 Valuation of Assets. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Acquiring Fund's then current
prospectuses and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Valuation of Shares. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information.
2.3 Shares to be Issued. The number of the Acquiring Fund Shares of each
class to be issued (including fractional shares, if any) in exchange for the
Selling Fund's assets shall be determined by multiplying the shares outstanding
of each class of the Selling Fund by the ratio computed by dividing the net
asset value per share of the Selling Fund attributable to each of its classes by
the net asset value per share of the respective classes of the Acquiring Fund
determined in accordance with paragraph 2.2. Holders of Class A, Class B, Class
C and Class Y shares of the Selling Fund will receive Class A, Class B, Class C
and Class Y shares, respectively, of the Acquiring Fund.
2.4 Determination of Value. All computations of value shall be made by
State Street Bank and Trust Company in accordance with its regular practice in
pricing the shares and assets of the Acquiring Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 Closing Date. The Closing (the "Closing") shall take place on or about
July 30, 1999 or such other date as the parties may agree to in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously immediately prior to the opening of business on the Closing
Date unless otherwise provided. The Closing shall be held as of 9:00 a.m. at the
offices of the Evergreen funds, 200 Berkeley Street, Boston, MA 02116, or at
such other time and/or place as the parties may agree.
3.2 Custodian's Certificate. State Street Bank and Trust Company, as
custodian for the Selling Fund (the "Custodian"), shall deliver at the Closing a
certificate of an authorized officer stating that (a) the Selling Fund's
portfolio securities, cash, and any other assets shall have been delivered in
proper form to the Acquiring Fund on the Closing Date; and (b) all necessary
taxes including all applicable federal and state stock transfer stamps, if any,
shall have been paid, or provision for payment shall have been made, in
conjunction with the delivery of portfolio securities by the Selling Fund.
3.3 Effect of Suspension in Trading. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date shall be postponed until the
first business day after the day when trading shall have been fully resumed and
reporting shall have been restored.
3.4 Transfer Agent's Certificate. Evergreen Service Company, as transfer
agent for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that its records contain the names and addresses of
the Selling Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver or cause Evergreen Service
Company, its transfer agent, to issue and deliver a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date to the Secretary of the
Trust or provide evidence satisfactory to the Selling Fund that such Acquiring
Fund Shares have been credited to the Selling Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such bills
of sale, checks, assignments, share certificates, if any, receipts and other
documents as such other party or its counsel may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations of the Selling Fund. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(b) The Selling Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission") as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), is in full force and effect.
(c) The current prospectuses and statement of additional information
of the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"),
and the 1940 Act and the rules and regulations of the Commission thereunder
and do not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not
result, in violation of any provision of the Trust's Declaration of Trust
or By-Laws or of any material agreement, indenture, instrument, contract,
lease, or other undertaking to which the Selling Fund is a party or by
which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it
prior to the Closing Date, except for liabilities, if any, to be discharged
or reflected in the Statement of Assets and Liabilities as provided in
paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Selling Fund or any of its properties or
assets, which, if adversely determined, would materially and adversely
affect its financial condition, the conduct of its business, or the ability
of the Selling Fund to carry out the transactions contemplated by this
Agreement. The Selling Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental
body that materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(g) The financial statements of the Selling Fund at March 31, 1998 are
in accordance with generally accepted accounting principles consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Selling Fund
as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since March 31, 1998 there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Selling Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of this
subparagraph (h), a decline in the net asset value of the Selling Fund
shall not constitute a material adverse change.
(i) At the Closing Date, all federal and other tax returns and reports
of the Selling Fund required by law to have been filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Selling Fund. All of the issued and
outstanding shares of the Selling Fund will, at the time of the Closing
Date, be held by the persons and in the amounts set forth in the records of
the transfer agent as provided in paragraph 3.4. The Selling Fund does not
have outstanding any options, warrants, or other rights to subscribe for or
purchase any of the Selling Fund shares, nor is there outstanding any
security convertible into any of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the
Acquiring Fund pursuant to paragraph 1.2 and full right, power, and
authority to sell, assign, transfer, and deliver such assets hereunder,
and, upon delivery and payment for such assets, the Acquiring Fund will
acquire good and marketable title thereto, subject to no restrictions on
the full transfer thereof, including such restrictions as might arise under
the 1933 Act, other than as disclosed to the Acquiring Fund and accepted by
the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling
Fund and, subject to approval by the Selling Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Selling Fund,
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating
to or affecting creditors' rights and to general equity principles.
(n) The information to be furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable thereto.
(o) The Prospectus and Proxy Statement of the Selling Fund to be
included in the Registration Statement (as defined in paragraph 5.7) (other
than information therein that relates to the Acquiring Fund) will, on the
effective date of the Registration Statement and on the Closing Date, not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were
made, not misleading.
4.2 Representations of the Acquiring Fund. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust that is registered as an investment company classified as a
management company of the open-end type, and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect.
(c) The current prospectuses and statement of additional information
of the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring
Fund is a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets, which, if adversely determined, would materially
and adversely affect its financial condition and the conduct of its
business or the ability of the Acquiring Fund to carry out the transactions
contemplated by this Agreement. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings and is not a
party to or subject to the provisions of any order, decree, or judgment of
any court or governmental body that materially and adversely affects its
business or its ability to consummate the transactions contemplated herein.
(f) The financial statements of the Acquiring Fund at July 31, 1998
are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been
furnished to the Selling Fund) fairly reflect the financial condition of
the Acquiring Fund as of such date, and there are no known contingent
liabilities of the Acquiring Fund as of such date not disclosed therein.
(g) Since July 31, 1998 there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Selling Fund. For the purposes of this
subparagraph (g), a decline in the net asset value of the Acquiring Fund
shall not constitute a material adverse change.
(h) At the Closing Date, all federal and other tax returns and reports
of the Acquiring Fund required by law then to be filed by such dates shall
have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such
return is currently under audit, and no assessment has been asserted with
respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification and
treatment as a regulated investment company and has distributed in each
such year all net investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable. The Acquiring Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any
Acquiring Fund Shares, nor is there outstanding any security convertible
into any Acquiring Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of the
Acquiring Fund enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general equity
principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to
the terms of this Agreement will, at the Closing Date, have been duly
authorized and, when so issued and delivered, will be duly and validly
issued Acquiring Fund Shares, and will be fully paid and non-assessable.
(m) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto.
(n) The Prospectus and Proxy Statement (as defined in paragraph 5.7)
to be included in the Registration Statement (only insofar as it relates to
the Acquiring Fund) will, on the effective date of the Registration
Statement and on the Closing Date, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem
appropriate in order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 Operation in Ordinary Course. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 Approval of Shareholders. The Trust will call a meeting of the Selling
Fund Shareholders to consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions contemplated herein.
5.3 Investment Representation. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 Additional Information. The Selling Fund will assist the Acquiring Fund
in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 Further Action. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
5.6 Statement of Earnings and Profits. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and which will be reviewed by
KPMG Peat Marwick LLP and certified by the Trust's President and Treasurer.
5.7 Preparation of Form N-14 Registration Statement. The Selling Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the proxy statement, referred to
in paragraph 4.1(o) (the "Prospectus and Proxy Statement"), all to be included
in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act in
connection with the meeting of the Selling Fund Shareholders to consider
approval of this Agreement and the transactions contemplated herein.
5.8 Capital Loss Carryforwards. As promptly as practicable, but in any case
within sixty days after the Closing Date, the Acquiring Fund and the Selling
Fund shall cause PricewaterhouseCoopers LLP to issue a letter addressed to the
Acquiring Fund and the Selling Fund, in form and substance satisfactory to the
Funds, setting forth the federal income tax implications relating to capital
loss carry forwards (if any) of the Selling Fund and the related impact, if any,
of the proposed transfer of all of the assets of the Selling Fund to the
Acquiring Fund and the ultimate dissolution of the Selling Fund, upon the
shareholders of the Selling Fund.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Acquiring Fund shall have delivered to the Selling
Fund a certificate executed in its name by the Trust's Secretary or Assistant
Secretary, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 The Selling Fund shall have received on the Closing Date an opinion
from Sullivan & Worcester LLP, counsel to the Acquiring Fund, dated as of the
Closing Date, in a form reasonably satisfactory to the Selling Fund, covering
the following points:
(a) The Acquiring Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Acquiring Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Acquiring Fund and, assuming due authorization, execution and
delivery of this Agreement by the Selling Fund, is a valid and binding
obligation of the Acquiring Fund enforceable against the Acquiring Fund in
accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, moratorium, and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefor not less than the net asset
value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will
be legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any preemptive rights in respect
thereof.
(e) The Registration Statement, to such counsel's knowledge, has been
declared effective by the Commission and no stop order under the 1933 Act
pertaining thereto has been issued, and to the knowledge of such counsel,
no consent, approval, authorization or order of any court or governmental
authority of the United States or the State of Delaware is required for
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act, the 1934 Act and the
1940 Act, and as may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be bound or to
the knowledge of such counsel, result in the acceleration of any obligation
or the imposition of any penalty, under any agreement, judgment, or decree
to which the Acquiring Fund is a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus and Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and
fairly present the information required to be shown.
(h) Such counsel does not know of any legal or governmental
proceedings, only insofar as they relate to the Acquiring Fund, existing on
or before the effective date of the Registration Statement or the Closing
Date required to be described in the Registration Statement or to be filed
as exhibits to the Registration Statement which are not described or filed
as required.
(i) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Acquiring Fund or any of its
properties or assets and the Acquiring Fund is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business,
other than as previously disclosed in the Registration Statement.
Such opinion shall contain such assumptions and limitations as shall be in the
opinion of Sullivan & Worcester LLP appropriate to render the opinions expressed
therein.
In this paragraph 6.2, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions provided
for herein shall be subject, at its election, to the performance by the Selling
Fund of all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations, covenants, and warranties of the Selling Fund
contained in this Agreement shall be true and correct as of the date hereof and
as of the Closing Date with the same force and effect as if made on and as of
the Closing Date, and the Selling Fund shall have delivered to the Acquiring
Fund on the Closing Date a certificate executed in its name by the Trust's
Secretary or Assistant Secretary, in form and substance satisfactory to the
Acquiring Fund and dated as of the Closing Date, to such effect and as to such
other matters as the Acquiring Fund shall reasonably request.
7.2 The Selling Fund shall have delivered to the Acquiring Fund a statement
of the Selling Fund's assets and liabilities, together with a list of the
Selling Fund's portfolio securities showing the tax costs of such securities by
lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer of the Trust.
7.3 The Acquiring Fund shall have received on the Closing Date an opinion
of Sullivan & Worcester LLP, counsel to the Selling Fund, in a form satisfactory
to the Acquiring Fund covering the following points:
(a) The Selling Fund is a separate investment series of a Delaware
business trust duly organized, validly existing and in good standing under
the laws of the State of Delaware and has the power to own all of its
properties and assets and to carry on its business as presently conducted.
(b) The Selling Fund is a separate investment series of a Delaware
business trust registered as an investment company under the 1940 Act, and,
to such counsel's knowledge, such registration with the Commission as an
investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered by
the Selling Fund and, assuming due authorization, execution, and delivery
of this Agreement by the Acquiring Fund, is a valid and binding obligation
of the Selling Fund enforceable against the Selling Fund in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights generally and to general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or any provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or
the imposition of any penalty, under any agreement, judgment, or decree to
which the Selling Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the descriptions
in the Prospectus and Proxy Statement of statutes, legal and government
proceedings and material contracts, if any, are accurate and fairly present
the information required to be shown.
(g) Such counsel does not know of any legal or governmental
proceedings, insofar as they relate to the Selling Fund existing on or
before the date of mailing of the Prospectus and Proxy Statement and the
Closing Date, required to be described in the Prospectus and Proxy
Statement or to be filed as an exhibit to the Registration Statement which
are not described or filed as required.
(h) To the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its
respective properties or assets and the Selling Fund is neither a party to
nor subject to the provisions of any order, decree or judgment of any court
or governmental body, which materially and adversely affects its business
other than as previously disclosed in the Prospectus and Proxy Statement.
(i) Assuming that a consideration therefor of not less than the net
asset value thereof has been paid, and assuming that such shares were
issued in accordance with the terms of the Selling Fund's registration
statement, or any amendment thereto, in effect at the time of such
issuance, all issued and outstanding shares of the Selling Fund are legally
issued and fully paid and non-assessable.
Such opinion shall contain such other assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
In this paragraph 7.3, references to the Prospectus and Proxy Statement
include and relate to only the text of such Prospectus and Proxy Statement and
not to any exhibits or attachments thereto or to any documents incorporated by
reference therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Selling Fund in accordance with the provisions of the Trust's Declaration of
Trust and By-Laws and certified copies of the resolutions evidencing such
approval shall have been delivered to the Acquiring Fund. Notwithstanding
anything herein to the contrary, neither the Acquiring Fund nor the Selling Fund
may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends, shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's net investment
company taxable income for all taxable periods ending on or prior to the Closing
Date (computed without regard to any deduction for dividends paid) and all of
its net capital gains realized in all taxable periods ending on or prior to the
Closing Date (after reduction for any capital loss carryforward).
8.6 The parties shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund followed by the distribution of
the Acquiring Fund Shares to the Selling Fund in dissolution and
liquidation of the Selling Fund will constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code and the Acquiring Fund and
the Selling Fund will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund assets to the Acquiring Fund in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
identified liabilities of the Selling Fund or upon the distribution
(whether actual or constructive) of the Acquiring Fund Shares to Selling
Fund Shareholders in exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the
Acquiring Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received by
each Selling Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Selling Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period
of the Acquiring Fund Shares to be received by each Selling Fund
Shareholder will include the period during which the Selling Fund shares
exchanged therefor were held by such shareholder (provided the Selling Fund
shares were held as capital assets on the date of the Reorganization).
(f) The tax basis of the Selling Fund assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Selling Fund
immediately prior to the Reorganization, and the holding period of the
assets of the Selling Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Selling Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund
nor the Selling Fund may waive the conditions set forth in this paragraph 8.6.
8.7 The Acquiring Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Acquiring Fund, in form and substance satisfactory to
the Acquiring Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Selling Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the Capitalization Table
appearing in the Registration Statement and Prospectus and Proxy Statement
has been obtained from and is consistent with the accounting records of the
Selling Fund; and
(c) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the pro forma financial
statements that are included in the Registration Statement and Prospectus
and Proxy Statement were prepared based on the valuation of the Selling
Fund's assets in accordance with the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectuses and statement of additional
information pursuant to procedures customarily utilized by the Acquiring
Fund in valuing its own assets;
(d) on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in accordance
with generally accepted auditing standards), the data utilized in the
calculations of the projected expense ratios appearing in the Registration
Statement and Prospectus and Proxy Statement agree with underlying
accounting records of the Selling Fund or with written estimates by Selling
Fund's management and were found to be mathematically correct.
In addition, unless waived by the Acquiring Fund, the Acquiring Fund shall
have received from KPMG Peat Marwick LLP a letter addressed to the Acquiring
Fund dated on the Closing Date, in form and substance satisfactory to the
Acquiring Fund, to the effect that on the basis of limited procedures agreed
upon by the Acquiring Fund (but not an examination in accordance with generally
accepted auditing standards), the calculation of net asset value per share of
the Selling Fund as of the Valuation Date was determined in accordance with
generally accepted accounting principles and the portfolio valuation practices
of the Acquiring Fund.
8.8 The Selling Fund shall have received from KPMG Peat Marwick LLP a
letter addressed to the Selling Fund, in form and substance satisfactory to the
Selling Fund, to the effect that:
(a) they are independent certified public accountants with respect to
the Acquiring Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder;
(b) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of any
unaudited pro forma financial statements included in the Registration
Statement and Prospectus and Proxy Statement, and inquiries of appropriate
officials of the Trust responsible for financial and accounting matters,
nothing came to their attention that caused them to believe that such
unaudited pro forma financial statements do not comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the published rules and regulations thereunder;
(c) on the basis of limited procedures agreed upon by the Selling Fund
and described in such letter (but not an examination in accordance with
generally accepted auditing standards), the Capitalization Table appearing
in the Registration Statement and Prospectus and Proxy Statement has been
obtained from and is consistent with the accounting records of the
Acquiring Fund; and
(d) on the basis of limited procedures agreed upon by the Selling Fund
(but not an examination in accordance with generally accepted auditing
standards), the data utilized in the calculations of the projected expense
ratio appearing in the Registration Statement and Prospectus and Proxy
Statement agree with written estimates by each Fund's management and were
found to be mathematically correct.
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund will be borne by First Union National Bank ("FUNB"). Such
expenses include, without limitation, (a) expenses incurred in connection with
the entering into and the carrying out of the provisions of this Agreement; (b)
expenses associated with the preparation and filing of the Registration
Statement under the 1933 Act covering the Acquiring Fund Shares to be issued
pursuant to the provisions of this Agreement; (c) registration or qualification
fees and expenses of preparing and filing such forms as are necessary under
applicable state securities laws to qualify the Acquiring Fund Shares to be
issued in connection herewith in each state in which the Selling Fund
Shareholders are resident as of the date of the mailing of the Prospectus and
Proxy Statement to such shareholders; (d) postage; (e) printing; (f) accounting
fees; (g) legal fees; and (h) solicitation costs of the transaction.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own federal and
state registration fees.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall not survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date,
if not cured within 30 days; or
(b) a condition herein expressed to be precedent to the obligations of
the terminating party has not been met and it reasonably appears that it
will not or cannot be met.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Selling Fund, the Trust, the respective Trustees or
officers, to the other party or its Trustees or officers, but each shall bear
the expenses incurred by it incidental to the preparation and carrying out of
this Agreement as provided in paragraph 9.1.
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Selling Fund and the Acquiring Fund; provided, however, that following the
meeting of the Selling Fund Shareholders called by the Selling Fund pursuant to
paragraph 5.2 of this Agreement, no such amendment may have the effect of
changing the provisions for determining the number of the Acquiring Fund Shares
to be issued to the Selling Fund Shareholders under this Agreement to the
detriment of such shareholders without their further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without giving effect to the conflicts of
laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided in
this paragraph, no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed to
confer upon or give any person, firm, or corporation, other than the parties
hereto and their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
13.5 It is expressly agreed that the obligations of the Acquiring Fund and
the Selling Fund hereunder shall not be binding upon any of the Trustees,
shareholders, nominees, officers, agents, or employees of the Trust personally,
but shall bind only the trust property of the Acquiring Fund and of the Selling
Fund, as provided in the Declaration of Trust of the Trust. The execution and
delivery of this Agreement have been authorized by the Trustees of the Trust on
behalf of the Acquiring Fund and the Selling Fund and signed by authorized
officers of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officers shall be deemed to
have been made by any of them individually or to impose any liability on any of
them personally, but shall bind only the trust property of the Acquiring Fund
and of the Selling Fund as provided in the Declaration of Trust of the Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the
date first written above.
EVERGREEN EQUITY TRUST
On behalf of Evergreen Fund
By:_____________________________
Name:
Title:
EVERGREEN EQUITY TRUST
On behalf of Evergreen Micro Cap Fund
By:______________________________
Name:
Title:
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully-valued, or
overvalued.
Portfolio
Management
----------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: October 1971
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
-------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- -------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/71
...............................................................................
Average Annual Returns
...............................................................................
1 year with sales charge -10.07% -10.77% -7.11% n/a
...............................................................................
1 year w/o sales charge -5.59% -6.18% -6.19% -5.25%
................................................................................
3 years 12.40% 12.67% 13.44% 14.59%
................................................................................
5 years -- -- -- 15.16%
...............................................................................
10 years -- -- -- 12.25%
................................................................................
Since Inception 17.76% 17.99% 18.49% 16.03%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
...............................................................................
12-month income dividends
per share $0.10 -- -- $0.14
...............................................................................
12-month capital gain distributions
per share $0.50 $0.50 $0.50 $0.50
...............................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A
---- --- ------------ -------
1/3/95 $ 10,000 $ 10,000 $ 9,525
9/30/95 $ 10,234 $ 12,571 $ 12,374
9/30/96 $ 10,541 $ 14,222 $ 14,610
9/30/97 $ 10,768 $ 18,942 $ 19,537
9/30/98 $ 10,929 $ 15,339 $ 18,445
Comparison of a $10,000 investment in Evergreen Fund Class A, versus a similar
investment in the Russell 2000, and the Consumer Price Index (CPI).
Russell 2000 Index is an unmanaged Index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the performance of the small company stock
market.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the Fund performance in its fiscal year?
The Evergreen Fund's original Class Y shares, had a decline of 5.25% total
return for the fiscal year ended September 30, 1998. This was only the fifth
fiscal year decline in net asset value in the Fund's twenty-seven year history.
For the entire period since inception on October 15, 1971, the Fund's Class Y
shares have provided an average annual return of 16.03%. Class A, B, and C
shares returned -5.59%, -6.18%, and -6.19%, respectively, unadjusted for any
sales charges, for the fiscal year. The Fund's performance in the fiscal year
contrasted favorably with that registered by the leading average of smaller,
entrepreneurial companies, the Russell 2000 Index which declined 19.02% in this
period. The Fund showed a significant positive figure for performance until the
fourth quarter of its fiscal year, when its decline was 14.52%. The sharpest
fall-off in net asset values took place in August, while September showed a
meaningful recovery, up 4.63%.
Portfolio
Characteristics
---------------
Total Net Assets $1,847,330,018
.............................................................................
Number of Holdings 344
.............................................................................
Beta 1.03
.............................................................................
P/E Ratio 16.2x
.............................................................................
Why did Evergreen Fund outperform the Russell 2000 Average?
The Evergreen Fund portfolio through the year was not exclusively in a selection
of smaller entrepreneurial companies. The Fund holds several highly defensive
large capitalization companies which outperformed the market during the fiscal
year. These include: Fannie Mae, up 36.4%; Freddie Mac, up 39.8%; Johnson &
Johnson, up 35.7%; and Merck & Co., Inc., up 29.5%. Each has been long held, has
had significant capital appreciation, and represents a significant portion of
Fund holdings. In addition to their strength, the Fund benefited from a sizable
cash equivalent position, 18.8% at the beginning of the sharply lower September
quarter, and 20.0% at the end of that quarter. These defensive aspects of the
portfolio provided a partial, although certainly not total, counterbalance to
the highly volatile performance of smaller companies in the September quarter.
What were the strengths and weaknesses in the Fund's portfolio during the fiscal
year?
The Fund had many areas of sizable strength, including 20 issues whose capital
appreciation during the fiscal year was 50% or more. The industry sector showing
up most in this group was financial, led by the title insurance company, First
American Financial Corp., which was up 137.9%. This high performance group
included smaller banks, such as Gold Banc Corp., Inc., up 78.7%; Sandwich
Bancorp, Inc., up 53.5%; and Maryland Federal Bancorp, Inc., up 53.4%.
Technology innovative leaders were significant performers, led by Cisco Systems,
Inc., up 89.7%; and Gateway 2000, Inc., up 66.1%. Health care was represented in
the top performers by such issues as McKesson Corp., up 79.8%; Lincare Holdings,
Inc., up 53.2%; and Express Scripts, Inc., up 52.3%. Numbers of strong
performers were sold with substantial gains, led by part of the Fund's position
in Dillard's, Inc., which was sold with a gain of 2,331.2% after a 15 1/2 year
holding. Other major gains were in BB&T Corp., up 483.5%; part of our holdings
in Executive Risk, Inc., up 481.6%; part of our holdings in MBIA Inc., up
434.8%; Onbancorp, Inc., up 406.7%; and CVS Corp., up 87.8%. These are but a few
of the issues which were sold when we either judged that they had risen to
valuations which more than discounted their future growth, or others which were
sold when we regarded them as unlikely to achieve our growth goals. The latter
group ranged from companies which had run into legal or regulatory
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
problems, such as Ucar International, which was sold with a 62.7% loss after the
Federal Trade Commission penalized the company in a price-fixing charge, or
companies whose product positioning found them in a declining market
opportunity, such as Nike, Inc., Beverly Enterprises, Inc., Ranger Oil, Ltd, and
Bio-Rad Laboratories, Inc. With the Fund's very broad diversification into 344
companies, no loss taken had a sizable impact on portfolio valuation.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Clear Channel Communications, Inc. 4.4%
..........................................................................
Merck & Co., Inc. 3.5%
..........................................................................
M & T Bank Corp. 3.3%
..........................................................................
Intel Corp. 2.8%
..........................................................................
Federal National Mortgage Association 2.1%
..........................................................................
BankBoston Corp. 1.9%
..........................................................................
NationsBank Corp. 1.8%
..........................................................................
Johnson & Johnson 1.7%
..........................................................................
Federal Home Loan Mortgage Corp. 1.4%
..........................................................................
McKesson Corp. 1.2%
..........................................................................
Were mergers and acquisitions a plus for performance?
This fiscal year saw the largest number of merger and acquisition developments
among Fund holdings in its history, with transactions completed or begun for 44
of the Fund's holdings. For those of this group which have been completed as of
the end of the fiscal year, the average gain was 170.5%. These developments
continue a long-term trend of the Fund, which has now had 351 of its holdings
merged or acquired since its inception, and nine are still pending. We have long
regarded the recurrent and frequent series of bids for Fund holdings by other
companies as demonstrating that we have bought undervalued growth opportunities.
The most prominent industry group among the 44 companies which received bids
during the year was the financial, with 14 (primarily banks) announcing or
completing such transactions. The largest was the Fund's holding in Barnett
Banks, Inc. This holding began in December, 1990, with the purchase of shares of
First Florida Banks, Inc., which was subsequently acquired by Barnett, and
Barnett, in turn, was, acquired in 1998 by NationsBank Corp. (which has now,
through yet another merger, become BankAmerica Corp.). The Fund's original
investment of $2,833,672 beginning in 1990, was valued at $35,621,924 at the
time of the completion of the acquisition in January. Other very long-term
holdings with acquisitions during the year were Fort Wayne National, bought
originally in 1985, which provided a 973.9% gain on its acquisition, and
Onbancorp, Inc., bought in 1989, with a 265.4% gain to the Fund. Specialty
technology companies, especially medical-related, were among others with
acquisition bids, including Tecnol Medical Products, Inc., Medic Computer
Systems, Inc., Heartstream Inc., and United States Surgical Corp. In the
home-building field, acquisitions were made of Pacific Greystone Corp. and
Continental Homes Holding Corp. One of the larger transactions was in the shares
of Mercantile Stores Co., Inc., initially purchased in September 1994, and
acquired in August, with a gain of 81.8%. It is anticipated that the Fund's
active research for investment opportunities and undervalued growth companies
will continue to provide the portfolio with companies which are attractive
acquisition candidates.
Top 5 Industries
------------------------------
(based on 9/30/98 net assets)
Banks 15.6%
.........................................................................
Healthcare Products & Services 11.7%
.........................................................................
Finance & Insurance 10.9%
.........................................................................
Information Services & Technology 8.3%
.........................................................................
Publishing, Broadcasting & Entertainment 6.5%
.........................................................................
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is the Fund's policy with regard to its sizable cash equivalent position?
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully valued, or
overvalued. Therefore, we anticipated potential price declines which would allow
us to meet our standards of buying the shares of entrepreneurial growth
companies on a value basis. The strategy proved highly rewarding, as toward the
end of the fiscal year, the stock markets had a major decline and we were able
to maintain a steady, careful accumulation program. Many outstanding buys were
made, especially around the period of the sharp stock market fall on August 31.
Some had achieved significant gains by the end of the fiscal year, notably in
smaller companies which had sold off greatly, such as Elan Corp. Plc., Maxxim
Medical, Inc., Analytical Surveys, Inc., Diamond Offshore Drilling, Inc., and
Comair Holdings, Inc.
What are the Fund's expectations for the current fiscal year?
We are optimistic for renewed vigor in the Fund's capital appreciation because
of both external macroeconomic influences and the quality and dynamism of the
Fund's portfolio holdings. Our assessment of the economic outlook is positive
because we believe the steps necessary to sustain economic momentum have already
begun under the leadership of the Federal Reserve and the Administration. The
recent rate cuts are highly positive, demonstrating, in our view, that the
Federal Reserve is aiming to avoid unnecessary credit tightness. It also
demonstrates that the recent trend of diminished inflation is viewed as stable
and continuing. U.S. Treasury efforts to restimulate Japan's key role in the
world economy, particularly in East Asia, are closer now to objectives than at
any time in the last several years, given Japan's banking restructuring and
discussion of tax reduction. With contemplated aid to Brazil, a major source of
instability should be removed from this important trading partner. Europe has
begun an apparently coordinated series of interest rate cuts aimed at
invigorating economic and employment growth.
This is a positive backdrop; the most immediate consequence for the portfolio
has already at this writing, late in October, been a recovery of values in the
Fund's major financial institution sector. The banking industry was most
severely hit in the decline in the fourth quarter, particularly after the
Russian ruble collapse. While the Fund's many holdings are conservatively
positioned, regional banks were not directly impacted; nonetheless, a fear
running through investors in financial companies drove down the prices of many
of our holdings. With that recovery begun, and many strong earnings already
being reported, we anticipate a favorable trend. We have further strengthened
the financial institution holdings with purchases of highly deflated, quality
regional growth banks during the fourth quarter. The negatives which overwhelm
so many technological companies, including some of the Fund's smaller company
holdings, appear to be abating as the markets see continuing demand for
computers and electronic communications products, with the inventory glut
earlier in 1998 having been worked through. Overall, the portfolio selection is
based on expectations of significantly above-average profit performance by our
holdings, even in a slowing economic environment. Volatility, both political and
economic, may still bring unexpected swings, and, therefore, the Fund is
maintaining a sizable cash equivalent reserve position. Our goal is to continue
to take advantage of outstanding opportunities which meet our standards for
long-term entrepreneurial growth, purchased on a value basis.
We appreciate the continuing support and interest of the Fund's shareholders.
<PAGE>
EXHIBIT B
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully-valued, or
overvalued.
Portfolio
Management
----------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: October 1971
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and
priceto-book ratio relative to the S&P 500, as well as the size of the companies
in which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
-------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- -------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/71
...............................................................................
Average Annual Returns
...............................................................................
1 year with sales charge -10.07% -10.77% -7.11% n/a
...............................................................................
1 year w/o sales charge -5.59% -6.18% -6.19% -5.25%
................................................................................
3 years 12.40% 12.67% 13.44% 14.59%
................................................................................
5 years -- -- -- 15.16%
...............................................................................
10 years -- -- -- 12.25%
................................................................................
Since Inception 17.76% 17.99% 18.49% 16.03%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
...............................................................................
12-month income dividends
per share $0.10 -- -- $0.14
...............................................................................
12-month capital gain distributions
per share $0.50 $0.50 $0.50 $0.50
...............................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A
---- --- ------------ -------
1/3/95 $ 10,000 $ 10,000 $ 9,525
9/30/95 $ 10,234 $ 12,571 $ 12,374
9/30/96 $ 10,541 $ 14,222 $ 14,610
9/30/97 $ 10,768 $ 18,942 $ 19,537
9/30/98 $ 10,929 $ 15,339 $ 18,445
Comparison of a $10,000 investment in Evergreen Fund Class A, versus a similar
investment in the Russell 2000, and the Consumer Price Index (CPI).
Russell 2000 Index is an unmanaged Index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the performance of the small company stock
market.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the Fund performance in its fiscal year?
The Evergreen Fund's original Class Y shares, had a decline of 5.25% total
return for the fiscal year ended September 30, 1998. This was only the fifth
fiscal year decline in net asset value in the Fund's twenty-seven year history.
For the entire period since inception on October 15, 1971, the Fund's Class Y
shares have provided an average annual return of 16.03%. Class A, B, and C
shares returned -5.59%, -6.18%, and -6.19%, respectively, unadjusted for any
sales charges, for the fiscal year. The Fund's performance in the fiscal year
contrasted favorably with that registered by the leading average of smaller,
entrepreneurial companies, the Russell 2000 Index which declined 19.02% in this
period. The Fund showed a significant positive figure for performance until the
fourth quarter of its fiscal year, when its decline was 14.52%. The sharpest
fall-off in net asset values took place in August, while September showed a
meaningful recovery, up 4.63%.
Portfolio
Characteristics
---------------
Total Net Assets $1,847,330,018
.............................................................................
Number of Holdings 344
.............................................................................
Beta 1.03
.............................................................................
P/E Ratio 16.2x
.............................................................................
Why did Evergreen Fund outperform the Russell 2000 Average?
The Evergreen Fund portfolio through the year was not exclusively in a selection
of smaller entrepreneurial companies. The Fund holds several highly defensive
large capitalization companies which outperformed the market during the fiscal
year. These include: Fannie Mae, up 36.4%; Freddie Mac, up 39.8%; Johnson &
Johnson, up 35.7%; and Merck & Co., Inc., up 29.5%. Each has been long held, has
had significant capital appreciation, and represents a significant portion of
Fund holdings. In addition to their strength, the Fund benefited from a sizable
cash equivalent position, 18.8% at the beginning of the sharply lower September
quarter, and 20.0% at the end of that quarter. These defensive aspects of the
portfolio provided a partial, although certainly not total, counterbalance to
the highly volatile performance of smaller companies in the September quarter.
What were the strengths and weaknesses in the Fund's portfolio during the fiscal
year?
The Fund had many areas of sizable strength, including 20 issues whose capital
appreciation during the fiscal year was 50% or more. The industry sector showing
up most in this group was financial, led by the title insurance company, First
American Financial Corp., which was up 137.9%. This high performance group
included smaller banks, such as Gold Banc Corp., Inc., up 78.7%; Sandwich
Bancorp, Inc., up 53.5%; and Maryland Federal Bancorp, Inc., up 53.4%.
Technology innovative leaders were significant performers, led by Cisco Systems,
Inc., up 89.7%; and Gateway 2000, Inc., up 66.1%. Health care was represented in
the top performers by such issues as McKesson Corp., up 79.8%; Lincare Holdings,
Inc., up 53.2%; and Express Scripts, Inc., up 52.3%. Numbers of strong
performers were sold with substantial gains, led by part of the Fund's position
in Dillard's, Inc., which was sold with a gain of 2,331.2% after a 15 1/2 year
holding. Other major gains were in BB&T Corp., up 483.5%; part of our holdings
in Executive Risk, Inc., up 481.6%; part of our holdings in MBIA Inc., up
434.8%; Onbancorp, Inc., up 406.7%; and CVS Corp., up 87.8%. These are but a few
of the issues which were sold when we either judged that they had risen to
valuations which more than discounted their future growth, or others which were
sold when we regarded them as unlikely to achieve our growth goals. The latter
group ranged from companies which had run into legal or regulatory
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
problems, such as Ucar International, which was sold with a 62.7% loss after the
Federal Trade Commission penalized the company in a price-fixing charge, or
companies whose product positioning found them in a declining market
opportunity, such as Nike, Inc., Beverly Enterprises, Inc., Ranger Oil, Ltd, and
Bio-Rad Laboratories, Inc. With the Fund's very broad diversification into 344
companies, no loss taken had a sizable impact on portfolio valuation.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Clear Channel Communications, Inc. 4.4%
..........................................................................
Merck & Co., Inc. 3.5%
..........................................................................
M & T Bank Corp. 3.3%
..........................................................................
Intel Corp. 2.8%
..........................................................................
Federal National Mortgage Association 2.1%
..........................................................................
BankBoston Corp. 1.9%
..........................................................................
NationsBank Corp. 1.8%
..........................................................................
Johnson & Johnson 1.7%
..........................................................................
Federal Home Loan Mortgage Corp. 1.4%
..........................................................................
McKesson Corp. 1.2%
..........................................................................
Were mergers and acquisitions a plus for performance?
This fiscal year saw the largest number of merger and acquisition developments
among Fund holdings in its history, with transactions completed or begun for 44
of the Fund's holdings. For those of this group which have been completed as of
the end of the fiscal year, the average gain was 170.5%. These developments
continue a long-term trend of the Fund, which has now had 351 of its holdings
merged or acquired since its inception, and nine are still pending. We have long
regarded the recurrent and frequent series of bids for Fund holdings by other
companies as demonstrating that we have bought undervalued growth opportunities.
The most prominent industry group among the 44 companies which received bids
during the year was the financial, with 14 (primarily banks) announcing or
completing such transactions. The largest was the Fund's holding in Barnett
Banks, Inc. This holding began in December, 1990, with the purchase of shares of
First Florida Banks, Inc., which was subsequently acquired by Barnett, and
Barnett, in turn, was, acquired in 1998 by NationsBank Corp. (which has now,
through yet another merger, become BankAmerica Corp.). The Fund's original
investment of $2,833,672 beginning in 1990, was valued at $35,621,924 at the
time of the completion of the acquisition in January. Other very long-term
holdings with acquisitions during the year were Fort Wayne National, bought
originally in 1985, which provided a 973.9% gain on its acquisition, and
Onbancorp, Inc., bought in 1989, with a 265.4% gain to the Fund. Specialty
technology companies, especially medical-related, were among others with
acquisition bids, including Tecnol Medical Products, Inc., Medic Computer
Systems, Inc., Heartstream Inc., and United States Surgical Corp. In the
home-building field, acquisitions were made of Pacific Greystone Corp. and
Continental Homes Holding Corp. One of the larger transactions was in the shares
of Mercantile Stores Co., Inc., initially purchased in September 1994, and
acquired in August, with a gain of 81.8%. It is anticipated that the Fund's
active research for investment opportunities and undervalued growth companies
will continue to provide the portfolio with companies which are attractive
acquisition candidates.
Top 5 Industries
------------------------------
(based on 9/30/98 net assets)
Banks 15.6%
.........................................................................
Healthcare Products & Services 11.7%
.........................................................................
Finance & Insurance 10.9%
.........................................................................
Information Services & Technology 8.3%
.........................................................................
Publishing, Broadcasting & Entertainment 6.5%
.........................................................................
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is the Fund's policy with regard to its sizable cash equivalent position?
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully valued, or
overvalued. Therefore, we anticipated potential price declines which would allow
us to meet our standards of buying the shares of entrepreneurial growth
companies on a value basis. The strategy proved highly rewarding, as toward the
end of the fiscal year, the stock markets had a major decline and we were able
to maintain a steady, careful accumulation program. Many outstanding buys were
made, especially around the period of the sharp stock market fall on August 31.
Some had achieved significant gains by the end of the fiscal year, notably in
smaller companies which had sold off greatly, such as Elan Corp. Plc., Maxxim
Medical, Inc., Analytical Surveys, Inc., Diamond Offshore Drilling, Inc., and
Comair Holdings, Inc.
What are the Fund's expectations for the current fiscal year?
We are optimistic for renewed vigor in the Fund's capital appreciation because
of both external macroeconomic influences and the quality and dynamism of the
Fund's portfolio holdings. Our assessment of the economic outlook is positive
because we believe the steps necessary to sustain economic momentum have already
begun under the leadership of the Federal Reserve and the Administration. The
recent rate cuts are highly positive, demonstrating, in our view, that the
Federal Reserve is aiming to avoid unnecessary credit tightness. It also
demonstrates that the recent trend of diminished inflation is viewed as stable
and continuing. U.S. Treasury efforts to restimulate Japan's key role in the
world economy, particularly in East Asia, are closer now to objectives than at
any time in the last several years, given Japan's banking restructuring and
discussion of tax reduction. With contemplated aid to Brazil, a major source of
instability should be removed from this important trading partner. Europe has
begun an apparently coordinated series of interest rate cuts aimed at
invigorating economic and employment growth.
This is a positive backdrop; the most immediate consequence for the portfolio
has already at this writing, late in October, been a recovery of values in the
Fund's major financial institution sector. The banking industry was most
severely hit in the decline in the fourth quarter, particularly after the
Russian ruble collapse. While the Fund's many holdings are conservatively
positioned, regional banks were not directly impacted; nonetheless, a fear
running through investors in financial companies drove down the prices of many
of our holdings. With that recovery begun, and many strong earnings already
being reported, we anticipate a favorable trend. We have further strengthened
the financial institution holdings with purchases of highly deflated, quality
regional growth banks during the fourth quarter. The negatives which overwhelm
so many technological companies, including some of the Fund's smaller company
holdings, appear to be abating as the markets see continuing demand for
computers and electronic communications products, with the inventory glut
earlier in 1998 having been worked through. Overall, the portfolio selection is
based on expectations of significantly above-average profit performance by our
holdings, even in a slowing economic environment. Volatility, both political and
economic, may still bring unexpected swings, and, therefore, the Fund is
maintaining a sizable cash equivalent reserve position. Our goal is to continue
to take advantage of outstanding opportunities which meet our standards for
long-term entrepreneurial growth, purchased on a value basis.
We appreciate the continuing support and interest of the Fund's shareholders.
9
<PAGE>
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of Assets of
EVERGREEN MICRO FUND
A Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
By and In Exchange For Shares of
EVERGREEN FUND
a Series of
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 343-2898
This Statement of Additional Information, relating specifically to the
proposed transfer of the assets and liabilities of Evergreen Micro Cap Fund (the
"Micro Cap Fund"), a series of Evergreen Equity Trust, in exchange for Class A
shares (to be issued to holders of Class A shares of Micro Cap Fund), Class B
shares (to be issued to holders of Class B shares of Micro Cap Fund) and Class Y
shares (to be issued to holders of Class Y shares of Micro Cap Fund) of
beneficial interest, $.001 par value per share, of Evergreen Fund, consists of
this cover page and the following described documents, each of which is attached
hereto and incorporated by reference herein.
(1) The Statement of Additional Information of Evergreen Fund dated
February 1, 1999.
(2) The Statement of Additional Information of Micro Cap Fund dated February 1,
1999.
(3) Annual Report of Micro Cap Fund for the year ended September 30, 1999.
(4) Semi-Annual Report of Micro Cap Fund for the six month period ended March
31, 1998.
(5) Annual Report of Evergreen Fund for the year ended September 30, 1998.
(6) Semi-Annual Report of Micro Cap Fund for the six-month period ended March
31, 1998.
This Statement of Additional Information, which is not a
prospectus, supplements, and should be read in conjunction with, the
Prospectus/Proxy Statement of Evergreen Fund and Evergreen Micro Cap
Fund dated June 2, 1999. A copy of the Prospectus/Proxy Statement may be
obtained without charge by calling or writing to Evergreen Equity Trust
at the telephone number or address set forth above.
The date of this Statement of Additional Information is
February 1, 1999.
EVERGREEN EQUITY TRUST
200 Berkeley Street
Boston, Massachusetts 02116
(800) 633-2700
DOMESTIC GROWTH FUNDS
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
Evergreen Fund ("Evergreen")
Evergreen Micro Cap Fund ("Micro Cap")
Evergreen Aggressive Growth Fund ("Aggressive Growth")
Evergreen Omega Fund ("Omega")
Evergreen Small Company Growth Fund ("Small Company")
Evergreen Strategic Growth Fund ("Strategic Growth")
Evergreen Stock Selector Fund ("Stock Selector")
Evergreen Tax Strategic Equity Fund ("Tax Strategic")
Evergreen Masters Fund ("Masters")
(Each a "Fund"; together, the "Funds")
Each Fund is a series of Evergreen Equity Trust (the "Trust").
This Statement of Additional Information ("SAI") pertains to all classes of
shares of the Funds listed above. It is not a prospectus but should be read in
conjunction with the prospectuses of Masters dated January 4, 1999 and the
prospectuses of the other Funds dated February 1, 1999. The Funds are offered
through four separate prospectuses. For Masters, there is one prospectus
offering Class A, Class B and Class C shares of the Fund and only one prospectus
offering Class Y shares of the Fund. For the other Funds, there is one
prospectus offering Class A, Class B and Class C shares of each Fund (except
Stock Selector, which offers only Class A and Class B shares) and one prospectus
offering only Class Y shares of each Fund. You may obtain any of these
prospectuses without charge by calling (800)-343-2898.
Certain information may be incorporated by reference to the Funds
Annual Report dated September 30, 1998. You may obtain a copy of the Annual
Report without charge by calling (800)-343-2898.
<PAGE>
TABLE OF CONTENTS
PART 1
TRUST HISTORY
INVESTMENT POLICIES
OTHER SECURITIES AND PRACTICES
PRINCIPAL HOLDERS OF FUND SHARES
EXPENSES
PERFORMANCE
COMPUTATION OF CLASS A OFFERING PRICE
SERVICE PROVIDERS
FINANCIAL STATEMENTS
PART 2
ADDITIONAL INFORMATION ON SECURITIES AND INVESTMENT PRACTICES
PURCHASE, REDEMPTION AND PRICING OF SHARES
SALES CHARGE WAIVERS AND REDUCTIONS
PERFORMANCE CALCULATIONS
PRINCIPAL UNDERWRITER
DISTRIBUTION EXPENSES UNDER RULE 12b-1
TAX INFORMATION
BROKERAGE
ORGANIZATION
INVESTMENT ADVISORY AGREEMENT
MANAGEMENT OF THE TRUST
CORPORATE AND MUNICIPAL BOND RATINGS
ADDITIONAL INFORMATION
<PAGE>
PART 1
TRUST HISTORY
The Evergreen Equity Trust is an open-end management investment company,
which was organized as a Delaware business trust on September 18, 1997. 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. The foregoing is qualified in its
entirety by reference to the Declaration of Trust.
INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted the fundamental investment restrictions set forth
below which may not be changed without the vote of a majority of the Fund's
outstanding shares, as defined in the Investment Company Act of 1940 (the "1940
Act"). Where necessary, an explanation beneath a fundamental policy describes
the Fund's practices with respect to that policy, as allowed by current law. If
the law governing a policy changes, the Funds' practices may change accordingly
without a shareholder vote. Unless otherwise stated, all references to the
assets of the Fund are in terms of current market value.
1. Diversification
Each Fund may not make any investment that is inconsistent with its
classification as a diversified investment company under the 1940 Act.
Further Explanation of Diversification Policy:
To remain classified as a diversified investment company under the 1940
Act, each Fund must conform with the following: With respect to 75% of its total
assets, a diversified investment company may not invest more than 5% of its
total assets, determined at market or other fair value at the time of purchase,
in the securities of any one issuer, or invest in more than 10% of the
outstanding voting securities of any one issuer, determined at the time of
purchase. These limitations do not apply to investments in securities issued or
guaranteed by the United States ("U.S.") government or its agencies or
instrumentalities.
2. Concentration
Each Fund may not concentrate its investments in the securities of
issuers primarily engaged in any particular industry (other than securities that
are issued or guaranteed by the U.S. government or its agencies or
instrumentalities).
Further Explanation of Concentration Policy:.
Each Fund may not invest more than 25% of its total assets, taken at
market value, in the securities of issuers primarily engaged in any particular
industry (other than securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities).
3. Issuing Senior Securities
Except as permitted under the 1940 Act, each Fund may not issue senior
securities.
4. Borrowing
Each Fund may not borrow money, except to the extent permitted by
applicable law.
Further Explanation of Borrowing Policy:
Each Fund may borrow from banks and enter into reverse repurchase
agreements in an amount up to 33 1/3% of its total assets, taken at market
value. Each Fund may also borrow up to an additional 5% of its total assets from
banks or others. A Fund may borrow only as a temporary measure for extraordinary
or emergency purposes such as the redemption of Fund shares. A Fund may purchase
additional securities so long as borrowings do not exceed 5% of its total
assets. Each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities. Each Fund may purchase
securities on margin and engage in short sales to the extent permitted by
applicable law.
5. Underwriting
Each Fund may not underwrite securities of other issuers, except insofar
as a Fund may be deemed to be an underwriter in connection with the disposition
of its portfolio securities.
6. Real Estate
Each Fund may not purchase or sell real estate, except that, to the
extent permitted by applicable law, a Fund may invest in (a) securities that are
directly or indirectly secured by real estate, or (b) securities issued by
issuers that invest in real estate.
7. Commodities
Each Fund may not purchase or sell commodities or contracts on
commodities, except to the extent that a Fund may engage in financial futures
contracts and related options and currency contracts and related options and may
otherwise do so in accordance with applicable law and without registering as a
commodity pool operator under the Commodity Exchange Act.
8. Lending
Each Fund may not make loans to other persons, except that a Fund may
lend its portfolio securities in accordance with applicable law. The acquisition
of investment securities or other investment instruments shall not be deemed to
be the making of a loan.
Further Explanation of Lending Policy:
To generate income and offset expenses, a Fund may lend portfolio
securities to broker-dealers and other financial institutions in an amount up to
33 1/3% of its total assets, taken at market value. While securities are on
loan, the borrower will pay the Fund any income accruing on the security. The
Fund may invest any collateral it receives in additional portfolio securities,
such as U.S. Treasury notes, certificates of deposit, other high-grade,
short-term obligations or interest bearing cash equivalents. Gains or losses in
the market value of a security lent will affect the Fund and its shareholders.
When a Fund lends its securities, it will require the borrower to give
the Fund collateral in cash or government securities. The Fund will require
collateral in an amount equal to at least 100% of the current market value of
the securities lent, including accrued interest. The Fund has the right to call
a loan and obtain the securities lent any time on notice of not more than five
business days. The Fund may pay reasonable fees in connection with such loans.
OTHER SECURITIES AND PRACTICES
For information regarding certain securities the Funds may purchase and
certain investment practices the Funds may use, see the following sections under
"Additional Information on Securities and Investment Practices" in Part 2 of
this SAI:
Defensive Investments
U.S. Government Securities
When-Issued, Delayed-Delivery and Forward Commitment Transactions Repurchase
Agreements Reverse Repurchase Agreements Options Futures Transactions Foreign
Securities (not applicable to Evergreen, Micro Cap or Aggressive Growth) Foreign
Currency Transactions (not applicable to Evergreen, Micro Cap or Aggressive
Growth) Illiquid and Restricted Securities Investment in Other Investment
Companies Short Sales
PRINCIPAL HOLDERS OF FUND SHARES
As of December 31, 1998, the officers and Trustees of the Trust owned as
a group less than 1% of the outstanding shares of any class of each Fund.
Set forth below is information with respect to each person who, to each
Fund's knowledge, owned beneficially or of record more than 5% of the
outstanding shares of any class of each Fund as ofDecember 31, 1998.
Evergreen Class A:
None
Evergreen Class B:
None
Evergreen Class C:
Turtle & Co. 7.853%
P.O. Box 9427
Boston, MA 02209-9427
MLPF&S For the Sole Benefit 6.016%
Of its Customers
Attn: Fund Administration #97JB1
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Evergreen Class Y:
First Union National Bank/EB/INT 26.275%
Reinvest Account
Attn Trust Operations Fund Group
401 S. Tryon St. 3rd FL CMG 1151
Charlotte, NC 25208-1911
First Union Nationa Bank/EB/INT 10.317%
Cash Account
Attn Trust Operations Fund Group
401 S. Tryon St. 3rd FL CMG 1151
Charlotte, NC 28202-1911
Micro Cap Class A:
Dr. Paul Errera 6.591%
9 October Hill Rd.
Woodbridge, CT 06525-1148
Micro Cap Class B:
MLPF&S For the Sole Benefit 6.735%
Of its Customers
Attn: Fund Administration #97H76
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Micro Cap Class C:
MLPF&S For the Sole Benefit 5.482%
Of its Customers
Attn: Fund Administration #97JA4
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Micro Cap Class Y:
Stephen A. Lieber 12.483%
1210 Greacen Point Rd.
Mamaroneck, NY 10543-4613
Constance E. Lieber 8.930%
1210 Greacen Point Rd.
Mamaroneck, NY 10543-4613
Charles Schwab & Co. Inc. 8.891%
Special Custody Account
FBO Exclusive Benefit of Customers
Reinvest Account Attn Mutual FD
101 Montgomery St.
San Francisco, CA 94104-4122
CITIBANK NA 8.106%
Delta Airlines Master Trust 308235
Joe Villella Citicorp Services
3800 Citibank Center
Attn: Carolyn Smith
Tampa, FL 33610
Aetna Life Insurance & Annuity 6.345%
Central Valuation Unit
Attn: Jackie Johnson-Conveyor TS 31
151 Farmington Ave.
Hartford, CT 06156-0001
Aggressive Growth Class A:
MLPF&S For the Sole Benefit 10.270%
Of its Customers
Attn: Fund Administration #97212
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Aggressive Growth Class B:
None
Aggressive Growth Class C:
MLPF&S For the Sole Benefit 10.667%
Of its Customers
Attn: Fund Administration #97JA1
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Lavedna Ellingson 8.996%
Douglas Ellingson JTWROS
8510 McClintock
Tempe, AZ 85284-2527
Salomon Smith Barney Inc. 5.434%
333 West 34th St. - 3rd FL
New York, NY 10001
Aggressive Growth Class Y:
First Union National Bank 51.677%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
310 S. Tryon St.
Charlotte, NC 28202-1910
First Union National Bank 28.303%
Trust Accounts
Attn: Ginny Batten
11th Floor CMG-1151
301 S. Tryon St.
Charlotte, NC 28202-1910
Omega Class A:
None
Evergreen Omega Fund Class B:
MLPF&S For the Sole Benefit 6.737%
Of its Customers
Attn: Fund Administration #97BP1
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Omega Class C:
MLPF&S For the Sole Benefit 24.259%
Of its Customers
Attn: Fund Administration #97BP5
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Omega Class Y:
Pembroke Limited 39.378%
Craigmuir Chambers
P.O. Box 71
Road Town Tortola
British Virgin Islands
First Union National Bank 14.666%
Re-invest Account
Attn: Trust Operations Fund Group
401 South Tryon St. 3rd FL
Charlotte, NC 28202-1911
First Union National Bank 9.980%
Cash Account
Attn: Trust Operations Group
1525 West WT Harris BLVD
Charlotte, NC 28262
Hobert Z Cross & Hazel H Cross TR 6.519%
Cross Family Rev Trust
U/A/D 3-8-88
5335 Fidler Ave.
Lakewood, CA 90712-2001
Small Company Class A:
ROFE & CO 8.445%
C/O State Street Bank & Trust Co.
For Sub Account
Kokusai Securities Co. Ltd.
P.O. Box 5061
Boston, MA 02206-5061
Small Company Class B:
MLPF&S For the Sole Benefit 19.588%
Of its Customers
Attn: Fund Administration #98302
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Small Company Class C:
MLPF&S For the Sole Benefit 40.828%
Of its Customers
Attn: Fund Administration #97JA1
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
J C Bradford & Co. Cust FBO 11.638%
Consolidated Investors
330 Commerce St.
Nashville, TN 37201-1809
State Street BK and TR CO Cust 8.618%
Rollover IRA FBO Mark Loveland
2701 Westheimer Rd. #12H
Houston, TX 77098-1238
Small Company Class Y:
First Union National Bank 47.492%
Cash Account
Attn Trust Operation Fund Group
401 South Tryon St. 3rd FL
Charlotte, NC 28202-1911
Pembroke Limited 41.841%
Craigmuir Chambers
P.O. Box 71
Road Town Tortola
British Virgin Islands
First Union National Bank 5.972%
Re-Invest Account
Attn Trust Operations Fund Group
401 South Tryon St. 3rd FL
Charlotte, NC 28202-1911
Strategic Growth Class A:
None
Strategic Growth Class B:
None
Strategic Growth Class C:
State Street BK and TR CO Cust 5.970%
Edward W Sparrow Hosp TSA FBO
Dennis Allen Swan
3741 Chippendale
Okemos, MI 48864-3861
State Street BK and TR CO Cust 5.392%
Rollover IRA FBO
Sandra K. Rosenberg
1558 Park Circle
Mendota Heights, MN 55118
State Street BK and TR CO Cust 5.335%
SARSEP IRA FBO Scott Staley
395 E Richards Rd.
Oregon, WI 53575
State Street BK and TR CO Cust 5.250%
IRA FBO
William B. Read
100 Christwood Blvd. Apt 225
Covington, LA 70433-4603
Stock Selector Class A:
None
Stock Selector Class B:
OFP Limited Partnership 57.562%
P O Box 5430
Incline Village, NV 89450-5430
Stock Selector Class C:
None
Stock Selector Class Y:
First Union Natl BK BK/EB/INT 90.310%
Reinvest Account
Attn Trust Oper FD GRP
401 S Tryon St. 3rd FL CMG 1151
Charlotte, NC 28202-1911
First Union Natl BK BK/EB/INT 5.254%
Cash Account
Attn: Trust Oper FD GRP
401 S. Tryon St. 3rd FL CMG 1151
Charlotte, NC 28202-1911
Tax Strategic Class A:
First Union Brokerage Services 11.724%
Thomas K. Morton and
A/C 6066-1004
961 Lew Blvd.
St. Augustine, FL 32084
First Union Brokerage Services 11.724%
William K Morton and
Leslie H. Morton JTWROS
A/C 6066-3284
2 Viejo St.
St Augustine, FL 32084
Thomas G. Henry 7.949%
Rita E Henry JT WROS
60 Mountain Rd.
York, PA 17402-7754
Dwight R. Markey & 5.686%
Treva R Markey JT TEN
2710 Joppa Rd.
York, PA 17403-5152
Harvey S. Kline 5.094%
Ruth Z Kline TTEES M/B
Harvey S & Ruth Z Kline
Trust U/A DTD 10-13-92
207-C Hope Lane
New Oxford, PA 17350-8528
Tax Strategic Class B:
Svea Erikson TTEE 9.082%
Alice Johanson Rev Liv Trust
U/A DTD 12-07-94
5959 Parkwalk Circle W
Boynton Beach, FL 33437-2349
First Union Brokerage Services 7.252%
Sarah T Driggers and
A/C 2819-4486
4973 San Pable Road S
Jacksonville, FL 32224
MLPF&S For the Sole Benefit 5.717%
Of its Customers
Attn: Fund Administration #97YU0
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
Tax Strategic Class C:
MLPF&S For the Sole Benefit 23.576%
Of its Customers
Attn: Fund Administration #97YU1
4800 Deer Lake Dr. E 2nd FL
Jacksonville, FL 32246-6484
NFSC FEBO # A7D-061336 16.266%
Nancy J. Vandenput
Donald H. Vandenput
1314 Orlando Dr.
Green Bay, WI 54313
NFSC FEBO #A7D-134090 14.538%
Dian H Crawford
300 ST Joseph St.
Suite 25
Green Bay, WI 54301
Carolyn R Penrose TTEE 8.591% Carolyn R Penrose Trust U/A DTD 02/10/92
1125 Laplaloma Blvd.
Gail F Vanderperren 5.734%
TOD Patrick Jay
1665 Lennwood St.
Green Bay, WI 54303
Tax Strategic Class Y:
Stephen A. Lieber 28.777%
1210 Greacen Point Rd.
Mamaroneck, NY 10543-4613
L. Charles Hilton Jr. 26.596%
Lela G Hilton JTWROS
4116 North Highway 231
Panama City, FL 32404
Samuel A. Lieber TTEE 14.389%
Janice Ruth Lieber Trust
U/A/D 2-22-1995
1210 Greacen Point Rd.
Mamaroneck, Ny 10543-4613
Nola Maddox Falcone 14.232%
70 Drake Rd.
Scarsdale, NY 10583-6447
EXPENSES
Advisory Fees
Each Fund has its own investment advisor. For more information, see
"Investment Advisory Agreements" in Part 2 of this SAI.
Evergreen Asset Management Corp. ("EAMC") is the investment advisor to
Evergreen and Micro Cap. Lieber & Company acts as sub-advisor to these Funds,
and is reimbursed by EAMC for the costs of providing sub-advisory services. EAMC
is entitled to receive from each of these Funds an annual fee based on the
Fund's average daily net assets, as follows:
Average Daily Net Assets Fee
- ------------------------- -----
first $750 million 1.00%
next $250 million 0.90%
over $1 billion 0.80%
EAMC is also the investment advisor to Tax Strategic. EAMC is entitled
to receive from Tax Strategic an annual fee equal to 0.95% of the average daily
net assets of the Fund. Lieber & Company acts as sub-advisor to the Fund, and is
reimbursed by EAMC for the costs of providing sub-advisory services.
Evergreen Investment Management ("EIM"), formerly the Capital Management
Group of First Union National Bank, is the investment advisor to Aggressive
Growth. EIM is entitled to receive from Aggressive Growth an annual fee equal to
0.60% of the average daily net assets of the Fund.
EIM is also the investment advisor to Masters. EIM is entitled to
receive from Masters an annual fee equal to 0.95% of the average daily net
assets of the Fund.
Evergreen Investment Management Company ("EIMC"), formerly Keystone
Investment Management Company, is the investment advisor to Omega. EIMC is
entitled to receive from Omega an annual fee based on the Fund's average daily
net assets, as follows:
Average Daily Net Assets Fee
- --------------------------- ----
first $250 million 0.75%
next $250 million 0.675%
next $500 million 0.60%
over $1 billion 0.50%
EIMC is also the investment advisor to Small Company and Strategic
Growth. EIMC is entitled to receive from each of these Funds an annual fee based
on the Fund's average daily net assets, as follows:
Average Daily Net Assets Fee
- ------------------------- ----
first $100 million 0.70%
next $100 million 0.65%
next $100 million 0.60%
next $100 million 0.55%
next $100 million 0.50%
next $500 million 0.45%
next $500 million 0.40%
over $1.5 billion 0.35%
Meridian Investment Company ("MIC") is the investment advisor to Stock
Selector. MIC is entitled to receive from Stock Selector an annual fee equal to
0.74% of the average daily net assets of the Fund, MIC has agreed to limit the
expenses of the Fund until August 2000
Advisory Fees Paid
Below are the advisory fees paid by each Fund for the last three fiscal
periods. Information for Masters is not available since the Fund commenced
operations on 1/4/99.
Fund/Fiscal Year or Period Advisory Fee Waiver
Year or Period Ended 1998
Evergreen (Year ended 9/30/98) $17,536,054 -0-
Micro Cap (Year ended 9/30/98) $615,473 -0-
Aggressive Growth (Year ended 9/30/98) $1,390,081 -0-
Omega (Year ended 9/30/98) $2,214,127 -0-
Small Company (Year ended 9/30/98) $6,367,129 -0-
Strategic Growth (Year ended 9/30/98) $4,870,007 -0-
Stock Selector (Three months
ended 9/30/98) $968,973 $85,492
Stock Selector (Year ended 6/30/98) $4,270,615 -0-
Tax Strategic (One month ended 9/30/98) $2,079 $2,079
Year or Period Ended 1997
Evergreen (Year ended 9/30/97) $13,089,112 -0-
Micro Cap (Year ended 9/30/97) $428,047 -0-
Aggressive Growth (Year ended 9/30/97) $1,013,344 -0-
Omega (Nine months ended 9/30/97) $1,480,178 -0-
Small Company (Four months
ended 9/30/97) $2,387,425 -0-
Small Company (Year ended 5/31/97) $7,788,033 -0-
Strategic Growth (Eleven months
ended 9/30/97) $3,205,753 -0-
Stock Selector (Year Ended 6/30/97) $3,459,108 -0-
Tax Strategic (N/A) N/A N/A
Year or Period Ended 1996
Evergreen (Year ended 9/30/96) $9,145,287 $9,740
Micro Cap (Year ended 9/30/96) $510,421 -0-
Aggressive Growth (Year ended (9/30/96) $612,492 -0-
Omega (Year ended 12/31/96) $1,831,142 -0-
Small Company (Year ended 5/31/96) $8,473,139 -0-
Strategic Growth (Year ended 10/31/96) $2,994,500 -0-
Stock Selector (Year Ended 6/30/96) $1,973,776 -0-
Tax Strategic (N/A) N/A N/A
Brokerage Commissions
Below are the brokerage commissions paid by each Fund and brokerage
commissions paid by the applicable Funds to Lieber & Company for the last three
fiscal years or periods. For more information regarding brokerage commissions,
see "Brokerage" in Part 2 of this SAI. Information for Masters is not available
since the Fund commenced operations on 1/4/99.
Fund/Fiscal Year or Period Total Paid to Total Paid to Lieber
All Brokers
Year or Period Ended 1998
- ---------------------------------- -------------- -------------------
Evergreen (Year ended 9/30/98) $507,457 $405,182
Micro Cap (Year ended 9/30/98) $96,323 $56,631
Aggressive Growth (Year ended 9/30/98) $127,761 N/A
Omega (Year ended 9/30/98) $513,446 N/A
Small Company (Year ended 9/30/98) $2,527,607 N/A
Strategic Growth (Year ended 9/30/98) $162,350 N/A
Stock Selector (Three months
ended 9/30/98) $81,289 N/A
Stock Selector (Year ended 6/30/98) $840,644 N/A
Tax Strategic (One month ended 9/30/98) $5,853 $5,653
Year or Period Ended 1997
- ---------------------------------- -------------- -------------------
Evergreen (Year ended 9/30/97) $503,276 $416,953
Micro Cap (Year ended 9/30/97) $91,568 $61,717
Aggressive Growth (Year ended 9/30/97) $677,860 N/A
Omega (Nine months ended 9/30/97) $403,294 N/A
Small Company (Year ended 5/31/97) $1,891,397 N/A
Strategic Growth (Eleven months
ended 9/30/97) $1,144,065 N/A
Stock Selector (Year ended 6/30/97) $1,026,435 N/A
Tax Strategic (N/A) N/A N/A
Year or Period Ended 1996
- ---------------------------------- -------------- -------------------
Evergreen (Year ended 9/30/96) $590,105 $515,522
Micro Cap (Year ended 9/30/96) $317,058 $153,596
Aggressive Growth (Year ended 9/30/96) $119,584 N/A
Omega (Year ended 12/31/96) $829,479 N/A
Small Company (Year ended 5/31/96) $2,853,950 N/A
Strategic Growth (Year ended 10/31/96) $1,990,208 N/A
Stock Selector (Year ended 6/30/96) $1,422,984 N/A
Tax Strategic (N/A) N/A N/A
Percentage of Brokerage Commissions Paid to Lieber & Company
The table below shows, for the fiscal year or period ended September 30,
1998, (1) the percentage of aggregate brokerage commissions paid by each
applicable Fund to Lieber & Company and (2) the percentage of each applicable
Fund's aggregate dollar amount of commissionable transactions effected through
Lieber & Company. For more information, see "Selection of Brokers" under
"Brokerage" in Part 2 of this SAI.
Percentage of
Percentage of Commissionable
Commissions to Transactions through
Fund Lieber & Company Lieber & Company
Evergreen 79.85% 72.97%
Micro Cap 58.80% 51.98%
Tax Strategic 96.58% 94.74%
Underwriting Commissions
Below are the underwriting commissions paid by each Fund and the amounts
retained by the principal underwriter for the last three fiscal years or
periods. For more information, see "Principal Underwriter" in Part 2 of this
SAI. Information for Masters is not available since the Fund commenced
operations on 1/4/99.
Total Underwriting
Underwriting Commissions
Fund/Fiscal Year or Period Commissions Retained
Year or Period Ended 1998
Evergreen (Year ended 9/30/98) $10,689,087 $233,260
Micro Cap (Year ended 9/30/98) $331,040 $10,258
Aggressive Growth (Year
ended 9/30/98) $414,138 $19,289
Omega (Year ended 9/30/98) $790,103 $25,765
Small Company (Year ended 9/30/98) $958,402 $2,569
Strategic Growth (Year
ended 9/30/98) $883,936 $12,462
Stock Selector (Year
Ended 6/30/98) $110,148 $10,160
Stock Selector (Three months
ended 9/30/98) $5,836 $324
Tax Strategic (One month
ended 9/30/98) $477 $52
Year or Period Ended 1997
Evergreen (Year ended 9/30/97) $1,464,361 $129,417
Micro Cap (Year ended 9/30/97) $2,223 $300
Aggressive Growth (Year
ended 9/30/97) $278,145 $21,472
Omega (Nine months ended 9/30/97) $254,113 $19,806
Small Company (Four months
ended 9/30/97) $878,274 $22,796
Small Company (Year ended 5/31/97) $17,885,604 $13,187,854
Strategic Growth (Eleven months
ended 9/30/97) $646,769 $14,708
Stock Selector (Year
ended 6/30/97) $96,837 $4,819
Tax Strategic (N/A) N/A N/A
Year or Period Ended 1996
Evergreen (Year ended 9/30/96) $1,462,012 $157,233
Micro Cap (Year ended 9/30/96) $2,963 $188
Aggressive Growth (Year
ended 9/30/96) $185,835 $22,742
Omega (Year ended 12/31/96) $983,621 $759,394
Small Company (Year ended 5/31/96) $15,690,812 ($5,933,719)
Strategic Growth (Year
ended 10/31/96) $4,093,912 $2,049,519
Stock Selector (Year
ended 6/30/96) $12,612 $1,710
Tax Strategic (N/A) N/A N/A
12b-1 Fees
Below are the 12b-1 fees paid by each Fund for the fiscal year or period
ended September 30, 1998. For more information, see "Distribution Expenses Under
Rule 12b-1" in Part 2 of this SAI. Information for Masters is not available
since the Fund commenced operations on 1/4/99.
<TABLE>
<CAPTION>
Fund Class A Class B Class C
Distribution Service Fees Distribution Service Fees Distribution Service
Fees Fees Fees Fees
<S> <C> <C> <C> <C> <C> <C>
Evergreen -0- $487,965 $4,642,418 $1,547,473 $89,549 $29,850
Micro Cap -0- $11,483 $29,627 $9,876 $21,463 $7,154
Aggressive
Growth -0- $386,073 $294,671 $98,224 $25,518 $8,506
Omega -0- $369,456 $878,159 $292,789 $117,485 $39,162
Small Company -0- $1,539,502 $2,345,500 $1,267,915 $26,072 $8,690
Strategic
Growth -0- $1,356,293 $1,239,580 $720,005 $1,151 $383
Stock Selector -0- $11,597 $671 $223 -0- -0-
Tax Strategic -0- $1 -0- -0- -0- -0-
</TABLE>
Trustee Compensation
Listed below is the Trustee compensation paid by the Trust individually
and by the Trust and the eight other trusts in the Evergreen Fund Complex for
the twelve months ended September 30, 1998. The Trustees do not receive pension
or retirement benefits from the Funds. For more information, see "Management of
the Trust" in Part 2 of this SAI.
Total Compensation
Aggregate from Trust and Fund
Compensation from Complex Paid to
Trustee Trust Trustees**
Laurence B. Ashkin $27,177 $73,450
Charles A. Austin, III $23,723 $65,450
K. Dun Gifford $23,091 $63,575
James S. Howell $35,759 $99,425
Leroy Keith Jr. $23,091 $63,575
Gerald M. McDonnell $28,937 $79,200
Thomas L. McVerry $31,955 $88,275
William Walt Pettit $26,529 $72,325
David M. Richardson $22,878 $62,950
Russell A. Salton, III $29,569 $81,625
Michael S. Scofield $29,771 $81,924
Richard J. Shima $25,585 $70,150
Robert J. Jeffries* $9,702 $28,437
Foster Bam* $16,951 $42,950
*Former Trustee; retired as of December 31, 1997.
**Certain Trustees have elected to defer all or part of their
total compensation for the twelve months ended September 30,
1998. The amounts listed below will be payable in later
years to the respective Trustees:
Austin $8,512
McVerry $88,275
Howell $76,119
Salton $81,625
Petit $72,325
McDonnell $79,200
Scofield $11,740
PERFORMANCE
Total Return
Below are the annual total returns for each class of shares of the Funds
(including applicable sales charges) as of September 30, 1998. The returns for
Tax Strategic are cumulative. For more information, see "Total Return" under
"Performance Calculations" in Part 2 of this SAI. Information for Masters is not
available since the Fund commenced operations on 1/4/99.
Ten Years or
Fund/Class One Year Five Years Since Inception Inception Date
Evergreen (1)
Class A -10.07% 13.77% 11.57% 1/3/95
Class B -10.77% 14.07% 11.83% 1/3/95
Class C -7.11% 14.30% 11.83% 1/3/95
Class Y -5.25% 15.16% 12.25% 10/15/71
Micro Cap (1)
Class A -25.22% 3.66% 8.87% 1/3/95
Class B -25.76% 3.81% 9.10% 1/3/95
Class C -22.79% 4.12% 9.11% 1/3/95
Class Y -21.28% 4.85% 9.49% 6/1/83
Aggressive Growth (2)
Class A -10.40% 9.04% 15.75% 4/15/83
Class B -11.30% 9.34% 16.05% 7/7/95
Class C -7.76% 9.59% 16.04% 8/3/95
Class Y -5.43% 10.31% 16.42% 7/11/95
Omega (2)
Class A -0.53% 11.24% 16.08% 4/29/68
Class B -1.04% 11.07% 16.12% 8/2/93
Class C 2.80% 11.37% 16.15% 8/2/93
Class Y 4.67% 12.37% 16.67% 1/13/97
Small Company (3)
Class A -36.69% 1.47% 12.06% 1/20/98
Class B -36.92% 1.50% 11.96% 9/11/35
Class C -34.48% 1.75% 11.68% 1/26/98
Class Y -33.25% 2.76% 12.91% 1/26/98
Strategic Growth (3)
Class A -.53% 13.20% 14.78% 1/20/98
Class B -0.67% 13.50% 14.84% 9/11/35
Class C 2.90% 13.50% 14.40% 1/22/98
Stock Selector (2)
Class A -15.99% 13.78% 14.42% 2/28/90
Class B -24.52 12.49% 13.82% 11/7/97
Class Y -11.56% 15.04% 15.16% 2/21/95
Tax Strategic (4)
Class A N/A N/A 1.43% 9/4/98
Class B N/A N/A N/A N/A
Class C N/A N/A N/A N/A
Class Y N/A N/A 6.50% 9/1/98
(1)Historical performance for Classes A, B and C of Evergreen and Micro Cap
prior to inception reflects that of Class Y, the original class offered, and
does not reflect 12b-1 fees. If such fees were reflected, returns would have
been lower. Returns reflect expense limits previously in effect, without which
returns would have been lower.
(2)Historical performance for Classes B, C and Y of Aggressive Growth, Omega and
Stock Selector prior to inception reflects that of Class A, the original class
offered, and includes appropriate 12b-1 fees for Class A. If appropriate fees
for Classes B and C were reflected, returns for these classes would have been
lower. For Class Y, if 12b-1 fees were not reflected, returns would have been
higher. Returns for Stock Selector reflect expense limits previously in effect,
without which returns would have been lower.
(3)Historical performance for Classes A and C of Small Company and Strategic
Growth and Class Y of Small Company prior to inception reflects that of Class B,
the original class offered, and has been adjusted for appropriate 12b-1 fees for
each class.
(4)Historical performance for Class A of Tax Strategic prior to inception
reflects that of Class Y, the original class offered, and does not include 12b-1
fees. If such fees were reflected, returns would have been lower. The investment
advisor is waiving a portion of its advisory fee. Had the fee not been waived,
the returns would have been lower.
COMPUTATION OF CLASS A OFFERING PRICE
Class A shares are sold at the NAV plus a sales charge. Below is an
example of the method of computing the offering price of Class A shares of each
Fund. The example assumes a purchase of Class A shares of each Fund aggregating
less than $100,000 based upon the NAV of each Fund's Class A shares at the end
of each Fund's latest fiscal year or period. For more information, see
"Purchase, Redemption and Pricing of Shares."
Per Share Offering
Fund Date Net Asset Sales Price Per
Value Charge Share
Evergreen 9/30/98 $21.11 4.75% $22.16
Micro Cap 9/30/98 $19.88 4.75% $20.87
Aggressive
Growth 9/30/98 $21.26 4.75% $22.32
Omega 9/30/98 $21.50 4.75% $22.57
Small Company 9/30/98 $5.72 4.75% $6.01
Strategic
Growth 9/30/98 $9.67 4.75% $10.15
Stock Selector 9/30/98 $18.34 4.75% $19.25
Tax Strategic 9/30/98 $10.65 4.75% $11.18
SERVICE PROVIDERS
Administrator
Evergreen Investment Services, Inc. ("EIS") serves as administrator for
aggressive Growth and Tax Strategic, subject to the supervision and control of
the Trust's Board of Trustees. EIS provides the Funds with facilities, equipment
and personnel and is entitled to receive a fee from the Fund based on the total
assets of all mutual funds for which EIS serves as administrator and a First
Union Corporation subsidiary serves as investment advisor. The fee paid to EIS
is calculated in accordance with the following schedule:
Assets Fee
- ----------------- ------
first $7 billion 0.050%
next $3 billion 0.035%
next $5 billion 0.030%
next $10 billion 0.020%
next $5 billion 0.015%
over $30 billion 0.010%
EIS also provides facilities, equipment and personnel to Evergreen,
Micro Cap, Omega, Small Company and Strategic Growth on behalf of the investment
advisor. Omega, Small Company and Strategic Growth reimburse EIS for providing
such services.
Transfer Agent
Evergreen Service Company ("ESC"), a subsidiary of First Union
Corporation, is the Fund's transfer agent. ESC issues and redeems shares, pays
dividends and performs other duties in connection with the maintenance of
shareholder accounts. The transfer agent's address is P.O. Box 2121, Boston,
Massachusetts 02106-2121. The Fund pays ESC annual fees as follows:
Annual Fee Annual Fee
Per Open Per Closed
Fund Type Account* Account**
Monthly Dividend Funds $25.50 $9.00
Quarterly Dividend Funds $24.50 $9.00
Semiannual Dividend Funds $23.50 $9.00
Annual Dividend Funds $23.50 $9.00
Money Market Funds $25.50 $9.00
*For shareholder accounts only. The Fund pays ESC cost plus 15%
for broker accounts.
**Closed accounts are maintained on the system in order to
facilitate historical and tax information.
Distributor
Evergreen Distributor, Inc. ( "EDI") markets the Funds through
broker-dealers and other financial representatives. Its address is 125 W. 55th
Street, New York, NY 10019.
Independent Auditors
KPMG Peat Marwick LLP, 99 High Street, Boston, Massachusetts 02110,
audits the financial statements of Omega, Small Company, Strategic Growth and
Tax Strategic.
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New
York 10036, audits the financial statements of Evergreen, Micro Cap, Aggressive
Growth and Stock Selector.
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.
FINANCIAL STATEMENTS
The financial statements for Stock Selector for the periods from November
1, 1995 through June 30, 1998 have been audited by Ernst & Young, LLP,
independent auditors. The financial statements of Stock Selector for the three
month period ended September 30, 1998 have been audited by
PricewaterhouseCoopers LLP, independent auditors. Reports of Ernst & Young LLP
for the period ended June 30, 1998 and PricewaterhouseCoopers LLP for the period
ended September 30, 1998 on the financial statements for Stock Selector appear
in the Fund's Annual Reports which are incorporated by reference. The financial
statements for Omega, Small Company, Strategic Growth and Tax Strategic have
been audited by KPMG Peat Marwick LLP, independent auditors. A report of KPMG
Peat Marwick LLP on the financial statements for those Funds appears in the
Funds' Annual Report which is incorporated by reference. The financial
statements for Evergreen, Micro Cap and Aggressive Growth have been audited by
PricewaterhouseCoopers LLP, independent auditors. A report of
PricewaterhouseCoopers LLP on the financial statements for those Funds appears
in the Funds' Annual Report which is incorporated by reference. Annual Reports
may be obtained without charge by writing to ESC, P.O. Box 2121, Boston,
Massachusetts 02106-2121, or by calling ESC toll-free at 1-800-343-2898.
<PAGE>
EVERGREEN FUNDS
Statement of Additional Information ("SAI")
PART 2
ADDITIONAL INFORMATION ON SECURITIES
AND INVESTMENT PRACTICES
The prospectus describes the Fund's investment objective and the
securities in which it primarily invests. The following describes other
securities the Fund may purchase and investment strategies it may use. Some of
the information below will not apply to the Fund in which you are interested.
See the list under Other Securities and Practices in Part 1 of this SAI to
determine which of the sections below are applicable.
Defensive Investments
The Fund may invest up to 100% of its assets in high quality money
market instruments, such as notes, certificates of deposit, commercial paper,
banker's acceptances, bank deposits or U.S. government securities if, in the
opinion of the advisor, market conditions warrant a temporary defensive
investment strategy. Evergreen Fund for Total Return may also invest in debt
securities and high grade preferred stocks for defensive purposes when its
investment advisor determines a temporary defensive strategy is warranted.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by U.S.
Government agencies or instrumentalities.
These securities are backed by (1) the discretionary authority of the
U.S. Government to purchase certain obligations of agencies or instrumentalities
or (2) the credit of the agency or instrumentality issuing the obligations.
Some government agencies and instrumentalities may not receive
financial support from the U.S. Government. Examples of such agencies are:
(i) Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;
(ii) 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 Fund may invest in securities issued by the GNMA, a corporation
wholly-owned by the U.S. Government. GNMA securities or "certificates" represent
ownership in a pool of underlying mortgages. The timely payment of principal and
interest due on these securities is guaranteed.
Unlike conventional bonds, the principal on GNMA certificates is not
paid at maturity but over the life of the security in scheduled monthly
payments. While mortgages pooled in a GNMA certificate may have maturities of up
to 30 years, the certificate itself will have a shorter average maturity and
less principal volatility than a comparable 30-year bond.
The market value and interest yield of GNMA certificates can vary due
not only to market fluctuations, but also to early prepayments of mortgages
within the pool. Since prepayment rates vary widely, it is impossible to
accurately predict the average maturity of a GNMA pool. In addition to the
guaranteed principal payments, GNMA certificates may also make unscheduled
principal payments resulting from prepayments on the underlying mortgages.
Although GNMA certificates may offer yields higher than those available
from other types of U.S. Government securities, they may be less effective as a
means of locking in attractive long-term rates because of the prepayment
feature. For instance, when interest rates decline, prepayments are likely to
increase as the holders of the underlying mortgages seek refinancing. As a
result, the value of a GNMA certificate is not likely to rise as much as the
value of a comparable debt security would in response to same decline. In
addition, these prepayments can cause the price of a GNMA certificate originally
purchased at a premium to decline in price compared to its par value, which may
result in a loss.
When-Issued, Delayed-Delivery and Forward Commitment Transactions
The Fund may purchase securities on a when-issued or delayed delivery basis and
may purchase or sell securities on a forward commitment basis. Settlement of
such transactions normally occurs within a month or more after the purchase or
sale commitment is made.
The Fund may purchase securities under such conditions only with the
intention of actually acquiring them, but may enter into a separate agreement to
sell the securities before the settlement date. Since the value of securities
purchased may fluctuate prior to settlement, the Fund may be required to pay
more at settlement than the security is worth. In addition, the purchaser is not
entitled to any of the interest earned prior to settlement.
Upon making a commitment to purchase a security on a when-issued,
delayed delivery or forward commitment basis the Fund will hold liquid assets
worth at least the equivalent of the amount due. The liquid assets will be
monitored on a daily basis and adjusted as necessary to maintain the necessary
value.
Purchases made under such conditions may involve the risk that yields
secured at the time of commitment may be lower than otherwise available by the
time settlement takes place, causing an unrealized loss to the Fund. In
addition, when the Fund engages in such purchases, it relies on the other party
to consummate the sale. If the other party fails to perform its obligations, the
Fund may miss the opportunity to obtain a security at a favorable price or
yield.
Repurchase Agreements
The Fund may enter into repurchase agreements with entities that are
registered as U.S. Government securities dealers, including member banks of the
Federal Reserve System having at least $1 billion in assets, primary dealers in
U.S. government securities or other financial institutions believed by the
investment advisor to be creditworthy. In a repurchase agreement the Fund
obtains a security and simultaneously commits to return the security to the
seller at a set price (including principal and interest) within period of time
usually not exceeding seven days. The resale price reflects the purchase price
plus an agreed upon market rate of interest which is unrelated to the coupon
rate or maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
The Fund's custodian or a third party will take possession of the
securities subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund's investment advisor believes
that under the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or disposition
of such securities. The Fund will only enter into repurchase agreements with
banks and other recognized financial institutions, such as broker-dealers, which
are deemed by the investment advisor to be creditworthy pursuant to guidelines
established by the Board of Trustees.
Reverse Repurchase Agreements
As described herein, the Fund may also enter into reverse repurchase
agreements. These transactions are similar to borrowing cash. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in return
for a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Options
An option is a right to buy or sell a security for a specified price
within a limited time period. The option buyer pays the option seller (known as
the "writer") for the right to buy, which is a "call" option, or the right to
sell, which is a "put" option. Unless the option is terminated, the option
seller must then buy or sell the security at the agreed-upon price when asked to
do so by the option buyer.
The Fund may buy or sell put and call options on securities it holds or
intends to acquire, and may purchase put and call options for the purpose of
offsetting previously written put and call options of the same series. The Fund
may also buy and sell options on financial futures contracts. The Fund will use
options as a hedge against decreases or increases in the value of securities it
holds or intends to acquire.
The Fund may write only covered options. With regard to a call option,
this means that the Fund will own, for the life of the option, the securities
subject to the call option. The 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 the 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
The Fund may enter into financial futures contracts and write options on
such contracts. The Fund intends to enter into such contracts and related
options for hedging purposes. The Fund will enter into futures on securities or
index-based futures contracts in order to hedge against changes in interest or
exchange rates or securities prices. A futures contract on securities is an
agreement to buy or sell securities at a specified price during a designated
month. A futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index. The Fund does not make payment or
deliver securities upon entering into a futures contract. Instead, it puts down
a margin deposit, which is adjusted to reflect changes in the value of the
contract and which continues until the contract is terminated.
The Fund may sell or purchase futures contracts. When a futures contract
is sold by the Fund, the value of the contract will tend to rise when the value
of the underlying securities declines and to fall when the value of such
securities increases. Thus, the Fund sells futures contracts in order to offset
a possible decline in the value of its securities. If a futures contract is
purchased by the Fund, the value of the contract will tend to rise when the
value of the underlying securities increases and to fall when the value of such
securities declines. The Fund intends to purchase futures contracts in order to
establish what is believed by the investment advisor to be a favorable price or
rate of return for securities the Fund intends to purchase.
The Fund also intends to purchase put and call options on futures
contracts for hedging purposes. A put option purchased by the Fund would give it
the right to assume a position as the seller of a futures contract. A call
option purchased by the Fund would give it the right to assume a position as the
purchaser of a futures contract. The purchase of an option on a futures contract
requires the Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any action under the contract. If the
option cannot be exercised profitably before it expires, the Fund's loss will be
limited to the amount of the premium and any transaction costs.
The Fund may enter into closing purchase and sale transactions in order
to terminate a futures contract and may sell put and call options for the
purpose of closing out its options positions. The Fund's ability to enter into
closing transactions depends on the development and maintenance of a liquid
secondary market. There is no assurance that a liquid secondary market will
exist for any particular contract or at any particular time. As a result, there
can be no assurance that the Fund will be able to enter into an offsetting
transaction with respect to a particular contract at a particular time. If the
Fund is not able to enter into an offsetting transaction, the Fund will continue
to be required to maintain the margin deposits on the contract and to complete
the contract according to its terms, in which case it would continue to bear
market risk on the transaction.
Although futures and options transactions are intended to enable the
Fund to manage market, interest rate or exchange rate risk, unanticipated
changes in interest rates or market prices could result in poorer performance
than if it had not entered into these transactions. Even if the investment
advisor correctly predicts interest rate movements, a hedge could be
unsuccessful if changes in the value of the Fund's futures position did not
correspond to changes in the value of its investments. This lack of correlation
between the Fund's futures and securities positions may be caused by differences
between the futures and securities markets or by differences between the
securities underlying the Fund's futures position and the securities held by or
to be purchased for the Fund. The Fund's investment advisor will attempt to
minimize these risks through careful selection and monitoring of the Fund's
futures and options positions.
The Fund does not intend to use futures transactions for speculation or
leverage. The Fund has the ability to write options on futures, but currently
intends to write such options only to close out options purchased by the Fund.
The Fund will not change these policies without supplementing the information in
the prospectus and SAI.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded at
any time, the Fund will take prompt action to close out a sufficient number of
open contracts to bring its open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather the Fund
is required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that futures contract initial margin does not involve
the borrowing of funds by the Fund to finance the transactions. Initial margin
is in the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund pays
or receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market". Variation
margin does not represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would owe the other
if the futures contract expired. In computing its daily net asset value the Fund
will mark-to-market its open futures positions. The Fund is also required to
deposit and maintain margin when it writes call options on futures contracts.
Foreign Securities
The Fund may invest in foreign securities or U.S. securities traded in
foreign markets. In addition to securities issued by foreign companies,
permissible investments may also consist of obligations of foreign branches of
U.S. banks and of foreign banks, including European certificates of deposit,
European time deposits, Canadian time deposits and Yankee certificates of
deposit. The Fund may also invest in Canadian commercial paper and Europaper.
These instruments may subject the Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. issuers. Such
risks include the possibility of adverse political and economic developments;
imposition of withholding taxes on interest or other income; seizure,
nationalization, or expropriation of foreign deposits; establishment of exchange
controls or taxation at the source; greater fluctuations in value due to changes
in exchange rates, or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal and interest on such
obligations. Such investments may also entail higher custodial fees and sales
commissions than domestic investments. Foreign issuers of securities or
obligations are often subject to accounting treatment and engage in business
practices different from those respecting domestic issuers of similar securities
or obligations. Foreign branches of U.S. banks and foreign banks may be subject
to less stringent reserve requirements than those applicable to domestic
branches of U.S. banks.
Foreign Currency Transactions
As one way of managing exchange rate risk, the Fund may enter into
forward currency exchange contracts (agreements to purchase or sell currencies
at a specified price and date). The exchange rate for the transaction (the
amount of currency the Fund will deliver and receive when the contract is
completed) is fixed when the Fund enters into the contract. The Fund usually
will enter into these contracts to stabilize the U.S. dollar value of a security
it has agreed to buy or sell. The Fund intends to use these contracts to hedge
the U.S. dollar value of a security it already owns, particularly if the Fund
expects a decrease in the value of the currency in which the foreign security is
denominated. Although the Fund will attempt to benefit from using forward
contracts, the success of its hedging strategy will depend on the investment
advisor's ability to predict accurately the future exchange rates between
foreign currencies and the U.S. dollar. The value of the Fund's investments
denominated in foreign currencies will depend on the relative strengths of those
currencies and the U.S. dollar, and the Fund may be affected favorably or
unfavorably by changes in the exchange rates or exchange control regulations
between foreign currencies and the U.S. dollar. Changes in foreign currency
exchange rates also may affect the value of dividends and interest earned, gains
and losses realized on the sale of securities and net investment income and
gains, if any, to be distributed to shareholders by the Fund. The Fund may also
purchase and sell options related to foreign currencies in connection with
hedging strategies.
High Yield, High Risk Bonds
The Fund may invest a portion of its assets in lower rated bonds. Bonds
rated below BBB by Standard & Poor's Ratings Services ("S&P") or Fitch IBCA,
Inc. ("Fitch") or below Baa by Moody's Investors Service, Inc. ("Moody's"),
commonly known as "junk bonds," offer high yields, but also high risk. While
investment in junk bonds provides opportunities to maximize return over time,
they are considered predominantly speculative with respect to the ability of the
issuer to meet principal and interest payments. Investors should be aware of the
following risks:
(1) The lower ratings of junk bonds reflect a greater possibility that
adverse changes in the financial condition of the issuer or in general economic
conditions, or both, or an unanticipated rise in interest rates may impair the
ability of the issuer to make payments of interest and principal, especially if
the issuer is highly leveraged. Such issuer's ability to meet its debt
obligations may also be adversely affected by the issuer's inability to meet
specific forecasts or the unavailability of additional financing. Also, an
economic downturn or an increase in interest rates may increase the potential
for default by the issuers of these securities.
(2) The value of junk bonds may be more susceptible to real or perceived
adverse economic or political events than is the case for higher quality bonds.
(3) The value of junk bonds, like those of other fixed income
securities, fluctuates in response to changes in interest rates, generally
rising when interest rates decline and falling when interest rates rise. For
example, if interest rates increase after a fixed income security is purchased,
the security, if sold prior to maturity, may return less than its cost. The
prices of junk bonds, however, are generally less sensitive to interest rate
changes than the prices of higher-rated bonds, but are more sensitive to news
about an issuer or the economy which is, or investors perceive as, negative.
(4) The secondary market for junk bonds may be less liquid at certain
times than the secondary market for higher quality bonds, which may adversely
effect (a) the bond's market price, (b) the Fund's ability to sell the bond and
the Fund's ability to obtain accurate market quotations for purposes of valuing
its assets.
For bond ratings descriptions, see "Corporate and Municipal Bond
Ratings" below.
Illiquid and Restricted Securities
The Fund may not invest more than 15% of its net assets in securities
that are illiquid. A security is illiquid when the Fund cannot dispose of it in
the ordinary course of business within seven days at approximately the value at
which the Fund has the investment on its books.
The Fund may invest in "restricted" securities, i.e., securities subject
to restrictions on resale under federal securities laws. Rule 144A under the
Securities Act of 1933 ("Rule 144A") allows certain restricted securities to
trade freely among qualified institutional investors. Since Rule 144A securities
may have limited markets, the Board of Trustees will determine whether such
securities should be considered illiquid for the purpose of determining the
Fund's compliance with the limit on illiquid securities indicated above. In
determine the liquidity of Rule 144A securities, the Trustees will consider: (1)
the frequency of trades and quotes for the security; (2) the number of dealers
willing to purchase or sell the security and the number of other potential
buyers; (3) dealer undertakings to make a market in the security; and (4) the
nature of the security and the nature of the marketplace trades.
Investment in Other Investment Companies
The Fund may purchase the shares of other investment companies to the
extent permitted under the 1940 Act. Currently, the Fund may not (1) own more
than 3% of the outstanding voting stocks of another investment company, (2)
invest more than 5% of its assets in any single investment company, and (3)
invest more than 10% of its assets in investment companies. However, the Fund
may invest all of its investable assets in securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund. Investing in other investment
companies may expose a Fund to duplicate expenses and lower its value.
Short Sales
A short sale is the sale of a security the Fund has borrowed. The Fund
expects to profit from a short sale by selling the borrowed security for more
than the cost of buying it to repay the lender. After a short sale is completed,
the value of the security sold short may rise. If that happens, the cost of
buying it to repay the lender may exceed the amount originally received for the
sale by the Fund.
The Fund may engage in short sales, but it may not make short sales of
securities or maintain a short position unless, at all times when a short
position is open, it owns an equal amount of such securities or of securities
which, without payment of any further consideration, are convertible into or
exchangeable for securities of the same issue as, and equal in amount to, the
securities sold short. The Fund may effect a short sale in connection with an
underwriting in which the Fund is a participant.
Municipal Bonds
The Fund may invest in municipal bonds of any state, territory or
possession of the United States ("U.S."), including the District of Columbia.
The Fund may also invest in municipal bonds of any political subdivision, agency
or instrumentality (e.g., counties, cities, towns, villages, districts,
authorities) of the U.S. or its possessions. Municipal bonds are debt
instruments issued by or for a state or local government to support its general
financial needs or to pay for special projects such as airports, bridges,
highways, public transit, schools, hospitals, housing and water and sewer works.
Municipal bonds may also may be issued to refinance public debt.
Municipal bonds are mainly divided between "general obligation" and
"revenue" bonds. General obligation bonds are backed by the full faith and
credit of governmental issuers with the power to tax. They are repaid from the
issuer's general revenues. Payment, however, may be dependent upon legislative
approval and may be subject to limitations on the issuer's taxing power.
Enforcement of payments due under general obligation bonds varies according to
the law applicable to the issuer. In contrast, revenue bonds are supported only
by the revenues generated by the project or facility.
The Fund may also invest in industrial development bonds. Such bonds are
usually revenue bonds issued to pay for facilities with a public purpose
operated by private corporations. The credit quality of industrial development
bonds is usually directly related to the credit standing of the owner or user of
the facilities. To qualify as a municipal bond, the interest paid on an
industrial development bond must qualify as fully exempt from federal income
tax. However, the interest paid on an industrial development bond may be subject
to the federal alternative minimum tax.
The yields on municipal bonds depend on such factors as market
conditions, the financial condition of the issuer and the issue's size, maturity
date and rating. Municipal bonds are rated by S&P, Moody's and Fitch. Such
ratings, however, are opinions, not absolute standards of quality. Municipal
bonds with the same maturity, interest rates and rating may have different
yields, while municipal bonds with the same maturity and interest rate, but
different ratings, may have the same yield. Once purchased by the Fund, a
municipal bond may cease to be rated or receive a new rating below the minimum
required for purchase by the Fund. Neither event would require the Fund to sell
the bond, but the Fund's investment advisor would consider such events in
determining whether the Fund should continue to hold it.
The ability of the Fund to achieve its investment objective depends upon
the continuing ability of issuers of municipal bonds to pay interest and
principal when due. Municipal bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors. Such
laws extend the time for payment of principal and/or interest, and may otherwise
restrict the Fund's ability to enforce its rights in the event of default. Since
there is generally less information available on the financial condition of
municipal bond issuers compared to other domestic issuers of securities, the
Fund's investment advisor may lack sufficient knowledge of an issue's
weaknesses. Other influences, such as litigation, may also materially affect the
ability of an issuer to pay principal and interest when due. In addition, the
market for municipal bonds is often thin and can be temporarily affected by
large purchases and sales, including those by the Fund.
From time to time, Congress has considered restricting or eliminating
the federal income tax exemption for interest on municipal bonds. Such actions
could materially affect the availability of municipal bonds and the value of
those already owned by the Fund. If such legislation were passed, the Trust's
Board of Trustees may recommend changes in the Fund's investment objectives and
policies or dissolution of the Fund.
Virgin Islands, Guam and Puerto Rico
The Fund may invest in obligations of the governments of the Virgin
Islands, Guam and Puerto Rico to the extent such obligations are exempt from the
income or intangibles taxes, as applicable, of the state for which the Fund is
named. The Fund does not presently intend to invest more than (a) 10% of its net
assets in the obligations of each of the Virgin Islands and Guam or (b) 25% of
its net assets in the obligations of Puerto Rico. Accordingly, the Fund may be
adversely affected by local political and economic conditions and developments
within the Virgin Islands, Guam and Puerto Rico affecting the issuers of such
obligations.
Master Demand Notes
The Fund may invest in master demand notes. These are unsecured
obligations that permit the investment of fluctuating amounts by the Fund at
varying rates of interest pursuant to direct arrangements between the Fund, as
lender, and the issuer, as borrower. Master demand notes may permit daily
fluctuations in the interest rate and daily changes in the amounts borrowed. The
Fund has the right to increase the amount under the note at any time up to the
full amount provided by the note agreement, or to decrease the amount. The
borrower may repay up to the full amount of the note without penalty. Master
demand notes permit the Fund to demand payment of principal and accrued interest
at any time (on not more than seven days' notice). Notes acquired by the Fund
may have maturities of more than one year, provided that (1) the Fund is
entitled to payment of principal and accrued interest upon not more than seven
days' notice, and (2) the rate of interest on such notes is adjusted
automatically at periodic intervals, which normally will not exceed 31 days, but
may extend up to one year. The notes are deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the
demand notice period. Because these types of notes are direct lending
arrangements between the lender and borrower, such instruments are not normally
traded and there is no secondary market for these notes, although they are
redeemable and thus repayable by the borrower at face value plus accrued
interest at any time. Accordingly, the Fund's right to redeem is dependent on
the ability of the borrower to pay principal and interest on demand. In
connection with master demand note arrangements, the Fund`s investment advisor
considers, under standards established by the Board of Trustees, earning power,
cash flow and other liquidity ratios of the borrower and will monitor the
ability of the borrower to pay principal and interest on demand. These notes are
not typically rated by credit rating agencies. Unless rated, the Fund may invest
in them only if at the time of an investment the issuer meets the criteria
established for commercial paper discussed in this statement of additional
information (which limits such investments to commercial paper rated A-1 by S&P,
Prime-1 by Moody's or F-1 by Fitch.
Obligations of Foreign Branches of United States Banks
The Fund may invest in obligations of foreign branches of U.S. banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by
government regulation. Payment of interest and principal upon these obligations
may also be affected by governmental action in the country of domicile of the
branch (generally referred to as sovereign risk). In addition, evidences of
ownership of such securities may be held outside the U.S. and the Fund may be
subject to the risks associated with the holding of such property overseas.
Examples of governmental actions would be the imposition of currency controls,
interest limitations, withholding taxes, seizure of assets or the declaration of
a moratorium. Various provisions of federal law governing domestic branches do
not apply to foreign branches of domestic banks.
Obligations of United States Branches of Foreign Banks
The Fund may invest in obligations of U.S. branches of foreign banks.
These may be general obligations of the parent bank in addition to the issuing
branch, or may be limited by the terms of a specific obligation and by federal
and state regulation as well as by governmental action in the country in which
the foreign bank has its head office. In addition, there may be less publicly
available information about a U.S. branch of a foreign bank than about a
domestic bank.
Payment-in-kind Securities
The Fund may invest in payment-in-kind ("PIK") securities. PIKs pay
interest in either cash or additional securities, at the issuer's option, for a
specified period. The issuer's option to pay in additional securities typically
ranges from one to six years, compared to an average maturity for all PIK
securities of eleven years. Call protection and sinking fund features are
comparable to those offered on traditional debt issues.
PIKs, like zero coupon bonds, are designed to give an issuer
flexibility in managing cash flow. Several PIKs are senior debt. In other cases,
where PIKs are subordinated, most senior lenders view them as equity
equivalents.
An advantage of PIKs for the issuer -- as with zero coupon securities
- -- is that interest payments are automatically compounded (reinvested) at the
stated coupon rate, which is not the case with cash-paying securities. However,
PIKs are gaining popularity over zeros since interest payments in additional
securities can be monetized and are more tangible than accretion of a discount.
As a group, PIK bonds trade flat (i.e., without accrued interest).
Their price is expected to reflect an amount representing accredit interest
since the last payment. PIKs generally trade at higher yields than comparable
cash-paying securities of the same issuer. Their premium yield is the result of
the lesser desirability of non-cash interest, the more limited audience for
non-cash paying securities, and the fact that many PIKs have been issued to
equity investors who do not normally own or hold such securities.
Calculating the true yield on a PIK security requires a discounted cash
flow analysis if the security (ex interest) is trading at a premium or a
discount because the realizable value of additional payments is equal to the
current market value of the underlying security, not par.
Regardless of whether PIK securities are senior or deeply subordinated,
issuers are highly motivated to retire them because they are usually their most
costly form of capital.
Zero Coupon "Stripped" Bonds
The Fund may invest in zero coupon "stripped" bonds. These represent
ownership in serially maturing interest payments or principal payments on
specific underlying notes and bonds, including coupons relating to such notes
and bonds. The interest and principal payments are direct obligations of the
issuer. Coupon Zero coupon bonds of any series mature periodically from the date
of issue of such series through the maturity date of the securities related to
such series. Principal zero coupon bonds mature on the date specified therein,
which is the final maturity date of the related securities. Each zero coupon
bond entitles the holder to receive a single payment at maturity. There are no
periodic interest payments on a zero coupon bond. Zero coupon bonds are offered
at discounts from their face amounts.
In general, owners of zero coupon bonds have substantially all the
rights and privileges of owners of the underlying coupon obligations or
principal obligations. Owners of zero coupon bonds have the right upon default
on the underlying coupon obligations or principal obligations to proceed
directly and individually against the issuer and are not required to act in
concert with other holders of zero coupon bonds.
For federal income tax purposes, a purchaser of principal zero coupon
bonds or coupon zero coupon bonds (either initially or in the secondary market)
is treated as if the buyer had purchased a corporate obligation issued on the
purchase date with an original issue discount equal to the excess of the amount
payable at maturity over the purchase price. The purchaser is required to take
into income each year as ordinary income an allocable portion of such discounts
determined on a "constant yield" method. Any such income increases the holder's
tax basis for the zero coupon bond, and any gain or loss on a sale of the zero
coupon bonds relative to the holder's basis, as so adjusted, is a capital gain
or loss. If the holder owns both principal zero coupon bonds and coupon zero
coupon bonds representing interest in the same underlying issue of securities, a
special basis allocation rule (requiring the aggregate basis to be allocated
among the items sold and retained based on their relative fair market value at
the time of sale) may apply to determine the gain or loss on a sale of any such
zero coupon bonds.
Mortgage-Backed or Asset-Backed Securities
The Fund may invest in mortgage-backed securities and asset-backed
securities. Two principal types of mortgage-backed securities are collateralized
mortgage obligations ("CMOs") and real estate mortgage investment conduits
("REMICs"). CMOs are securities collateralized by mortgages, mortgage
pass-throughs, mortgage pay-through bonds (bonds representing an interest in a
pool of mortgages where the cash flow generated from the mortgage collateral
pool is dedicated to bond repayment), and mortgage-backed bonds (general
obligations of the issuers payable out of the issuers' general funds and
additionally secured by a first lien on a pool of single family detached
properties). Many CMOs are issued with a number of classes or series which have
different maturities and are retired in sequence.
Investors purchasing CMOs in the shortest maturities receive or are
credited with their pro rata portion of the scheduled payments of interest and
principal on the underlying mortgages plus all unscheduled prepayments of
principal up to a predetermined portion of the total CMO obligation. Until that
portion of such CMO obligation is repaid, investors in the longer maturities
receive interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to their
stated maturity. Although some of the mortgages underlying CMOs may be supported
by various types of insurance, and some CMOs may be backed by GNMA certificates
or other mortgage pass-throughs issued or guaranteed by U.S. government agencies
or instrumentalities, the CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that they
issue multiple classes of securities.
In addition to mortgage-backed securities, the Fund may invest in
securities secured by other assets including company receivables, truck and auto
loans, leases, and credit card receivables. These issues may be traded
over-the-counter and typically have a short-intermediate maturity structure
depending on the pay down characteristics of the underlying financial assets
which are passed through to the security holder.
Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by automobile receivables permit the servicers of
such receivables to retain possession of the underlying obligations. If the
services were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
rated asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of asset-backed securities backed by
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the investment advisor considers
the financial strength of the guarantor or other provider of credit support, the
type and extent of credit enhancement provided as well as the documentation and
structure of the issue itself and the credit support.
Variable or Floating Rate Instruments
The Fund may invest in variable or floating rate instruments which may
involve a demand feature and may include variable amount master demand notes
which may or may not be backed by bank letters of credit. Variable or floating
rate instruments bear interest at a rate which varies with changes in market
rates. The holder of an instrument with a demand feature may tender the
instrument back to the issuer at par prior to maturity. A variable amount master
demand note is issued pursuant to a written agreement between the issuer and the
holder, its amount may be increased by the holder or decreased by the holder or
issuer, it is payable on demand, and the rate of interest varies based upon an
agreed formula. The quality of the underlying credit must, in the opinion of the
investment advisor, be equivalent to the long-term bond or commercial paper
ratings applicable to permitted investments for the Fund. The investment advisor
will monitor, on an ongoing basis, the earning power, cash flow, and liquidity
ratios of the issuers of such instruments and will similarly monitor the ability
of an issuer of a demand instrument to pay principal and interest on demand.
PURCHASE, REDEMPTION AND PRICING OF SHARES
You may buy shares of the Fund through the Distributor, broker-dealers
that have entered into special agreements with the Distributor or certain other
financial institutions. The Fund offers up to different classes of shares that
differ primarily with respect to sales charges and distribution fees. Depending
upon the class of shares, you will pay an initial sales charge when you buy the
Fund's shares, a contingent deferred sales charge (a "CDSC") when you redeem the
Fund's shares or no sales charges at all.
Class A Shares
With certain exceptions, when you purchase Class A shares you will pay a
maximum sales charge of 4.75%. The prospectus contains a complete table of
applicable sales charges and a discussion of sales charge reductions or waivers
that may apply to purchases. If you purchase Class A shares in the amount of $1
million or more, without an initial sales charge, the Fund will charge a CDSC of
1.00% if you redeem during the month of your purchase or the 12-month period
following the month of your purchase (see "Contingent Deferred Sales Charge"
below).
No front-end sales charges are imposed on Class A shares purchased by
(a) institutional investors, which may include bank trust departments and
registered investment advisors; (b) investment advisors, consultants or
financial planners who place trades for their own accounts or the accounts of
their clients and who charge such clients a management, consulting, advisory or
other fee; (c) clients of investment advisors or financial planners who place
trades for their own accounts if the accounts are linked to the master account
of such investment advisors or financial planners on the books of the
broker-dealer through whom shares are purchased; (d) institutional clients of
broker-dealers, including retirement and deferred compensation plans and the
trusts used to fund these plans, which place trades through an omnibus account
maintained with the Fund by the broker-dealer; (e) shareholders of record on
October 12, 1990 in any series of Evergreen Investment Trust in existence on
that date, and the members of their immediate families; (f) current and retired
employees of First Union National Bank ("FUNB") and its affiliates, EDI and any
broker-dealer with whom EDI has entered into an agreement to sell shares of the
Fund, and members of the immediate families of such employees; and (g) upon the
initial purchase of an Evergreen fund by investors reinvesting the proceeds from
a redemption within the preceding 30 days of shares of other mutual funds,
provided such shares were initially purchased with a front-end sales charge or
subject to a CDSC.
Class B Shares
The Fund offers Class B shares at net asset value without an initial
sales charge. With certain exceptions, however, the Fund will charge a CDSC on
shares you redeem within 72 months after the month of your purchase, in
accordance with the following schedule:
REDEMPTION TIME CDSC RATE
Month of purchase and the first 12-month
period following the month of purchase. ........................5.00%
Second 12-month period following the month of purchase..........4.00%
Third 12-month period following the month of purchase...........3.00%
Fourth 12-month period following the month of purchase..........3.00%
Fifth 12-month period following the month of purchase...........2.00%
Sixth 12-month period following the month of purchase...........1.00%
Thereafter......................................................0.00%
Class B shares that have been outstanding for seven years after the
month of purchase will automatically convert to Class A shares without
imposition of a front-end sales charge or exchange fee. Conversion of Class B
shares represented by stock certificates will require the return of the stock
certificate to ESC.
Class C Shares
Class C shares are available only through broker-dealers who have
entered into special distribution agreements with the Distributor. The Fund
offers Class C shares at net asset value without an initial sales charge. With
certain exceptions, however, the Fund will charge a CDSC of 1.00% on shares you
redeem within 12-months after the month of your purchase. See "Contingent
Deferred Sales Charge" below.
Class Y Shares
No CDSC is imposed on the redemption of Class Y shares. Class Y shares
are not offered to the general public and are available only to (1) persons who
at or prior to December 31, 1994 owned shares in a mutual fund advised by (2)
certain institutional investors and (3) investment advisory clients of EIM,
EAMC, EIMC, MIC, First International Advisors, Ltd., 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.
INSTITUTIONAL SHARES, INSTITUTIONAL SERVICE SHARES AND CHARITABLE SHARES
Each institutional class of shares is sold without a front-end sales
charge or contingent deferred sales charge. Institutional Service shares pay an
ongoing service fee. The minimum initial investment in any institutional class
of shares is $1 million, which may be waived in certain circumstances. There is
no minimum amount required for subsequent purchases.
Contingent Deferred Sales Charge
The Fund charges a CDSC as reimbursement for certain expenses, such as
commissions or shareholder servicing fees, that it has incurred in connection
with the sale of its shares (see "Distribution Expenses Under Rule 12b-1,"
below). Institutional, Institutional Service and Charitable shares do not charge
a CDSC. If imposed, the Fund deducts the CDSC from the redemption proceeds you
would otherwise receive. The CDSC is a percentage of the lesser of (1) the net
asset value of the shares at the time of redemption or (2) the shareholder's
original net cost for such shares. Upon request for redemption, to keep the CDSC
a shareholder must pay as low as possible, the Fund will first seek to redeem
shares not subject to the CDSC and/or shares held the longest, in that order.
The CDSC on any redemption is, to the extent permitted by the National
Association of Securities Dealers, Inc. ("NASD"), paid to the Distributor or its
predecessor.
SALES CHARGE WAIVERS AND REDUCTIONS
The following information is not applicable to Institutional,
Institutional Service and Charitable shares.
If you making a large purchase, there are several ways you can combine
multiple purchases of Class A shares in Evergreen Funds and take advantage of
lower sales charges. These are described below.
Combined Purchases
You can reduce your sales charge by combining purchases of Class A
shares of multiple Evergreen Funds. For example, if you invested $75,000 in each
of two different Evergreen Funds, you would pay a sales charge based on a
$150,000 purchase (i.e., 3.75% of the offering price, rather than 4.75%).
Rights of Accumulation
You can reduce your sales charge by adding the value of Class A shares
of Evergreen Funds you already own to the amount of your next Class A
investment. For example, if you hold Class A shares valued at $99,999 and
purchase an additional $5,000, the sales charge for the $5,000 purchase would be
at the next lower sales charge of 3.75%, rather than 4.75%.
Your account, and therefore your rights of accumulation, can be linked
to immediate family members which includes father and mother, brothers and
sisters, and sons and daughters. The same rule applies with respect to
individual retirement plans. Please note, however, that retirement plans
involving employees stand alone and do not pass on rights of accumulation.
Letter of Intent
You can, by completing the "Letter of Intent" section of the
application, purchase Class A shares over a 13-month period and receive the same
sales charge as if you had invested all the money at once. All purchases of
Class A shares of an Evergreen Fund during the period will qualify as Letter of
Intent purchases.
Waiver of Initial Sales Charges
The Fund may sell its shares at net asset value without an initial sales
charge to:
1. purchasers of shares in the amount of $1 million or more;
2. a corporate or certain other qualified retirement plan or a
non-qualified deferred compensation plan or a Title 1 tax-sheltered annuity or
TSA plan sponsored by an organization having 100 or more eligible employees (a
"Qualifying Plan") or a TSA plan sponsored by a public educational entity having
5,000 or more eligible employees (an "Educational TSA Plan");
3. institutional investors, which may include bank trust departments and
registered investment advisors;
4. investment advisors, consultants or financial planners who place
trades for their own accounts or the accounts of their clients and who charge
such clients a management, consulting, advisory or other fee;
5. clients of investment advisors or financial planners who place trades
for their own accounts if the accounts are linked to a master account of such
investment advisors or financial planners on the books of the broker-dealer
through whom shares are purchased;
6. institutional clients of broker-dealers, including retirement and
deferred compensation plans and the trusts used to fund these plans, which place
trades through an omnibus account maintained with the Fund by the broker-dealer;
7. employees of First Union National Bank ("FUNB"), its affiliates, the
Distributor, any broker-dealer with whom the Distributor, has entered into an
agreement to sell shares of the Fund, and members of the immediate families of
such employees;
8. certain Directors, Trustees, officers and employees of the Evergreen
Funds, 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, the Fund will only sell shares to
these parties upon the purchasers written assurance that the purchase is for
their personal investment purposes only.
Such purchasers may not resell the securities except through redemption by the
Fund. The Fund will not charge any CDSC on redemptions by such purchasers.
Waiver of CDSCS
The Fund does not impose a CDSC when the shares you are redeeming
represent:
1. an increase in the share value above the net cost of such shares;
2. certain shares for which the Fund did not pay a commission on
issuance, including shares acquired through reinvestment of dividend income and
capital gains distributions;
3. shares that are in the accounts of a shareholder who has died or
become disabled;
4. a lump-sum distribution from a 401(k) plan or other benefit plan
qualified under the Employee Retirement Income Security Act of 1974 ("ERISA");
5. an automatic withdrawal from the ERISA plan of a shareholder who is
a least 59 years old;
6. shares in an account that we have closed because the account has an
aggregate net asset value of less than $1,000;
7. an automatic withdrawal under 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. a financial hardship withdrawal made by a retirement plan
participant;
10. a withdrawal consisting of returns of excess contributions or
excess deferral amounts made to a retirement plan; or
11. a redemption by an individual participant in a Qualifying Plan that
purchased Class C shares (this waiver is not available in the event a Qualifying
Plan, as a whole, redeems substantially all of its assets).
Exchanges
Investors may exchange shares of the Fund for shares of the same class
of any other Evergreen fund other that the Evergreen Select Funds. Shares of any
class of the Evergreen Select Funds may be exchanged for the same class of
shares of any other Evergreen Select Fund. See "By Exchange" under "How to Buy
Shares" in the prospectus. Before you make an exchange, you should read the
prospectus of the Evergreen fund into which you want to exchange. The Trust's
Board of Trustees reserves the right to discontinue, alter or limit the exchange
privilege at any time.
Automatic Reinvestment
As described in the prospectus, a shareholder may elect to receive
dividends and capital gains distributions in cash instead of shares. However,
ESC will automatically reinvest all dividends and distributions in additional
shares when it learns that the postal or other delivery service is unable to
deliver checks or transaction confirmations to the shareholder's address of
record. When a check is returned, the Fund will hold the check amount in a
no-interest account in the shareholder's name until the shareholder updates his
or her address or automatic reinvestment begins. Uncashed or returned redemption
checks will also be handled in the manner described above.
Calculation of Net Asset Value
The Fund calculates its net asset value ("NAV") once daily on Monday
through Friday, as described in the prospectus. The Fund will not compute its
NAV on the days theNew York Stock Exchange is closed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The NAV of the Fund is calculated by dividing the value of the Fund's
net assets attributable to that class by all of the shares issued for that
class.
Valuation of Portfolio Securities
Current values for the Fund's portfolio securities are determined as
follows:
(1) Securities that are traded on an established securities exchange or the
over-the-counter National Market System ("NMS") are valued on the basis of the
last sales price on the exchange where primarily traded or on the NMS prior to
the time of the valuation, provided that a sale has occurred.
(2) Securities traded on an established securities exchange or in the
over-the-counter market for which there has been no sale and other securities
traded in the over-the-counter market are valued at the mean of the bid and
asked prices at the time of valuation.
(3) Short-term investments maturing in more than 60 days, for which market
quotations are readily available, are valued at current market value.
(4) Short-term investments maturing in sixty days or less are valued at
amortized cost, which approximates market.
(5) Securities, including restricted securities, for which market quotations are
not readily available; listed securities or those on NMS if, in the 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.
PERFORMANCE CALCULATIONS
Total Return
Total return quotations for a class of shares of the Fund as they may appear
from time to time in advertisements are calculated by finding the average annual
compounded rates of return over one, five and ten year periods, or the time
periods for which such class of shares has been effective, whichever is
relevant, on a hypothetical $1,000 investment that would equate the initial
amount invested in the class to the ending redeemable value. To the initial
investment all dividends and distributions are added, and all recurring fees
charged to all shareholder accounts are deducted. The ending redeemable value
assumes a complete redemption at the end of the relevant periods. The following
is the formula used to calculate average annual total return:
n
P(1 + T) = ERV
P = initial payment of $1,000 T = average total return N = number of
years
ERV = ending redeemable value of the initial $1,000
Yield
Described below are yield calculations the Fund may use. Yield
quotations are expressed in annualized terms and may be quoted on a compounded
basis. Yields based on these calculations do not represent the Fund's yield for
any future period.
30-Day Yield
If the Fund invests primarily in bonds, it may quote its 30-day yield
in advertisements or in reports or other communications to shareholders. It is
calculated by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
6
Yield=2[(a - b + 1) - 1
-----
cd
Where:
a = Dividends and interest earned during the period b = Expenses accrued
for the period (net of reimbursements) c = The average daily number of
shares outstanding during the period
that were entitled to receive dividends
d = The maximum offering price per share on the last day of the period
7-Day Current and Effective Yield
If the Fund invests primarily in money market instruments, it may quote
its 7-day current yield or effective yield in advertisements or in reports or
other communications to shareholders.
The current yield is calculated by determining the net change,
excluding capital changes and income other than investment income, in the value
of a hypothetical, pre-existing account having a balance of one share at the
beginning of the 7-day base period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return, and then multiplying the base period return by (365/7).
The effective yield is based on a compounding of the current yield,
according to the following formula:
365/7
Effective Yield = [(base period return)] + 1) ] - 1
Tax Equivalent Yield
If the Fund invests primarily in municipal bonds, it may quote in
advertisements or in reports or other communications to shareholders a tax
equivalent yield, which is what an investor would generally need to earn from a
fully taxable investment in order to realize, after income taxes, a benefit
equal to the tax free yield provided by the Fund. Tax equivalent yield is
calculated using the following formula:
Tax Equivalent Yield = Yield
-------------------
1 - Income Tax Rate
The quotient is then added to that portion, if any, of the Fund's yield
that is not tax exempt. Depending on the Fund's objective, the income tax rate
used in the formula above may be federal or a combination of federal and state.
PRINCIPAL UNDERWRITER
The Distributor is the principal underwriter for the Trust and with
respect to each class of shares of the Fund. The Trust has entered into a
Principal Underwriting Agreement ("Underwriting Agreement") with the Distributor
with respect to each class of the 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 Fund and the Fund reserves
the right, in its sole discretion, to reject any order received. Under the
Underwriting Agreement, the Fund is not liable to anyone for failure to accept
any order.
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 Trustees who are not interested persons of the Fund, as
defined in the 1940 Act (the "Independent Trustees"), and (ii) by vote of a
majority of the Trust's Trustees, in each case, cast in person at a meeting
called for that purpose.
The Underwriting Agreement may be terminated, without penalty, on 60
days' written notice by the Board of Trustees or by a vote of a majority of
outstanding shares subject to such agreement. The Underwriting Agreement will
terminate automatically upon its "assignment," as that term is defined in the
1940 Act.
From time to time, if, in 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.
DISTRIBUTION EXPENSES UNDER RULE 12b-1
The Fund bears some of the costs of selling its Class A, Class B, and, when
applicable, Class C shares, or Institutional Service shares, including certain
advertising, marketing and shareholder service expenses, pursuant to Rule 12b-1
of the 1940 Act. These "12b-1 fees" or "distribution fees" are indirectly paid
by the shareholder, as shown by the Fund's expense table in the prospectus.
Under the Distribution Plans (each a "Plan," together, the "Plans") that the
Fund has adopted for its, Class A, Class B, and, when applicable, Class C
shares, or Institutional Service shares, the Fund may incur expenses for
distribution costs up to a maximum annual percentage of the average daily net
assets attributable to a class, as follows:
Class A 0.75%*
Class B 1.00%
Class C 1.00%
Institutional
Service 0.35%*
*Currently limited to 0.25% or less. See the expense table in the prospectus
of the Fund in which you are interested.
Of the amounts above, each class may pay under its Plan a maximum
service fee of 0.25% to compensate organizations, which may include the Fund's
investment advisor or its affiliates, for personal services provided to
shareholders and the maintenance of shareholder accounts. The Fund may not,
during any fiscal period, pay distribution or service fees greater than the
amounts above.
Amounts paid under the Plans are used to compensate the Distributor
pursuant to Distribution Agreements (each an "Agreement," together, the
"Agreements") that the Fund has entered into with respect to its Class A, Class
B and, if applicable, Class C shares. The compensation is based on a maximum
annual percentage of the average daily net assets attributable to a class, as
follows:
Class A 0.25%*
Class B 1.00%
Class C 1.00%
*May be lower. See the expense table in the prospectus of the Fund in which
you are interested.
The Agreements provide that the Distributor will use the distribution
fees received from the Fund for the following purposes:
(1) to compensate broker-dealers or other persons for distributing Fund shares;
(2) to compensate broker-dealers, depository institutions and other financial
intermediaries for providing administrative, accounting and other services with
respect to the Fund's shareholders; and
(3) to otherwise promote the sale of Fund shares.
The Agreements also provide that the Distributor may use distribution
fees to make interest and principal payments in respect of amounts that have
been financed to pay broker-dealers or other persons for distributing Fund
shares. The Distributor may assign its rights to receive compensation under the
Plans to secure such financings. FUNB or its affiliates may finance payments
made by the Distributor to compensate broker-dealers or other persons for
distributing shares of the Fund.
In the event the Fund acquires the assets of another mutual fund,
compensation paid to the Distributor under the Agreements may be paid by the
Fund's Distributor to the acquired fund's distributor or its predecessor.
Since the Distributor's compensation under the Agreements is not
directly tied to the expenses incurred by the Distributor, the compensation
received by it under the Agreements during any fiscal year may be more or less
than its actual expenses and may result in a profit to the Distributor.
Distribution expenses incurred by the Distributor in one fiscal year that exceed
the compensation paid to the Distributor for that year may be paid from
distribution fees received from the Fund in subsequent fiscal years.
Distribution fees are accrued daily and paid at least 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 Plans, the Treasurer of the Trust reports the amounts expended
under the Plans and the purposes for which such expenditures were made to the
Trustees of the Trust for their review on a quarterly basis. Also, each Plan
provides that the selection and nomination of the Independent Trustees are
committed to the discretion of such Independent Trustees then in office.
The investment advisor may from time to time from its own funds or such
other resources as may be permitted by rules of the Securities and Exchange
Commission ("SEC") make payments for distribution services to the Distributor;
the latter may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
Each Plan and the Agreement will continue in effect for successive
12-month periods provided, however, that such continuance is specifically
approved at least annually by the Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of that class and, in
either case, by a majority of the Independent Trustees of the Trust.
The Plans permit the payment of fees to brokers and others for
distribution and shareholder-related administrative services and to
broker-dealers, depository institutions, financial intermediaries and
administrators for administrative services as to Class A, Class B, Class C and
Institutional Service shares. The Plans are designed to (i) stimulate brokers to
provide distribution and administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional Service shares and (ii) stimulate
administrators to render administrative support services to the Fund and holders
of Class A, Class B, Class C and Institutional shares. The administrative
services are provided by a representative who has knowledge of the shareholder's
particular circumstances and goals, and include, but are not limited to
providing office space, equipment, telephone facilities, and various personnel
including clerical, supervisory, and computer, as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding Class A, Class B, Class C
and Institutional Service shares; assisting clients in changing dividend
options, account designations, and addresses; and providing such other services
as the Fund reasonably requests for its Class A, Class B, Class C and
Institutional Service shares.
In the event that the Plan or Distribution Agreement is terminated or
not continued with respect to one or more classes of the Fund, (i) no
distribution fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to 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 Agreement must be approved by a
vote of the Trustees of the Trust or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either case, by a majority
of the Independent Trustees, cast in person at a meeting called for the purpose
of voting on such approval; and any Plan or Distribution Agreement may not be
amended in order to increase materially the costs that a particular class of
shares of the Fund may bear pursuant to the Plan or Distribution Agreement
without the approval of a majority of the holders of the outstanding voting
shares of the class affected. Any Plan or Distribution Agreement may be
terminated (I) by the Fund without penalty at any time by a majority vote of the
holders of the outstanding voting securities of the Fund, voting separately by
class or by a majority vote of the Independent Trustees, or (ii) by 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. For more information about 12b-1
fees, see "Expenses" in the prospectus and "12b-1 Fees" under "Expenses" in Part
1 of this SAI.
TAX INFORMATION
Requirements for Qualifications as a Regulated Investment Company
The Fund intends to qualify for and elect the tax treatment applicable
to regulated investment companies ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). If the (Such qualification does
not involve supervision of management or investment practices or policies by the
Internal Revenue Service.) In order to qualify as a RIC, the Fund must, among
other things, (I) derive at least 90% of its gross income from dividends,
interest, payments with respect to proceeds from securities loans, gains from
the sale or other disposition of securities or foreign currencies and other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in such securities; and (ii) diversify its
holdings so that, at the end of each quarter of its taxable year, (a) at least
50% of the market value of the Fund's total assets is represented by cash, U.S.
government securities and other securities limited in respect of any one issuer,
to an amount not greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer, and (b) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. government securities and securities of other regulated investment
companies). By so qualifying, the Fund is not subject to federal income tax if
it timely distributes its investment company taxable income and any net realized
capital gains. A 4% nondeductible excise tax will be imposed on the Fund to the
extent it does not meet certain distribution requirements by the end of each
calendar year. The Fund anticipates meeting such distribution requirements.
Taxes on Distributions
Unless the Fund is a municipal bond fund, distributions will be taxable
to shareholders whether made in shares or in cash. Shareholders electing to
receive distributions in the form of additional shares will have a cost basis
for federal income tax purposes in each share so received equal to the net asset
value of a share of the Fund on the reinvestment date.
To calculate ordinary income for federal income tax purposes,
shareholders must generally include dividends paid by the Fund from its
investment company taxable income (net taxable investment income plus net
realized short-term capital gains, if any). The Fund will include dividends it
receives from domestic corporations when the Fund calculates its gross
investment income. Unless the Fund is a municipal bond fund or U.S. Treasury
money market fund, it anticipates that all or a portion of the ordinary
dividends which it pays will qualify for the 70% dividends-received deduction
for corporations. The Fund will inform shareholders of the amounts that so
qualify. If the Fund is a municipal bond fund or U.S. Treasury money market
fund, none of its income will consist of corporate dividends; therefore, none of
its distributions will qualify for the 70% dividends-received deduction for
corporations.
From time to time, the Fund will distribute the excess of its net
long-term capital gains over its short-term capital loss to shareholders (i.e.,
capital gain dividends). For federal tax purposes, shareholders must include
such capital gain dividends when calculating their net long-term capital gains.
Capital gain dividends are taxable as net long-term capital gains to a
shareholder, no matter how long the shareholder has held the shares.
Distributions by the Fund reduce its NAV. A distribution that reduces
the Fund's NAV below a shareholder's cost basis is taxable as described above,
although from an investment standpoint, it is a return of capital. In
particular, if a shareholder buys Fund shares just before the Fund makes a
distribution, when the Fund makes the distribution the shareholder will receive
what is in effect a return of capital. Nevertheless, the shareholder may incur
taxes on the distribution. Therefore, shareholders should carefully consider the
tax consequences of buying Fund shares just before a distribution.
All distributions, whether received in shares or cash, must be reported
by each shareholder on his or her federal income tax return. Each shareholder
should consult a tax advisor to determine the state and local tax implications
of Fund distributions.
If more than 50% of the value of the Fund's total assets at the end of
a fiscal year is represented by securities of foreign corporations and the Fund
elects to make foreign tax credits available to its shareholders, a shareholder
will be required to include in his gross income both cash dividends and the
amount the Fund advises him is his pro rata portion of income taxes withheld by
foreign governments from interest and dividends paid on the Fund's investments.
The shareholder may be entitled, however, to take the amount of such foreign
taxes withheld as a credit against his U.S. income tax, or to treat the foreign
tax withheld as an itemized deduction from his gross income, if that should be
to his advantage. In substance, this policy enables the shareholder to benefit
from the same foreign tax credit or deduction that he would have received if he
had been the individual owner of foreign securities and had paid foreign income
tax on the income therefrom. As in the case of individuals receiving income
directly from foreign sources, the credit or deduction is subject to a number of
limitations.
Special Tax Information for Municipal Bond Fund Shareholders
The Fund expects that substantially all of its dividends will be "exempt
interest dividends," which should be treated as excludable from federal gross
income. In order to pay exempt interest dividends, at least 50% of the value of
the Fund's assets must consist of federally tax-exempt obligations at the close
of each quarter. An exempt interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Fund with respect to its net
federally excludable municipal obligation interest and designated as an exempt
interest dividend in a written notice mailed to each shareholder not later than
60 days after the close of its taxable year. The percentage of the total
dividends paid by the Fund with respect to any taxable year that qualifies as
exempt interest dividends will be the same for all shareholders of the Fund
receiving dividends with respect to such year. If a shareholder receives an
exempt interest dividend with respect to any share and such share has been held
for six months or less, any loss on the sale or exchange of such share will be
disallowed to the extent of the exempt interest dividend amount.
Any shareholder of the Fund who may be a "substantial user" (as defined by the
Code) of a facility financed with an issue of tax-exempt obligations or a
"related person" to such a user should consult his tax advisor concerning his
qualification to receive exempt interest dividends should the Fund hold
obligations financing such facility.
Under regulations to be promulgated, to the extent attributable to
interest paid on certain private activity bonds, the Fund's exempt interest
dividends, while otherwise tax-exempt, will be treated as a tax preference item
for alternative minimum tax purposes. Corporate shareholders should also be
aware that the receipt of exempt interest dividends could subject them to
alternative minimum tax under the provisions of Section 56(g) of the Code
(relating to "adjusted current earnings").
Interest on indebtedness incurred or continued by shareholders to
purchase or carry shares of the Fund will not be deductible for federal income
tax purposes to the extent of the portion of the interest expense relating to
exempt interest dividends. Such portion is determined by multiplying the total
amount of interest paid or accrued on the indebtedness by a fraction, the
numerator of which is the exempt interest dividends received by a shareholder in
his taxable year and the denominator of which is the sum of the exempt interest
dividends and the taxable distributions out of the Fund's investment income and
long-term capital gains received by the shareholder.
Taxes on The Sale or Exchange of Fund Shares
Upon a sale or exchange of Fund shares, a shareholder will realize a
taxable gain or loss depending on his or her basis in the shares. A shareholder
must treat such gains or losses as a capital gain or loss if the shareholder
held the shares as capital assets. Capital gain on assets held for more than 12
months is generally subject to a maximum federal income tax rate of 20% for an
individual. Generally, the Code will not allow a shareholder to realize a loss
on shares he or she has sold or exchanged and replaced within a 61-day period
beginning 30 days before and ending 30 days after he or she sold or exchanged
the shares. The Code will not allow a shareholder to realize a loss on the sale
of Fund shares held by the shareholder for six months or less to the extent the
shareholder received exempt interest dividends on such shares. Moreover, the
Code will treat a shareholder's loss on shares held for six months or less as a
long-term capital loss to the extent the shareholder received distributions of
net capital gains on such shares.
Shareholders who fail to furnish their taxpayer identification numbers
to the Fund and to certify as to its correctness and certain other shareholders
may be subject to a 31% federal income tax backup withholding requirement on
dividends, distributions of capital gains and redemption proceeds paid to them
by the Fund. If the withholding provisions are applicable, any such dividends or
capital gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld. Investors may wish to consult their own tax
advisors about the applicability of the backup withholding provisions.
Other Tax Considerations
The foregoing discussion relates solely to U.S. federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and estates). It does not reflect
the special tax consequences to certain taxpayers (e.g., banks, insurance
companies, tax exempt organizations and foreign persons). Shareholders are
encouraged to consult their own tax advisors regarding specific questions
relating to federal, state and local tax consequences of investing in shares of
the Fund. Each shareholder who is not a U.S. person should consult his or her
tax advisor regarding the U.S. and foreign tax consequences of ownership of
shares of the Fund, including the possibility that such a shareholder may be
subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under a
tax treaty) on amounts treated as income from U.S. sources under the Code.
BROKERAGE
Brokerage Commissions
If the Fund invests in equity securities, it expects to buy and sell
them through brokerage transactions for which commissions are payable. Purchases
from underwriters will include the underwriting commission or concession, and
purchases from dealers serving as market makers will include a dealer's mark-up
or reflect a dealer's mark-down. Where transactions are made in the
over-the-counter market, the Fund will deal with primary market makers unless
more favorable prices are otherwise obtainable.
If the Fund invests in fixed income securities, it expects to buy and
sell them directly from the issuer or an underwriter or market maker for the
securities. Generally, the Fund will not pay brokerage commissions for such
purchases. When the Fund buys a security from an underwriter, the purchase price
will usually include an underwriting commission or concession. The purchase
price for securities bought from dealers serving as market makers will similarly
include the dealer's mark up or reflect a dealer's mark down. When the Fund
executes transactions in the over-the-counter market, it will deal with primary
market makers unless more favorable prices are otherwise obtainable.
Selection of Brokers
When buying and selling portfolio securities, the advisor seeks brokers
who can provide the most benefit to the Fund. When selecting a broker, the
investment advisor will primarily look for the best price at the lowest
commission, but in the context of the broker's:
1. ability to provide the best net financial result to the Fund;
2. efficiency in handling trades;
3. ability to trade large blocks of securities;
4. readiness to handle difficult trades;
5. financial strength and stability; and
6. provision of "research services," defined as (a) reports and analyses
concerning issuers, industries, securities and economic factors and (b)
other information useful in making investment decisions.
The Fund may pay higher brokerage commissions to a broker providing it
with research services, as defined in item 6, above. Pursuant to Section 28(e)
of the Securities Exchange Act of 1934, this practice is permitted if the
commission is reasonable in relation to the brokerage and research services
provided. Research services provided by a broker to the investment advisor do
not replace, but supplement, the services the investment advisor is required to
deliver to the Fund. It is impracticable for the investment advisor to allocate
the cost, value and specific application of such research services among its
clients because research services intended for one client may indirectly benefit
another.
When selecting a broker for portfolio trades, the investment advisor
may also consider the amount of Fund shares a broker has sold, subject to the
other requirements described above.
If the Fund is advised by EAMC, Lieber & Company, an affiliate of EAMC
and a member of the New York and American Stock Exchanges, will to the extent
practicable effect substantially all of the portfolio transactions effected on
those exchanges for the Fund.
Simultaneous Transactions
The investment advisor makes investment decisions for the Fund
independently of decisions made for its other clients. When a security is
suitable for the investment objective of more than one client, it may be prudent
for the investment advisor to engage in a simultaneous transaction, that is, buy
or sell the same security for more than one client. The investment advisor
strives for an equitable result in such transactions by using an allocation
formula. The high volume involved in some simultaneous transactions can result
in greater value to the Fund, but the ideal price or trading volume may not
always be achieved for the Fund.
ORGANIZATION
Description of Shares
The Declaration of Trust authorizes the issuance of an unlimited number
of shares of beneficial interest of series and classes of shares. Each share of
the Fund represents an equal proportionate interest with each other share of
that series and/or class. Upon liquidation, shares are entitled to a pro rata
share of the Trust based on the relative net assets of each series and/or class.
Shareholders have no preemptive or conversion rights. Shares are redeemable and
transferable.
Voting Rights
Under the terms of the Declaration of Trust, the Trust is not required
to hold annual meetings. At meetings called for the initial election of Trustees
or to consider other matters, each share is entitled to one vote for each dollar
of "NAV"applicable to such share. Shares generally vote together as one class on
all matters. Classes of shares of the Fund have equal voting rights. No
amendment may be made to the Declaration of Trust that adversely affects any
class of shares without the approval of a majority of the votes applicable to
the shares of that class. Shares have non-cumulative voting rights, which means
that the holders of more than 50% of the votes applicable to shares voting for
the election of Trustees can elect 100% of the Trustees to be elected at a
meeting and, in such event, the holders of the remaining shares voting will not
be able to elect any Trustees.
After the initial meeting as described above, no further meetings of
shareholders for the purpose of electing Trustees will be held, unless required
by law (for such reasons as electing or removing Trustees, changing fundamental
policies, and approving advisory agreements or 12b-1 plans), unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders, at which time, the Trustees then in office will call a
shareholders' meeting for the election of Trustees.
Limitation of Trustees' Liability
The Declaration of Trust provides that a Trustee will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his duties involved in the conduct of his office.
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 Trust. Such
laws and regulations also prohibit banks from issuing, underwriting or
distributing securities in general. However, under the Glass-Steagall Act and
such other laws and regulations, a Member Bank or an affiliate thereof may act
as investment advisor, transfer agent or custodian to a registered open-end
investment company and may also act as agent in connection with the purchase of
shares of such an investment company upon the order of its customer, FUNB and
its affiliates are subject to, and in compliance with, the aforementioned laws
and regulations.
Changes to applicable laws and regulations or future judicial or
administrative decisions could result in FUNB and 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 and its affiliates were prevented from
continuing to provide for services called for under the investment advisory
agreement, it is expected that the Trustees would identify, and call upon the
Fund's shareholders to approve a new investment advisor. If this were to occur,
it is not anticipated that the shareholders of the Fund would suffer any adverse
financial consequences.
INVESTMENT ADVISORY AGREEMENT
On behalf of the Fund, the Trust has entered into an investment advisory
agreement with the Fund's investment advisor (the "Advisory Agreement"). Under
the Advisory Agreement, and subject to the supervision of the Trust's Board of
Trustees, the investment advisor furnishes to the Fund (unless the Fund is
Masters ) investment advisory, management and administrative services, office
facilities, and equipment in connection with its services for managing the
investment and reinvestment of the Fund's assets. The investment advisor pays
for all of the expenses incurred in connection with the provision of its
services.
If the Fund is Masters, the Advisory Agreement is similar to the above
except that the investment advisor selects sub-advisors (hereinafter referred to
as "Managers") for the Fund and monitors each Manager's investment program and
results. The investment advisor has primary responsibility under the
multi-manager strategy to oversee the Managers, including making recommendations
to the Trust regarding the hiring, termination and replacement of Managers.
The Fund pays for all charges and expenses, other than those
specifically referred to as being borne by the investment advisor, including,
but not limited to, (1) custodian charges and expenses; (2) bookkeeping and
auditors' charges and expenses; (3) transfer agent charges and expenses; (4)
fees and expenses of Independent Trustees; (5) brokerage commissions, brokers'
fees and expenses; (6) issue and transfer taxes; (7) applicable costs and
expenses under the Distribution Plan (as described above) (8) taxes and trust
fees payable to governmental agencies; (9) the cost of share certificates; (10)
fees and expenses of the registration and qualification of the Fund and its
shares with the SEC or under state or other securities laws; (11) expenses of
preparing, printing and mailing prospectuses, SAIs, notices, reports and proxy
materials to shareholders of the Fund; (12) expenses of shareholders' and
Trustees' meetings; (13) charges and expenses of legal counsel for the Fund and
for the Independent Trustees on matters relating to the Fund; (14) charges and
expenses of filing annual and other reports with the SEC and other authorities;
and (15) all extraordinary charges and expenses of the Fund. For information on
advisory fees paid by the Fund, see "Expenses" in Part 1 of this SAI.
The Advisory Agreement continues in effect for two years from its
effective date and, thereafter, from year to year only if approved at least
annually by the Board of Trustees of the Trust or by a vote of a majority of the
Fund's outstanding shares. In either case, the terms of the Advisory Agreement
and continuance thereof must be approved by the vote of a majority of the
Independent Trustees cast in person at a meeting called for the purpose of
voting on such approval. The Advisory Agreement may be terminated, without
penalty, on 60 days' written notice by the Trust's Board of Trustees or by a
vote of a majority of outstanding shares. The Advisory Agreement will terminate
automatically upon its "assignment" as that term is defined in the 1940 Act.
Managers (Masters only)
Masters' investment program is based upon the investment advisor's
multi-manager concept. The investment advisor allocates the Fund's portfolio
assets on an equal basis among a number of investment management organizations
currently four in number - each of which employs a different investment style,
and periodically rebalances the Fund's portfolio among the Managers so as to
maintain an approximate equal allocation of the portfolio among them throughout
all market cycles. Each Manager provides these services under a Portfolio
Management Agreement. Each Manager has discretion, subject to oversight by the
Trustees and the investment advisor, to purchase and sell portfolio assets
consistent with the Fund's investment objectives, policies and restrictions and
specific investment strategies developed by the investment advisor. The Fund's
current Managers are, EAMC MFS Institutional Advisors, Inc. ("MFS"),
OppenheimerFunds, Inc. ("Oppenheimer") and Putnam Investment Management, Inc.
("Putnam").
The Trust and FUNB have received an order from, the SEC that will
permit the investment advisor to employ a "manager of managers" strategy in
connection with its management of the Fund. The exemptive order permits the
investment advisor, subject to certain conditions, and without shareholder
approval, to: (a) select new Managers who are unaffiliated with the investment
advisor with the approval of the Trust's Board of Trustees; (b) change the
material terms of the Portfolio Management Agreements with the Managers; and (c)
continue the employment of a Manager after an event which would otherwise cause
the automatic termination of a Portfolio Management Agreement. Shareholders
would be notified of any Manager changes. Shareholders have the right to
terminate arrangements with a Manager by vote of a majority of the outstanding
shares of the Fund. The order also permits the Fund to disclose the Managers'
fees only in the aggregate.
Transactions Among Advisory Affiliates
The Trust has adopted procedures pursuant to Rule 17a-7 of the 1940 Act
("Rule 17a-7 Procedures"). The Rule 17a-7 Procedures permit the Fund to buy or
sell securities from another investment company for which a subsidiary of First
Union Corporation is an investment advisor. The Rule 17a-7 Procedures also allow
the Fund to buy or sell securities from other advisory clients for whom a
subsidiary of First Union Corporation is an investment advisor. The Fund may
engage in such transaction if it is equitable to each participant and consistent
with each participant's investment objective.
MANAGEMENT OF THE TRUST
The Trust is supervised by a Board of Trustees that is responsible for
representing the interest of the shareholders. The Trustees meet periodically
throughout the year to oversee the Fund's activities, reviewing, among other
things, the Fund's performance and its contractual arrangements with various
service providers. Each Trustee is paid a fee for his or her services. See
"Expenses-Trustee Compensation" in Part 1 of this SAI.
The Trust has an Executive Committee which consists of the Chairman of
the Board, James Howell, and Messrs. Scofield and Salton, each of whom is an
Independent Trustee. The Executive Committee recommends Trustees to fill
vacancies, prepares the agenda for Board meetings and acts on routine matters
between scheduled Board meetings.
Set forth below are the Trustees and officers of the Trust and their
principal occupations and affiliations over the last five years. Unless
otherwise indicated, the address for each Trustee and officer is 200 Berkeley
Street, Boston, Massachusetts 02116. Each Trustee is also a Trustee of each of
the other Trusts in the Evergreen Fund complex..
<TABLE>
<CAPTION>
Name Position with Trust Principal Occupations for Last Five Years
<S> <C> <C>
Laurence B. Ashkin Trustee Real estate developer and construction
(DOB: 2/2/28 consultant; and President of
Centrum Equities and Centrum
Properties, Inc.
Charles A. Austin III Trustee Investment Counselor to Appleton Partners, Inc.; former Director, Executive Vice
(DOB: 10/23/34) President and Treasurer, State Street Research & Management Company (investment
advice); Director, The Andover Companies (Insurance); and Trustee, Arthritis
Foundation of New England
K. Dun Gifford Trustee Trustee, Treasurer and Chairman of
(DOB: 10/12/38) the Finance 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; former
Chairman, Gifford, Drescher &
Associates (environmental
consulting)
James S. Howell Chairman of the Former Chairman of the Distribution
Foundation for the Carolinas; and
(DOB: 8/13/24) Board of Trustees former Vice President of Lance Inc.
(food manufacturing).
Leroy Keith, Jr. Trustee Chairman of the Board and Chief Executive Officer, Carson Products Company;
(DOB: 2/14/39) 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 Corporation (manufacturing); and
(DOB: 8/2/39) former Director of Carolina Cooperative Federal Credit Union.
William Walt Pettit Trustee Partner in the law firm of William Walt Pettit, P.A.
(DOB: 8/26/55)
David M. Richardson Trustee Vice Chair and former Executive Vice President, DHR International, Inc.
(DOB: 9/14/41) (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 Services; former Managed Health
(DOB: 6/2/47) Care Consultant; and former President, Primary Physician Care.
Michael S. Scofield Trustee Attorney, Law Offices of Michael S. Scofield.
(DOB: 2/20/43)
Richard J. Shima Trustee Former Chairman, Environmental Warranty, Inc. (insurance agency); Executive
(DOB: 8/11/39) 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 Executive Vice President/Operations, BISYS Fund Services.
(DOB:8/30/58) Treasurer
Nimish S. Bhatt* Vice President and Vice President, Tax, BISYS Fund Services; former Assistant Vice President,
(DOB: 6/6/63) Assistant Treasurer EAMC/First Union Bank; former Senior Tax Consulting/Acting Manager, Investment
Companies Group, PricewaterhouseCoopers LLP, New York.
Bryan Haft* Vice President Team Leader, Fund Administration, BISYS Fund Services.
(DOB: 1/23/65)
Michael H. Koonce Secretary Senior Vice President and Assistant General Counsel, First Union Corporation;
(DOB: 4/20/60) former Senior Vice President and General Counsel, Colonial Management
Associates, Inc.
*Address: BISYS, 3435 Stelzer Road, Columbus, Ohio 43219-8001
</TABLE>
CORPORATE AND MUNICIPAL BOND RATINGS
The Fund relies on ratings provided by independent rating services to help
determine the credit quality of bonds and other obligations the Fund intends to
purchase or already owns. A rating is an opinion of an issuer's ability to pay
interest and/or principal when due. Ratings reflect an issuer's overall
financial strength and whether it can meet its financial commitments under
various economic conditions.
If a security held by the Fund loses its rating or has its rating reduced after
the Fund has purchased it, the Fund is not required to sell or otherwise dispose
of the security, but may consider doing so.
The principal rating services, commonly used by the Fund and investors
generally, are S&P and Moody's. The Fund may also rely on ratings provided by
Fitch. Rating systems are similar among the different services. As an example,
the chart below compares basic ratings for long-term bonds. The "Credit Quality"
terms in the chart are for quick reference only. Following the chart are the
specific definitions each service provides for its ratings.
COMPARISON OF LONG-TERM BOND RATINGS
<TABLE>
<CAPTION>
MOODY'S S&P FITCH Credit Quality
<S> <C> <C> <C>
Aaa AAA AAA Excellent Quality (lowest risk)
Aa AA AA Almost Excellent Quality (very low
risk)
A A A Good Quality (low risk)
Baa BBB BBB Satisfactory Quality (some risk)
Ba BB BB Questionable Quality (definite risk)
B B B Low Quality (high risk)
Caa/Ca/C CCC/CC/C CCC/CC/C In or Near Default
D DDD/DD/D In Default
</TABLE>
CORPORATE BONDS
LONG-TERM RATINGS
Moody's Corporate Long-Term Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds which are rated Baa are considered as medium-grade obligations, (i.e.
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Note: Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa to Caa. The modifier 1 indicates that the company ranks
in the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Corporate Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor's capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
- - On the day an interest and/or principal payment is due and is not paid. An
exception is made if there is a grace period and S&P believes that a payment
will be made, in which case the rating can be maintained; or
- - Upon voluntary bankruptcy filing or similar action. An exception is made if
S&P expects that debt service payments will continue to be made on a specific
issue. In the absence of a payment default or bankruptcy filing, a technical
default (i.e., covenant violation) is not sufficient for assigning a D rating.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Corporate Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitment is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. For U.S. corporates, for
example, DD indicates expected recovery of 50%-90% of such outstandings, and D
the lowest recovery potential, i.e. below 50%.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
CORPORATE SHORT-TERM RATINGS
Moody's Corporate Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
S&P Corporate Short-Term Obligation Ratings
A-1 A short-term obligation rated A-1 is rated in the highest category by S&P.
The obligor?s capacity to meet its financial commitment on the obligation is
strong. Within this category certain obligations are designated with a plus sign
(+). This indicates that the obligor?s capacity to meet its financial commitment
on these obligations is extremely strong.
A-2 A short-term obligation rated A-2 is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor?s capacity to meet
its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated A-3 exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
B A short-term obligation rated B is regarded as having significant speculative
characteristics. The obligor currently has the capacity to meet its financial
commitment on the obligation; however, it faces major ongoing uncertainties
which could lead to the obligor?s inadequate capacity to meet its financial
commitment on the obligation.
C A short-term obligation rated C is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation.
D The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred--and not where a default is only
expected. S&P changes ratings to D either:
- - On the day an interest and/or principal payment is due and is not paid. An
exception is made if there is a grace period and S&P believes that a payment
will be made, in which case the rating can be maintained; or
- - Upon voluntary bankruptcy filing or similar action, An exception is made if
S&P expects that debt service payments will continue to be made on a specific
issue. In the absence of a payment default or bankruptcy filing, a technical
default (i.e., covenant violation) is not sufficient for assigning a D rating.
Fitch Corporate Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added ?+? to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
MUNICIPAL BONDS
LONG-TERM RATINGS
Moody's Municipal Long-Term Bond Ratings
Aaa Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than the Aaa securities.
A Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds rated Ba are judged to have speculative elements; their future cannot
be considered as well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds rated Caa are of poor standing. Such issues may be in default or there
may be present elements of danger with respect to principal or interest.
Ca Bonds rated Ca represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
C Bonds rated C are the lowest rated class of bonds, and issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa to B. The modifier 1 indicates that the company ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range raking and the modifier 3 indicates that the company ranks in the
lower end of its generic rating category.
S&P Municipal Long-Term Bond Ratings
AAA An obligation rated AAA has the highest rating assigned by S&P. The
obligor?s capacity to meet its financial commitment on the obligation is
extremely strong.
AA An obligation rated AA differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A An obligation rated A is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB An obligation rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC and C: As described below, obligations rated BB, B, CCC, CC, and
C are regarded as having significant speculative characteristics. BB indicates
the least degree of speculation and C the highest. While such obligations will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major exposures to adverse conditions.
BB An obligation rated BB is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions, which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
B An obligation rated B is more vulnerable to nonpayment than obligations rated
BB, but the obligor currently has the capacity to meet its financial commitment
on the obligation. Adverse business, financial, or economic conditions will
likely impair the obligor?s capacity or willingness to meet it financial
commitment on the obligation.
CCC An obligation rated CCC is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated CC is currently highly vulnerable to nonpayment.
C The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action has been taken, but payments on this obligation are
being continued.
D An obligation rated D is in payment default. The D rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating also will be used upon the
filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-) The ratings from AA to CCC may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Fitch Municipal Long-Term Bond Ratings
Investment Grade
AAA Highest credit quality. AAA ratings denote the lowest expectation of credit
risk. They are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. AA ratings denote a very low expectation of credit
risk. They indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
A High credit quality. A ratings denote a lower expectation of credit risk. The
capacity for timely payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
BBB Good credit quality. BBB ratings indicate that there is currently a low
expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and in
economic conditions are more likely to impair this capacity. This is the lowest
investment-grade category.
Speculative Grade
BB Speculative. BB ratings indicate that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.
B Highly speculative. B ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met; however, capacity for continued payment is contingent upon
a sustained, favorable business and economic environment.
CCC, CC, C High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some
kind appears probable. C ratings signal imminent default.
DDD, DD, D Default. Securities are not meeting current obligations and are
extremely speculative. DDD designates the highest potential for recovery of
amounts outstanding on any securities involved. DD designates lower recovery
potential and D the lowest.
+ or - may be appended to a rating to denote relative status within major rating
categories. Such suffixes are not added to the AAA rating category or to
categories below CCC.
SHORT-TERM MUNICIPAL RATINGS
Moody's Municipal Short-Term Issuer Ratings
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidence by many of the following characteristics.
- -- Leading market positions in well-established industries.
- -- High rates of return on funds employed.
- -- Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- -- Broad margins in earnings coverage of fixed financial changes and high
internal cash generation.
- -- Well-established access to a range of financial markets and assured sources
of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime Issuers rated Not Prime do not fall within any of the Prime rating
categories.
Moody's Municipal Short-Term Loan Ratings
MIG 1 This designation denotes best quality. There is strong protection by
established cash flows, superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG 2 This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
MIG 3 This designation denotes favorable quality. Liquidity and cash-flow
protection may be narrow and market access for refinancing is likely to be less
well established.
SG This designation denotes speculative quality. Debt instruments in this
category may lack margins of protection.
S&P Commercial Paper Ratings
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.
B Issues rated B are regarded as having only speculative capacity for timely
payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated D is in payment default. The D rating category is used when
interest payments of principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes such payments
will be made during such grace period.
S&P Municipal Short-Term Obligation Ratings
SP-1 Strong capacity to pay principal and interest. An issue determined to
possess a very strong capacity to pay debt service is given a plus (+)
designation.
SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 Speculative capacity to pay principal and interest.
Fitch Municipal Short-Term Obligation Ratings
F1 Highest credit quality. Indicates the strongest capacity for timely payment
of financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial commitments
is adequate; however, near-term adverse changes could result in a reduction to
non-investment grade.
B Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
D Default. Denotes actual or imminent payment default.
ADDITIONAL INFORMATION
Except as otherwise stated in its prospectus or required by law, the
Fund reserves the right to change the terms of the offer stated in its
prospectus without shareholder approval, including the right to impose or change
fees for services provided.
No dealer, salesman or other person is authorized to give any
information or to make any representation not contained in the Fund's
prospectus, SAI or in supplemental sales literature issued by the Fund or the
Distributor, and no person is entitled to rely on any information or
representation not contained therein.
The Fund's prospectus and SAI omit certain information contained in the
Trust's registration statement, which you may obtain for a fee from the SEC in
Washington, D.C.
<PAGE>
Evergreen
Domestic Growth
Funds
September 30, 1998
Annual Report
[LOGO OF EVERGREEN FUNDS(SM)
APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders .................................................... 1
Evergreen Aggressive Growth Fund
Fund at a Glance ....................................................... 2
Portfolio Manager Interview ............................................ 3
Evergreen Fund
Fund at a Glance ....................................................... 6
Portfolio Manager Interview ............................................ 7
Evergreen Micro Cap Fund
Fund at a Glance ....................................................... 10
Portfolio Manager Interview ............................................ 11
Evergreen Omega Fund
Fund at a Glance ....................................................... 14
Portfolio Manager Interview ............................................ 15
Evergreen Small Company Growth Fund
Fund at a Glance ....................................................... 18
Portfolio Manager Interview ............................................ 19
Evergreen Stock Selector Fund
Fund at a Glance ....................................................... 22
Portfolio Manager Interview ............................................ 23
Evergreen Strategic Growth Fund
Fund at a Glance ....................................................... 25
Portfolio Manager Interview ............................................ 26
Financial Highlights
Evergreen Aggressive Growth Fund........................................ 29
Evergreen Fund.......................................................... 31
Evergreen Micro Cap Fund................................................ 33
Evergreen Omega Fund.................................................... 35
Evergreen Small Company Growth Fund..................................... 37
Evergreen Stock Selector Fund........................................... 39
Evergreen Strategic Growth Fund......................................... 41
Schedule of Investments
Evergreen Aggressive Growth Fund........................................ 43
Evergreen Fund.......................................................... 44
Evergreen Micro Cap Fund................................................ 49
Evergreen Omega Fund.................................................... 51
Evergreen Small Company Growth Fund..................................... 53
Evergreen Stock Selector Fund........................................... 56
Evergreen Strategic Growth Fund......................................... 58
Statements of Assets and Liabilities....................................... 60
Statements of Operations .................................................. 61
Statements of Changes in Net Assets........................................ 63
Combined Notes to Financial
Statements ................................................................ 66
Report of Independent Accountants ......................................... 77
Independent Auditors' Reports ............................................. 78
Additional Information .................................................... 79
- --------------------------------------------------------------------------------
Evergreen Funds
- --------------------------------------------------------------------------------
Evergreen Funds is one of the nation's fastest growing investment companies with
approximately $50 billion in assets under management.
With over 70 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broad range of quality investment products and
services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This annual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
-----------------------------------------------------------------
Mutual Funds: ARE NOT FDIC INSURED May lose value . Are not bank guaranteed
-----------------------------------------------------------------
Evergreen Distributor, Inc.
Evergreen(SM) is a Service Mark of Evergreen Investment Services, Inc.
<PAGE>
Letter to Shareholders
----------------------
November 1998
[PHOTO OF WILLIAM M. ENNIS
MANAGING DIRECTOR APPEARS HERE]
Dear Shareholders:
We are pleased to provide you the Evergreen Domestic Growth Funds annual report
covering the year ended September 30, 1998.
Market Volatility
The financial markets have certainly experienced volatility in the past few
months. After a five-year period of unprecedented growth, the stock market
peaked on July 17, 1998, when prices were at historic highs relative to
benchmarks such as corporate profits and dividends. Since that point, fears of
foreign currency devaluations, political turbulence and instability abroad have
produced an uncertain market. Through September, the market all but lost its
year-to-date gains, and then in October was on the rise, nearing the levels of
July's peak. We encourage you to take this opportunity to review your investment
time horizon and ensure you are on track with your goals. We also encourage you
to consider an invaluable strategy of investing during uncertain times: Dollar
Cost Averaging./1/ By investing a little at a time in regular intervals, you can
remain focused on your investment goals and not worry about predicting market
trends. Contact your investment representative or call us at 800.343.2898 to
start your Systematic Investment Plan today.
Year 2000/2/
The year 2000 is nearly upon us, and unlike some, we are looking forward to it.
We have been addressing the Year 2000 issue since February 1996 and have adopted
an industry best practices methodology for the project. Our team is on schedule
to complete the following milestones: Inventory and Assessment, Remediation,
Testing and Contingency. We believe that for Evergreen shareholders, the
transition into the next millennium should be seamless, with virtually no impact
on the products and services you receive from us.
Cost Savings
In an effort to achieve efficiencies and cost savings, we are combining your
funds' required mailings so you only receive one per household, based on the
registration last name and exact address./3/ This reduces the mailing costs, not
to mention the amount of paper needed to print, which in turn benefits your
funds by reducing the overall expenses. If you prefer to receive separate copies
of reports and prospectuses for each registered holder in your household, please
notify us by calling the number on your statement and we will adjust our records
accordingly.
Thank you for your continued investment with Evergreen Funds.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
Good News!
Effective for the 1998 Tax Year, long-term capital gains taxes are reduced to
20%.
/1/ This type of plan does not assure a profit or protect against loss in a
declining market.
/2/ The information above constitutes Year 2000 readiness disclosure.
/3/ If you purchased your shares through a financial representative, we may not
be able to consolidate your mailings by last name and address, because that
institution controls the mailings.
1
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
We seek the best companies in an industry, and will gladly pay a "fair" price
for this opportunity rather than settling for the second or third best company
at a "bargain" price.
Portfolio
Management
----------------------------------------------
[PHOTO OF HAROLD J. IRELAND, JR. APPEARS HERE]
Harold J. Ireland, Jr.
Tenure: April 1983
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The S&P 400 and the NASDAQ Industrials are unmanaged
indices. These indices do not include transaction costs associated with buying
and selling securities nor any management fees. The CPI is a commonly used
measure of inflation and does not represent an investment return. It is not
possible to invest directly in an index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 4/15/83 7/7/95 8/3/95 7/11/95
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -10.40% -11.30% -7.76% n/a
................................................................................
1 year w/o sales charge -5.93% -6.82% -6.87% -5.43%
................................................................................
3 years 7.89% 8.04% 8.93% 9.97%
................................................................................
5 years 9.04% -- -- --
................................................................................
10 years 15.75% -- -- --
................................................................................
Since Inception 12.64% 10.61% 10.27% 12.54%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $0.85 $0.85 $0.85 $0.85
...............................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A S&P 400 NASDAQ Industrials
- ------- ------- ------------ ------- ------- ------------------
9/30/88 $10,000 $10,000 $ 9,525 $10,000 $10,000
9/30/89 $10,434 $12,149 $12,903 $13,729 $11,866
9/30/90 $11,077 $ 8,850 $10,411 $11,748 $ 9,526
9/30/91 $11,452 $12,840 $17,477 $17,658 $15,259
9/30/92 $11,795 $14,010 $20,128 $19,769 $16,052
9/30/93 $12,112 $18,656 $26,672 $24,631 $20,170
9/30/94 $12,471 $19,155 $25,533 $25,017 $20,101
9/30/95 $12,788 $23,630 $32,731 $31,452 $25,380
9/30/96 $13,172 $26,733 $41,117 $35,842 $26,637
9/30/97 $13,456 $35,605 $45,886 $49,816 $35,556
9/30/98 $13,656 $28,833 $43,165 $46,622 $26,675
Comparison of a $10,000 investment in Evergreen Aggressive Growth Fund Class A,
versus a similar investment in the Standard & Poor's 400 Mid-Cap Index (S&P
400), the Nasdaq Industrials Index, the Russell 2000 Index, and the Consumer
Price Index (CPI).
Note: The Fund is changing its benchmark from the Russell 2000 to the S&P 400
due to the Fund's mid-cap weighting which is better represented by the S&P 400.
Nasdaq Industrials Index is an unmanaged index and a sub-set of the Nasdaq
Composite Index. It includes companies classified as agricultural, mining,
construction, manufacturing (electronic components), services, and public
administration enterprises.
Standard & Poor's 400 Mid Cap Index is an unmanaged index of 400 publicly traded
mid-capitalization U.S. stocks and is often used as an indicator of the mid-cap
market.
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
2
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform during the past fiscal year?
For the 12-month period ended September 30, 1998, Class A shares, unadjusted for
sales charge, had a total return of -5.9%. For the same period, the Standard &
Poor's 400 Mid-Cap Index returned -6.3%, the Nasdaq Industrials returned -25.0%.
Within its peer group, the Fund ranked in the 31st percentile, with a total
return better than 71% of mid-cap growth funds. Specifically, within the
Morningstar Mid-Cap Growth Fund Universe, the Fund ranked 101 of 350 funds in
total return for the year./1/
Portfolio
Characteristics
---------------
Total Net Assets $204,962,745
............................................................................
Number of Holdings 47
............................................................................
Beta 1.14
............................................................................
P/E Ratio 26.7x
............................................................................
What was the economic environment like during the period?
During the first six months of the fiscal year, stronger than expected economic
growth and declining inflation and interest rates were positive for stocks.
During the second half of the period, the General Motors strike and economic
turmoil in Asia and the emerging markets caused economic growth to slow.
Financial problems in world markets led to a decline in U.S. exports, which
investors feared would lead to weak profits for U.S. corporations and a possible
recession. As a result, market sentiment turned negative, institutional
investors lightened up their stock purchases and investments and the market
declined significantly. This correction took on the characteristics of a panic
flight to quality as massive, highly leveraged hedge fund positions were
uncovered and unwound. Small company and cyclical stocks suffered the most
during the market turbulence. Consistent mid-cap growth stocks, however, like
many of the Fund's largest holdings, fared better. The long-term effects of
lower inflation are very positive for lower interest rates and consequently
higher stock valuations for growth companies.
How do you select stocks for the portfolio?
We focus on mid-cap companies with histories of consistent growth and whose
revenues and earnings, we believe, will continue to grow at least 20% a year.
These companies also have a high level of profitability based on current profit
margins and return on equity. We seek the best companies in an industry, and
will gladly pay a "fair" price for this opportunity rather than settling for the
second or third best company at a "bargain" price. We will continue to hold a
company as it becomes a larger cap company as long as it grows in line with our
investment criteria.
What contributed to performance during the period?
Each of the Fund's five largest industries was a strong contributor to
performance. In addition, each of the Fund's top ten company holdings, was up
for the year. These top ten holdings accounted for slightly more than 50% of
portfolio assets as of fiscal year end and produced an aggregate total return of
48% for the 12-month period.
/1/Source: Morningstar, Inc. an independent monitor of mutual fund performance.
The rankings are based on total return and do not include the effect of a sales
charge. For the 5-year period ended September 30, 1998, the Fund's Class A
shares ranked 67 out of 129 mid-cap growth funds tracked by Morningstar. For the
10-year period ended September 30, 1998, the Fund's Class A shares ranked 10 out
of 58 mid-cap growth funds tracked by Morningstar. Past performance is no
guarantee of future results.
3
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Software / Technology 24.2%
...........................................................................
Healthcare 18.3%
...........................................................................
Retail (Specialty) 15.7%
...........................................................................
Communication Systems & Services 10.3%
...........................................................................
Business Services 10.2%
...........................................................................
What held back performance?
The Energy sector produced a negative return for the period. A warmer than
normal winter and concerns about slower future worldwide economic growth drove
oil prices lower and shaved earnings expectations for oil drilling, equipment
and service companies. Energy holdings were 28% of total assets at the beginning
of the period but only accounted for 15% of assets at September 30, 1998. The
energy company stock recovery was interrupted this year, but we believe it will
resume next year and continue for several more years.
What changes did you make in the portfolio?
We built major positions in four stocks, three of which are now among the Fund's
top ten holdings. New additions included: Citrix Systems, a company that makes
computer network products, whose WinFrame product is shipped with Microsoft's
Windows NT software; EMC Corporation, the world leader in enterprise storage and
retrieval technology, whose products are used in online reservation systems,
transaction processing, Year 2000 compliance efforts, disaster recovery systems,
the internet and corporate intranets; SunAmerica, a leading financial services
firm that focuses on the retirement savings market and markets annuities,
guaranteed investment contracts, mutual funds, trust services and investment
counseling. Recently, American International Group offered to acquire
SunAmerica. We also added VISX, Inc., a manufacturer and licenser of the leading
laser system for eye surgery. We significantly increased the Fund's position in
HBO & Company, a leader in medical information systems and medical networking
services.
We eliminated some smaller positions whose growth had slowed, including Republic
Industries, Medicis Pharmaceutical, Ethan Allen Interiors, Etec Systems, and
Parametric Technology.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Cisco Systems, Inc. 7.9%
...........................................................................
Microsoft Corporation 7.0%
...........................................................................
BMC Software, Inc. 6.2%
...........................................................................
VISX, Inc. 5.2%
...........................................................................
EMC Corporation 4.7%
...........................................................................
SunAmerica, Inc. 4.5%
...........................................................................
Home Depot, Inc. 4.4%
...........................................................................
Paychex, Inc. 3.8%
...........................................................................
Medtronic, Inc. 3.7%
...........................................................................
MedQuist, Inc. 3.4%
...........................................................................
What are some of the themes in the portfolio?
Information technology is a major theme. Information rather than materials is
the major "stuff" of economic activity. The backbone of information technology
is computer software, communications and networking equipment supporting the
Internet and corporate intranets. Cisco Systems, Microsoft, EMC Corporation and
MCI WorldCom, are major holdings and dominant developers of products and
services in
4
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
these areas. Sterling Commerce, our 17th largest holding, is the largest
provider of applications for electronic commerce and electronic payments in the
U.S., helping corporate and government organizations save on pro procurement,
acquisition and accounting costs.
Outsourcing is another theme. For several years U.S. corporations have been
striving for greater productivity and cost-cutting by outsourcing critical
business functions. Holdings in the portfolio that reflect the outsourcing theme
are: Paychex, the largest provider of payroll and accounting services to
mid-sized businesses; Fiserv, a leading provider of financial data processing
services to banks and financial institutions; Analysts International, a computer
software services and technical support company; Saville Systems, which creates
customized billing systems for corporations; and MedQuist, a provider of
information services to health care organizations. Major oil companies are
increasingly outsourcing exploration, drilling and service functions.
Halliburton, Schlumberger and Petroleum Geo-Services are companies in the
portfolio that provide broad-based, one-stop shopping for oilfield services.
The "Graying of America" is a major long-term trend in our economy driving
increased healthcare needs and spending. The U.S. now has the largest population
of retirees in history and the leading edge of the "baby boom" generation is
just reaching its fifties. Both age groups use a disproportionate amount of
healthcare products and services. An above-average 18% of the portfolio is
invested in the health care industry. Three of the largest holdings are
Medtronic, the leader in pacemakers and other implantable cardiovascular
devices; Renal Care Group, a company that provides medical care for individuals
suffering from kidney diseases and diabetes; and Health Management Associates, a
highly efficient owner/operator of acute care and psychiatric hospitals in rural
areas in eleven states.
Specialty Retailers that save customers time by providing a high level of
customized service and/or convenience are also a portfolio theme. Such companies
have a competitive edge in the marketplace. Even though consumers have more
money than ever to spend, they seem to have less and less time. Holdings in
Office Depot, Staples, Bed Bath & Beyond, Fastenal and Family Dollar Stores
reflect this theme. One of the Fund's most successful holdings in this sector is
Home Depot whose growth continues to exceed 25% annually. The company provides
the highest level of service in the do-it-yourself, home improvement market.
What is your outlook?
We are positive about the companies in the portfolio. We believe growing
companies with double-digit earnings growth should benefit from lower inflation
and interest rates. Business growth in a deflationary world is increasingly rare
and should command higher PE multiples. Small and mid-cap companies suffer more
as they always do in periods of economic and market uncertainty, but as long as
their growth remains intact we believe they will provide exceptional returns
when the financial markets settle down. Most economists expect the U.S. economy
to grow about 2.4% in the fourth quarter of 1998 and 2.3% in 1999. The Federal
Reserve has taken action with its recent interest rate cuts that should settle
the financial markets and support future economic growth. We believe economic
growth at these levels will generate a strong stock market recovery and even
stronger growth for the Fund's net asset value.
5
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully-valued, or
overvalued.
Portfolio
Management
----------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: October 1971
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
-------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- -------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/71
...............................................................................
Average Annual Returns
...............................................................................
1 year with sales charge -10.07% -10.77% -7.11% n/a
...............................................................................
1 year w/o sales charge -5.59% -6.18% -6.19% -5.25%
................................................................................
3 years 12.40% 12.67% 13.44% 14.59%
................................................................................
5 years -- -- -- 15.16%
...............................................................................
10 years -- -- -- 12.25%
................................................................................
Since Inception 17.76% 17.99% 18.49% 16.03%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
...............................................................................
12-month income dividends
per share $0.10 -- -- $0.14
...............................................................................
12-month capital gain distributions
per share $0.50 $0.50 $0.50 $0.50
...............................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class A
---- --- ------------ -------
1/3/95 $ 10,000 $ 10,000 $ 9,525
9/30/95 $ 10,234 $ 12,571 $ 12,374
9/30/96 $ 10,541 $ 14,222 $ 14,610
9/30/97 $ 10,768 $ 18,942 $ 19,537
9/30/98 $ 10,929 $ 15,339 $ 18,445
Comparison of a $10,000 investment in Evergreen Fund Class A, versus a similar
investment in the Russell 2000, and the Consumer Price Index (CPI).
Russell 2000 Index is an unmanaged Index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the performance of the small company stock
market.
6
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What was the Fund performance in its fiscal year?
The Evergreen Fund's original Class Y shares, had a decline of 5.25% total
return for the fiscal year ended September 30, 1998. This was only the fifth
fiscal year decline in net asset value in the Fund's twenty-seven year history.
For the entire period since inception on October 15, 1971, the Fund's Class Y
shares have provided an average annual return of 16.03%. Class A, B, and C
shares returned -5.59%, -6.18%, and -6.19%, respectively, unadjusted for any
sales charges, for the fiscal year. The Fund's performance in the fiscal year
contrasted favorably with that registered by the leading average of smaller,
entrepreneurial companies, the Russell 2000 Index which declined 19.02% in this
period. The Fund showed a significant positive figure for performance until the
fourth quarter of its fiscal year, when its decline was 14.52%. The sharpest
fall-off in net asset values took place in August, while September showed a
meaningful recovery, up 4.63%.
Portfolio
Characteristics
---------------
Total Net Assets $1,847,330,018
.............................................................................
Number of Holdings 344
.............................................................................
Beta 1.03
.............................................................................
P/E Ratio 16.2x
.............................................................................
Why did Evergreen Fund outperform the Russell 2000 Average?
The Evergreen Fund portfolio through the year was not exclusively in a selection
of smaller entrepreneurial companies. The Fund holds several highly defensive
large capitalization companies which outperformed the market during the fiscal
year. These include: Fannie Mae, up 36.4%; Freddie Mac, up 39.8%; Johnson &
Johnson, up 35.7%; and Merck & Co., Inc., up 29.5%. Each has been long held, has
had significant capital appreciation, and represents a significant portion of
Fund holdings. In addition to their strength, the Fund benefited from a sizable
cash equivalent position, 18.8% at the beginning of the sharply lower September
quarter, and 20.0% at the end of that quarter. These defensive aspects of the
portfolio provided a partial, although certainly not total, counterbalance to
the highly volatile performance of smaller companies in the September quarter.
What were the strengths and weaknesses in the Fund's portfolio during the fiscal
year?
The Fund had many areas of sizable strength, including 20 issues whose capital
appreciation during the fiscal year was 50% or more. The industry sector showing
up most in this group was financial, led by the title insurance company, First
American Financial Corp., which was up 137.9%. This high performance group
included smaller banks, such as Gold Banc Corp., Inc., up 78.7%; Sandwich
Bancorp, Inc., up 53.5%; and Maryland Federal Bancorp, Inc., up 53.4%.
Technology innovative leaders were significant performers, led by Cisco Systems,
Inc., up 89.7%; and Gateway 2000, Inc., up 66.1%. Health care was represented in
the top performers by such issues as McKesson Corp., up 79.8%; Lincare Holdings,
Inc., up 53.2%; and Express Scripts, Inc., up 52.3%. Numbers of strong
performers were sold with substantial gains, led by part of the Fund's position
in Dillard's, Inc., which was sold with a gain of 2,331.2% after a 15 1/2 year
holding. Other major gains were in BB&T Corp., up 483.5%; part of our holdings
in Executive Risk, Inc., up 481.6%; part of our holdings in MBIA Inc., up
434.8%; Onbancorp, Inc., up 406.7%; and CVS Corp., up 87.8%. These are but a few
of the issues which were sold when we either judged that they had risen to
valuations which more than discounted their future growth, or others which were
sold when we regarded them as unlikely to achieve our growth goals. The latter
group ranged from companies which had run into legal or regulatory
7
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
problems, such as Ucar International, which was sold with a 62.7% loss after the
Federal Trade Commission penalized the company in a price-fixing charge, or
companies whose product positioning found them in a declining market
opportunity, such as Nike, Inc., Beverly Enterprises, Inc., Ranger Oil, Ltd, and
Bio-Rad Laboratories, Inc. With the Fund's very broad diversification into 344
companies, no loss taken had a sizable impact on portfolio valuation.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Clear Channel Communications, Inc. 4.4%
..........................................................................
Merck & Co., Inc. 3.5%
..........................................................................
M & T Bank Corp. 3.3%
..........................................................................
Intel Corp. 2.8%
..........................................................................
Federal National Mortgage Association 2.1%
..........................................................................
BankBoston Corp. 1.9%
..........................................................................
NationsBank Corp. 1.8%
..........................................................................
Johnson & Johnson 1.7%
..........................................................................
Federal Home Loan Mortgage Corp. 1.4%
..........................................................................
McKesson Corp. 1.2%
..........................................................................
Were mergers and acquisitions a plus for performance?
This fiscal year saw the largest number of merger and acquisition developments
among Fund holdings in its history, with transactions completed or begun for 44
of the Fund's holdings. For those of this group which have been completed as of
the end of the fiscal year, the average gain was 170.5%. These developments
continue a long-term trend of the Fund, which has now had 351 of its holdings
merged or acquired since its inception, and nine are still pending. We have long
regarded the recurrent and frequent series of bids for Fund holdings by other
companies as demonstrating that we have bought undervalued growth opportunities.
The most prominent industry group among the 44 companies which received bids
during the year was the financial, with 14 (primarily banks) announcing or
completing such transactions. The largest was the Fund's holding in Barnett
Banks, Inc. This holding began in December, 1990, with the purchase of shares of
First Florida Banks, Inc., which was subsequently acquired by Barnett, and
Barnett, in turn, was, acquired in 1998 by NationsBank Corp. (which has now,
through yet another merger, become BankAmerica Corp.). The Fund's original
investment of $2,833,672 beginning in 1990, was valued at $35,621,924 at the
time of the completion of the acquisition in January. Other very long-term
holdings with acquisitions during the year were Fort Wayne National, bought
originally in 1985, which provided a 973.9% gain on its acquisition, and
Onbancorp, Inc., bought in 1989, with a 265.4% gain to the Fund. Specialty
technology companies, especially medical-related, were among others with
acquisition bids, including Tecnol Medical Products, Inc., Medic Computer
Systems, Inc., Heartstream Inc., and United States Surgical Corp. In the
home-building field, acquisitions were made of Pacific Greystone Corp. and
Continental Homes Holding Corp. One of the larger transactions was in the shares
of Mercantile Stores Co., Inc., initially purchased in September 1994, and
acquired in August, with a gain of 81.8%. It is anticipated that the Fund's
active research for investment opportunities and undervalued growth companies
will continue to provide the portfolio with companies which are attractive
acquisition candidates.
Top 5 Industries
------------------------------
(based on 9/30/98 net assets)
Banks 15.6%
.........................................................................
Healthcare Products & Services 11.7%
.........................................................................
Finance & Insurance 10.9%
.........................................................................
Information Services & Technology 8.3%
.........................................................................
Publishing, Broadcasting & Entertainment 6.5%
.........................................................................
8
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is the Fund's policy with regard to its sizable cash equivalent position?
Through the fiscal year, our portfolio strategy included the maintenance of a
sizable cash equivalent position because we believed that the market had entered
a highly volatile period, and that large numbers of issues were fully valued, or
overvalued. Therefore, we anticipated potential price declines which would allow
us to meet our standards of buying the shares of entrepreneurial growth
companies on a value basis. The strategy proved highly rewarding, as toward the
end of the fiscal year, the stock markets had a major decline and we were able
to maintain a steady, careful accumulation program. Many outstanding buys were
made, especially around the period of the sharp stock market fall on August 31.
Some had achieved significant gains by the end of the fiscal year, notably in
smaller companies which had sold off greatly, such as Elan Corp. Plc., Maxxim
Medical, Inc., Analytical Surveys, Inc., Diamond Offshore Drilling, Inc., and
Comair Holdings, Inc.
What are the Fund's expectations for the current fiscal year?
We are optimistic for renewed vigor in the Fund's capital appreciation because
of both external macroeconomic influences and the quality and dynamism of the
Fund's portfolio holdings. Our assessment of the economic outlook is positive
because we believe the steps necessary to sustain economic momentum have already
begun under the leadership of the Federal Reserve and the Administration. The
recent rate cuts are highly positive, demonstrating, in our view, that the
Federal Reserve is aiming to avoid unnecessary credit tightness. It also
demonstrates that the recent trend of diminished inflation is viewed as stable
and continuing. U.S. Treasury efforts to restimulate Japan's key role in the
world economy, particularly in East Asia, are closer now to objectives than at
any time in the last several years, given Japan's banking restructuring and
discussion of tax reduction. With contemplated aid to Brazil, a major source of
instability should be removed from this important trading partner. Europe has
begun an apparently coordinated series of interest rate cuts aimed at
invigorating economic and employment growth.
This is a positive backdrop; the most immediate consequence for the portfolio
has already at this writing, late in October, been a recovery of values in the
Fund's major financial institution sector. The banking industry was most
severely hit in the decline in the fourth quarter, particularly after the
Russian ruble collapse. While the Fund's many holdings are conservatively
positioned, regional banks were not directly impacted; nonetheless, a fear
running through investors in financial companies drove down the prices of many
of our holdings. With that recovery begun, and many strong earnings already
being reported, we anticipate a favorable trend. We have further strengthened
the financial institution holdings with purchases of highly deflated, quality
regional growth banks during the fourth quarter. The negatives which overwhelm
so many technological companies, including some of the Fund's smaller company
holdings, appear to be abating as the markets see continuing demand for
computers and electronic communications products, with the inventory glut
earlier in 1998 having been worked through. Overall, the portfolio selection is
based on expectations of significantly above-average profit performance by our
holdings, even in a slowing economic environment. Volatility, both political and
economic, may still bring unexpected swings, and, therefore, the Fund is
maintaining a sizable cash equivalent reserve position. Our goal is to continue
to take advantage of outstanding opportunities which meet our standards for
long-term entrepreneurial growth, purchased on a value basis.
We appreciate the continuing support and interest of the Fund's shareholders.
9
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
When market sentiment turned negative in the summer of 1998, the stock prices of
the smaller companies did not hold up as well as the prices of larger companies,
despite the fact that they were trading at more attractive valuations.
Portfolio
Management
----------------
[PHOTO OF STEPHEN A. LIEBER APPEARS HERE]
Stephen A. Lieber
Tenure: January 1996
[PHOTO OF EDWIN D. MISKA APPEARS HERE]
Edwin D. Miska
Tenure: January 1996
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities nor
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 6/1/83
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge -25.22% -25.76% -22.79% n/a
................................................................................
1 year w/o sales charge -21.49% -22.07% -22.05% -21.28%
................................................................................
3 years 3.84% 3.86% 4.79% 5.81%
................................................................................
5 years -- -- -- 4.85%
................................................................................
10 years -- -- -- 9.49%
...............................................................................
Since Inception 7.43% 7.38% 8.06% 12.39%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $1.39 $1.39 $1.39 $1.39
................................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Class A Russell 2000 CPI
---- ------- ------------ ---
1/3/95 $9,525 $10,000 $10,000
9/30/95 $11,126 $12,571 $10,234
9/30/96 $10,803 $14,222 $10,541
9/30/97 $16,658 $18,942 $10,768
9/30/98 $13,079 $15,339 $10,929
Comparison of a $10,000 investment in Evergreen Micro Cap Fund Class A, versus a
similar investment in the Russell 2000 Index, and the Consumer Price Index
(CPI).
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
10
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Fund's performance reflected the difficulties of investing in very small
companies during the past year, when these micro-cap stocks were out of favor
despite relatively favorable valuations and earnings outlooks. For the 12 months
ended September 30, 1998, the Evergreen Micro Cap Fund Class Y shares had a
total return of -21.28%. The Fund's Class A, B, and C shares had total returns
of -21.49%, -22.07%, and -22.05%, respectively, unadjusted for any sales
charges. During the same 12-month period, the Russell 2000 Index, a commonly
used index of the small company stock market, had a return of -19.02%. The
average micro-cap fund had a return of -26.68% during the same period, according
to Lipper Analytical Services, an independent monitor of mutual fund
performance.
Portfolio
Characteristics
---------------
Total Net Assets $51,182,646
..........................................................................
Number of Holdings 96
..........................................................................
Beta 1.38
..........................................................................
P/E Ratio 12.1x
..........................................................................
What was the investment environment like during the period?
The market clearly favored the larger, well-known, giant capitalization
companies during the year, based primarily on the expectation that these
companies would continue to achieve good earnings growth. Investors thought they
could buy a company like Coca Cola, Gillette, Intel or Microsoft, get excellent
earnings growth from these companies, and see the stock prices move positively
every day. Given these expectations, it was more likely that the larger
companies would get the attention over the lesser-known, less-followed, small-
and micro-cap names. We had an environment for most of the year in which smaller
companies with positive earnings growth similar to that of larger companies were
at a distinct disadvantage because of their lower profiles. Liquidity also was
an important factor. Investors liked stocks that were easy to trade, and this
favored the biggest companies.
When market sentiment turned negative in the summer of 1998, the stock prices of
the smaller companies did not hold up as well as the prices of larger companies,
despite the fact that they were trading at more attractive valuations.
In light of this environment, what was your strategy?
Our long-term strategy remains the same -- to buy the stocks of well managed,
innovative micro-cap companies trading at attractive valuations relative to the
market and possessing a dynamic catalyst for growth. The group of stocks from
which we select is comprised of companies of $200 million or less in market
capitalization -- the lowest 10% of the market in terms of size. We use a
rigorous, quantitative, fundamental and valuation review to find attractive
opportunities among these stocks. We combine that with a discipline to sell
stocks quickly when we see any signs of disappointment.
We stuck to that strategy, although we did place greater emphasis on companies
that would benefit from a continued, strong economy. This is where micro-cap
stocks may have somewhat of an advantage during a time of international economic
uncertainty. Only 40% of micro-cap companies have any foreign sales, versus
about 65% of large-cap companies.
11
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Industrial Specialty Products & Services 12.8%
.........................................................................
Banks 11.9%
.........................................................................
Building Construction & Furnishings 11.2%
.........................................................................
Information Services & Technology 10.0%
.........................................................................
Products & Services Healthcare 8.5%
.........................................................................
In spite of this difficult period, did any stocks help the Fund's performance?
Yes. The top three performers in the portfolio for the year were small banking
companies. CNB Financial, which is based in upstate New York, had a 62.8% return
for the year. Washington Trust Bancorp, a Rhode Island banking company, had a
return of 55.9%. Northern States Financial, based in Waukegan, Ill., was up
40.4% for the 12-month period.
These three banks were largely unaffected by world markets, and more directly
influenced by what happens in their local economies. They all continued to have
strong earnings and revenue growth. Their stocks were undervalued relative to
their peers. Smaller bank stocks also continue to be helped by expectations of
industry consolidation.
Among other top-performers were Stanley Furniture Co., a manufacturer of
furniture for the home, and Genlyte Group, Inc., a manufacturer of commercial
and home lighting fixtures. In the past 12 months, Stanley Furniture was up
29.8%, while Genlyte was up 24.6%. Both these companies benefited from strong
consumer confidence, lower interest rates, and continued healthy domestic home
construction spending. In addition, Genlyte's stock gained as a result of the
announcement of a joint venture with one of its competitors, Thomas Industries,
which should double the size of Genlyte's business and enhance its earnings.
The Fund's performance was held back by sub-par stock performance during the
year from a number of larger holdings that had been strong contributors to the
Fund in the past. This list includes Alcide Corp., down 67%; Badger Meter, down
39.7%; General Employment Corp., down 40.4%; and Del Laboratories, Inc., down
29.9%. None of these companies has any significant profitability or growth
concerns on the horizon. Alcide Corp. continues to be a leading pioneer in
anti-microbial inventions, particularly in areas of food safety. Badger Meter is
continuing to develop new technologies in fluid metering devices. General
Employment Enterprises continues to provide staffing services for the employment
needs of the high technology sector, and Del Laboratories has enhanced and
broadened its cosmetic product lines with a significant acquisition. All of
these companies had positive trends in both revenues and earnings and are
optimistic on their outlooks. We have viewed their underperformance as
temporary, given the market's limited amplitude -- the relatively limited type
of stock in favor -- and have taken their stock price declines as opportunities
to selectively increase our positions to benefit from their excellent long-term
prospects.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
First Years, Inc. 2.9%
........................................................................
Badger Meter, Inc. 2.5%
........................................................................
Hickory Tech Corp. 2.3%
........................................................................
Genlyte Group, Inc. 2.2%
........................................................................
BT Financial Corp. 2.0%
........................................................................
Washington Trust Bancorp, Inc. 2.0%
........................................................................
Alcide Corp. 2.0%
........................................................................
SBS Technologies, Inc. 2.0%
........................................................................
Equitrac Corp. 1.8%
........................................................................
Air Methods Corp. 1.8%
........................................................................
12
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Mergers and acquisitions have been an important theme in this Fund. Did this
continue during the fiscal year?
The Fund continued to benefit from the long-term trend of larger companies
acquiring smaller ones with strong products, distribution and franchises. Five
of the Fund's holdings announced or completed acquisitions during the fiscal
year. Shares of surgical laser systems-maker Laser Industries, Ltd., outsourcing
services company Union Corp., chemical trucker MTL Inc., and staffing firm
Personnel Management Inc. completed merger deals. This brings the total number
of acquisitions completed to 95, since the Fund's inception on June 1, 1983. The
average gain to the portfolio over the years is 63.3%. A pending deal for shares
of Special Devices, a manufacturer of air bag initiators, is set to close soon.
This transaction is for $37 cash per share, significantly over the $16.87
average cost since the Fund's purchase in February 1996.
We believe that with the economy showing signs of slowing, larger companies will
seek ways to enhance their competitive positions and this should include the
continued acquisition of attractive, smaller companies. We expect the merger and
acquisition activity will return to a more active level, despite near-term
credit and market uncertainties. Issues such as the overall pre-occupation with
larger, more strategic types of deals, the "mergers of equals" and the Year 2000
computer problem may have distracted some companies in 1998. Given the values
appearing in the micro-cap market due to the large declines in overall prices,
we believe that the consolidation activity will accelerate in the near term, and
the Fund will be poised to benefit.
What is your general outlook?
We think the outlook is largely favorable. Smaller companies have the
opportunity to outperform larger companies over time because of their domestic
orientation, their more efficient operations and their specialty focus. With
world economies, markets and currencies under turmoil, they are clear
beneficiaries, given their single-market focus. A low-interest-rate environment
also should help. We believe these catalysts will spur a renewed interest in the
small- and micro-cap stock sectors. While global concerns may mask the overall
improvement in the performance of this sector short term, we believe the
long-term investor will benefit from a compelling opportunity to get into this
area at a time when the overall market disregards its attractive fundamentals.
While we are disappointed with this year's absolute performance, we are
optimistic the Fund is well positioned for both near- and longer-term strong,
positive performance.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
13
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
The Fund did better than most other capital appreciation funds because of our
emphasis on investing in strong companies, with records of consistent earnings
growth.
Portfolio
Management
----------
[PHOTO OF MAUREEN E. CULLINANE, CFA APPEARS HERE]
Maureen E. Cullinane, CFA
Tenure: April 1989
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 4/29/68 8/2/93 8/2/93 1/13/97
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge -0.53% -1.04% 2.80% n/a
................................................................................
1 year w/o sales charge 4.43% 3.64% 3.73% 4.67%
................................................................................
3 years 12.46% 12.55% 13.33% --
................................................................................
5 years 11.24% 11.07% 11.37% --
................................................................................
10 years 16.08% -- -- --
................................................................................
Since Inception 12.94% 13.19% 13.34% 13.44%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share $2.13 $2.13 $2.13 $2.13
................................................................................
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P 500 Class A
---- --- ------- -------
9/30/88 $ 10,000 $ 10,000 $ 9,525
9/30/89 $ 10,434 $ 13,301 $ 12,770
9/30/90 $ 11,077 $ 12,071 $ 12,030
9/30/91 $ 11,452 $ 15,834 $ 17,564
9/30/92 $ 11,795 $ 17,583 $ 18,588
9/30/93 $ 12,112 $ 19,869 $ 24,832
9/30/94 $ 12,471 $ 20,602 $ 23,285
9/30/95 $ 12,788 $ 26,730 $ 29,742
9/30/96 $ 13,172 $ 32,165 $ 33,591
9/30/97 $ 13,456 $ 45,175 $ 42,527
9/30/98 $ 13,656 $ 49,261 $ 44,409
Comparison of a $10,000 investment in Evergreen Omega Fund Class A, versus a
similar investment in the Standard & Poor's 500 Index (S&P 500) and the Consumer
Price Index (CPI).
The Standard & Poor's 500 Index is an unmanaged index of 500 publicly-traded
U.S. stocks and is often used as an indicator of the performance of the overall
stock market.
14
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
The Omega Fund substantially outperformed its competitive group of mutual funds
with similar objectives, although it trailed the S&P 500 Index. For the 12
months ended September 30, 1998, the Fund's Class Y shares had a total return of
4.67%. Class A, B, and C shares had total returns of 4.43%, 3.64%, and 3.73%,
respectively, unadjusted for any sales charges. During the same 12-month period,
the average capital appreciation fund had a return of -2.89%, as measured by
Lipper Analytical Services, Inc., an independent monitor of mutual fund
performance, while the overall S&P 500 Index had an average return of 9.05%.
The Fund did better than most other capital appreciation funds because of our
emphasis on investing in strong companies, with records of consistent earnings
growth. The Fund's portfolio is dominated by these companies. In addition, the
Omega Fund's diversified approach includes stocks of all sizes of companies,
while the typical capital appreciation fund tends to have a higher concentration
in the mid-cap and small-cap areas. We had only a very small representation in
small company stocks, so we avoided the debacle in that market. At the same
time, the Fund trailed the S&P 500 because the index is dominated by the large
company stocks, which clearly were the most popular stocks during the 12 months.
The S&P 500 also includes some defensive industries, such as utilities, in which
we typically do not invest because they don't provide enough growth potential.
Portfolio
Characteristics
---------------
Total Net Assets $284,611,203
.............................................................................
Number of Holdings 56
.............................................................................
Beta 1.06
.............................................................................
P/E Ratio 33.2x
.............................................................................
What was the investment environment like during the period?
The first nine months of the fiscal year, from October through June, were
generally favorable. We had a continuation of moderate growth, stable-to-
declining interest rates and very little inflation; stocks did very well.
Then, in the final three months, the market corrected as the Asian currency and
financial crisis of last year rippled throughout world markets. Investors became
worried that corporate earnings would come under pressure because of a global
economic slowdown. U.S. companies could be affected because they may face more
competition from foreign companies in the U.S., and would have a more difficult
time selling internationally. Investors also worried there would be a credit
crunch, because banks would not provide sufficient loans for the growth plans of
companies. The Federal Reserve Board has been lowering short-term interest rates
to address this problem, but investors remain concerned.
The extremely high valuations of stock prices -- after more than two years of
very strong performance -- also contributed to the correction. In previous
reports, we warned that the market could not sustain the performance it had been
enjoying. We were beginning to see signs of euphoria and over-confidence about
the market. It was inevitable that it would end, and it did because the
valuations were too high, and they had to correct.
The combination of two factors -- investors expecting slower earnings' growth
and lowering the price/earnings multiple they were willing to pay for growth --
created a double whammy. The result was a significant correction. International
stocks and small company stocks have been in their own bear markets, and we have
seen the crack in the market for large company stocks. To date, the price of the
average stock on the New York Stock Exchange declined more than 35% from its
high.
15
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
-----------------------------
(based on 9/30/98 net assets)
Information Services & Technology 16.8%
.........................................................................
Pharmaceuticals 16.7%
.........................................................................
Healthcare Products & Services 11.8%
.........................................................................
Publishing, Broadcasting & Entertainment 8.6%
.........................................................................
Finance & Insurance 7.2%
.........................................................................
At the end of the fiscal year, you had a heavy emphasis on consumer staples
stocks, at 28.5% of net assets. What was your strategy?
Most of that 28.5% allocation was in the pharmaceutical and health care
industries, which generally have very consistent records of earnings growth. The
fundamental characteristics of the drug industry are very strong. After years of
research, many new drugs are now being introduced to the market and the aging
population in the U.S. is building demand for these products. Among the
pharmaceutical companies in the portfolio were Pfizer, Warner-Lambert and
Schering-Plough. In healthcare equipment, we held Medtronic, a manufacturer of
pacemakers and other implantable devices. Other healthcare-related investments
include Health Management Associates (HMA), a hospital management company;
Cardinal Health, a drug distribution company; and IMS Health, which provides
pharmaceutical companies with important information regarding sales and market
share.
The pharmaceutical stocks also tended to be the performance leaders for the
Omega Fund. Pfizer, Pharmacia & Upjohn, Schering-Plough and Warner Lambert all
contributed to the Fund's performance.
What other steps did you take?
We increased our investments among better-quality, industry-leading technology
companies, which continued to post good earnings reports. Our holdings include
companies like Microsoft, EMC, Intel and Cisco Systems.
We have reduced our holdings in financial services, particularly since June,
reducing the weighting from about 13% to about 7%. After being one of the market
leaders for the past few years, the banking industry was affected by fears of a
credit crunch and a slowing economy, as well as by currency trading losses and
loans to foreign companies. We saw reductions in earnings growth projections in
the financial services sector and eliminated from the portfolio a number of
companies, including Morgan Stanley and Travelers.
We continued to emphasize broadcasting and advertising, with about 9% of the
Fund's net assets still committed there at the end of the fiscal year. Companies
such as Clear Channel, CBS and Outdoor Systems, a billboard advertising company,
continued to show good earnings growth. Moreover, we believe advertising
spending will continue to be healthy, despite an economic slowdown, as companies
fight for market position. Despite this forecast, many of the stock prices in
this industry fell by more than 25% during the market correction, so we see
excellent value here.
As of September 30, the amount invested in cash and cash equivalents had risen
to 10% from 2% at the mid-point of the fiscal year in March. We would not
characterize this as a defensive move, because we are prepared to re-invest this
money as we find attractive opportunities.
16
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
Warner-Lambert Co. 3.7%
........................................................................
Schering-Plough Corp. 3.3%
........................................................................
American Home Products Corp. 3.2%
........................................................................
General Electric Co. 3.1%
........................................................................
EMC Corp. 2.7%
........................................................................
Pfizer, Inc. 2.6%
........................................................................
Tyco International Ltd. 2.5%
........................................................................
IMS Health, Inc. 2.5%
........................................................................
Pharmacia & Upjohn, Inc. 2.5%
........................................................................
Microsoft Corp. 2.4%
........................................................................
What is your outlook?
We have been through the toughest period in the market. The economy is slowing,
but this slowing already is reflected in stock prices. The choppiness we have
been seeing in the market probably will continue, but we believe we are close to
the bottom of the correction. We see good values in the market, especially in
the mid-cap and small-cap stock areas, which have been neglected by investors
for a very long period. As we look toward 1999, we may see opportunities for
positive performance, although we don't think it is likely we will see the
market gains of 30% or more that we saw during the past three years.
17
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Although performance has been disappointing, we believe that our process is
sound and has the potential to lead to above-average returns over the long term.
Portfolio
Management
----------
[PHOTO OF J. GARY CRAVEN APPEARS HERE]
J. Gary Craven
Tenure: November 1996
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads, fees and expenses paid by the
shareholders investing in each class. The investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index is an unmanaged index and does
not include transaction costs associated with buying and selling securities or
any management fees. The CPI is a commonly used measure of inflation and does
not represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 1/26/98 1/26/98
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -- -36.92% -- --
................................................................................
1 year w/o sales charge -- -33.91% -- --
................................................................................
5 years -- 1.50% -- --
................................................................................
10 years -- 11.96% -- --
...............................................................................
Since Inception** -29.70% 9.53% -27.00% -25.74%
................................................................................
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share -- $0.78 --
................................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A, C, and Y shares; these classes
opened in January 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI Russell 2000 Class B
---- --- ------------ -------
9/30/88 $ 10,000 $ 10,000 $ 10,000
9/30/89 $ 10,434 $ 12,149 $ 13,239
9/30/90 $ 11,077 $ 8,850 $ 10,267
9/30/91 $ 11,452 $ 12,840 $ 17,342
9/30/92 $ 11,795 $ 14,010 $ 18,398
9/30/93 $ 12,112 $ 18,656 $ 28,393
9/30/94 $ 12,471 $ 19,155 $ 28,004
9/30/95 $ 12,788 $ 23,630 $ 38,804
9/30/96 $ 13,172 $ 26,733 $ 39,539
9/30/97 $ 13,456 $ 35,605 $ 46,845
9/30/98 $ 13,656 $ 28,833 $ 30,960
Comparison of a $10,000 investment in Evergreen Small Company Growth Fund Class
A, versus a similar investment in the Russell 2000 Index and the Consumer Price
Index (CPI).
Russell 2000 Index is an unmanaged index of 2,000 publicly traded U.S. stocks
and is often used as an indicator of the small company stock market.
18
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
For the 12-month period ended on September 30, 1998, the Fund's Class B shares
- -- the original class of the Fund -- had a total return of -33.91%, unadjusted
for any sales charges. During the same 12-month period, the Russell 2000 Index,
a commonly used reflection of the small company stock market, had a return of
- -19.02%. The average return among small company stock mutual funds was -20.60%,
as measured by Lipper Analytical Services, Inc., an independent monitor of
mutual fund performance. Obviously, we are not satisfied with the performance of
the Fund.
Portfolio
Characteristics
---------------
Total Net Assets $793,895,818
............................................................................
Number of Holdings 153
............................................................................
Beta 1.22
............................................................................
P/E Ratio 24.0x
............................................................................
What factors affected the Fund's performance?
This year, unlike any other in recent memory, the larger the company, the more
demand there was for its stock. The stocks of larger cap companies outperformed
mid-cap companies, which in turn outperformed small-cap companies. For the
majority of this year, this Fund was limited to investing in companies under $1
billion in market capitalization, which was the poorest part of the stock market
in which to be invested. The Fund's investment limits were much stricter than
those of many small company funds; however, the Fund's Board of Directors has
recently addressed this situation. The Fund now has the ability to invest in
companies of up to $2.5 billion in market capitalization. This increased
latitude is important because it allows us to invest in industry leaders in
emerging industries and in the growth leaders of other industries.
It's not accurate, however, to blame everything on investment restrictions;
performance also was hurt by instances of poor stock selection. We have made a
number of internal changes to assist the stock selection process, including
enhancing our technological capabilities for monitoring and researching
investment ideas. We also have made improvements in our quality review
procedures for new stock analysis.
Performance also was hurt by too much emphasis in energy-related companies
earlier in 1998. We had about a 7% weighting in the energy industry, which was
particularly hard hit by the effects of the Asian economic crisis. We sold our
energy holdings by the end of June, before the worst of the volatility in the
market drove those stock prices even lower, but the earlier exposure hurt
performance.
Although performance has been disappointing, we believe that our process is
sound and has the potential to lead to above-average returns over the long term.
What was the investment environment like during the 12-month period?
Over the course of the year, there was increasing investor focus on the negative
implications of problems that started in Asia, and then spread to Eastern Europe
and then to Latin America. Concerns about a potential global economic slowdown
particularly affected lower quality investments. High yield bonds, for example,
underperformed Treasuries. In the stock market, by their very nature, small
company stocks are lower quality than large company stocks because they have
fewer financial resources and less diversified businesses. Over the entire year,
investors had a clear preference for higher quality instruments, and this
preference did not favor the Fund.
19
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Information Services & Technology 12.7%
.........................................................................
Healthcare Products & Services 9.5%
.........................................................................
Banks 9.4%
.........................................................................
Electrical Equipment & Services 7.5%
.........................................................................
Finance & Insurance 6.5%
.........................................................................
What strategies did you employ during the year?
We recognized this trend toward quality and we tried to move our portfolio to
higher quality, small-capitalization companies -- those that exhibited
steadiness and predictability of earnings and financial strength. These factors,
however, did not have the impact on performance that we hoped because the
smaller stocks in which we invested were a very difficult part of the market.
In the fourth quarter of the fiscal year -- the third quarter of the calendar
year -- we bought a number
of technology companies because we still see above-average earnings potential
there. Specifically, we built up holdings in a number of specialized
semi-conductor companies with excellent growth potential that were available at
rock-bottom prices. Two good examples are Microchip, which manufactures
semi-conductors for anti-lock brakes and for toasters, and Sipex, which
manufactures semi-conductors used for backlighting in cellular phones and
wristwatches. We also de-emphasized software companies, where, the earnings
outlook has been deteriorating because corporate spending patterns are changing.
The changes are, in part, a result of corporate customers trying to deal with
the "Year 2000" computer problem, rather than buying new types of applications.
We continue to see strong growth potential in the telecommunications industry,
but this area has been very volatile because many of the companies don't yet
have a history of consistent earnings growth, so their stock price swings can be
quite wide. We do believe telecommunications offers a great deal of opportunity
in the future, however. One company we like is McLeod USA, a regional phone
company with state-of-the-art abilities in both data and voice communications.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
Devry, Inc. 3.0%
........................................................................
Roper Industries, Inc. 1.9%
........................................................................
Health Management Associates, Inc. Cl. A 1.8%
........................................................................
Safeguard Scientifics, Inc. 1.7%
........................................................................
Jacor Communications, Inc. 1.7%
........................................................................
Sipex Corp. 1.6%
........................................................................
Astoria Financial Corp. 1.6%
........................................................................
Comdisco, Inc. 1.6%
........................................................................
Scientific Atlanta, Inc. 1.5%
........................................................................
Corporate Express, Inc. 1.5%
........................................................................
20
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
What is your outlook?
The bright side of the coin is that stock valuations are extremely low; small
company stock prices are as low as they have been in 20 years relative to the
overall stock market. We are nearing the point at which these valuations become
compelling. Some prices are so low that companies may start to be bought out and
taken private. This would provide a floor with respect to prices.
A necessary catalyst for small companies to recover is accessibility to
financing. The credit crunch that developed this year has hurt the ability of
companies to finance growth; however, we feel this restrictive credit
environment is a temporary situation. By mid-October, the Federal Reserve Board
already had cut short-term interest rates twice, which should be positive for
the stock market going forward.
The key for success in the small company stock market is earnings growth. Right
now, there still is fear and uncertainty about the effects of the global
economic slowdown that began in Asia. We believe it is inevitable that this
uncertainty will dissipate over the next six to 12 months as the impact of the
economic slowdown becomes clear. At this point, the small company stock market
is priced as if this impact will be very severe. With greater clarity and the
very real possibility that the impact of the slowdown will be relatively mild,
there is the potential for tremendous positive performance as investors regain
confidence in the earnings outlooks of the companies in which we invest.
If we look back, small company stocks have substantially outperformed the
overall stock market coming out of the past four economic downturns. Throughout
history, small company stocks have delivered above-average returns. The bulk of
these above-average returns have come in very small time periods -- months not
years. The key to investing in small company stocks is to make sure you are
invested during the explosive upswings that periodically occur.
Funds that invest in stocks of small companies, also called small-cap stocks,
involve certain risks and, therefore, may not be appropriate for all investors.
Although they may offer the potential for greater long-term returns, they also
may experience greater price volatility due to their limited focus on a
particular industry, market, product, or service, or because they invest in
smaller, less established companies.
21
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
We continued to use a bottom-up investment approach that combines quantitative
and qualitative analysis. The fund was well diversified among various companies
and economic sectors.
Portfolio
Management
----------
[PHOTO OF JOSEPH E. STOCKE APPEARS HERE]
Joseph E. Stocke
Tenure: February 1990
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 8/31/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 Index is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class Y
Inception Date 2/28/90 11/7/97 2/21/95
................................................................................
Average Annual Returns
................................................................................
1 year with sales charge -15.99% -15.42% n/a
...............................................................................
1 year w/o sales charge -11.79% -10.44% -11.56%
................................................................................
3 years 13.78% -- 15.90%
................................................................................
5 years 13.78% --
...............................................................................
10 years -- -- --
................................................................................
Since Inception 14.42% -23.15% 19.99%
................................................................................
Maximum Sales Charge 4.75% 5.00% n/a
Front End CDSC
................................................................................
Prior fiscal year dividends per share -- -- $0.04
................................................................................
Prior fiscal year capital gain
distributions per share $2.92 $3.24** $2.92
................................................................................
* Adjusted for maximum sales charge.
**Adjusted to reflect a reverse stock split which occured on June 24, 1998.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P 500 Class A
---- --- ------- -------
2/28/90 $ 10,000 $ 10,000 $ 9,525
9/30/90 $ 10,367 $ 9,411 $ 8,782
9/30/91 $ 10,719 $ 12,344 $ 12,569
9/30/92 $ 11,039 $ 13,708 $ 14,034
9/30/93 $ 11,336 $ 15,491 $ 15,888
9/30/94 $ 11,672 $ 16,062 $ 16,449
9/30/95 $ 11,969 $ 20,839 $ 20,551
9/30/96 $ 12,328 $ 25,076 $ 25,048
9/30/97 $ 12,594 $ 35,219 $ 36,028
9/30/98 $ 12,781 $ 38,405 $ 31,781
Comparison of a $10,000 investment in Evergreen Stock Selector Fund Class A,
versus a similar investment in the S&P 500 Index, and the Consumer Price Index
(CPI).
Standard & Poor's 500 Index is an unmanaged index of 500 publicly traded U.S.
stocks and is often used as an indicator of the performance of the overall stock
market.
Please note that the Evergreen Stock Selector Fund has changed its fiscal year
end from June 30th to September 30th. The next report for the Fund will be its
semiannual report as of March 31, 1999, which will mail at the end of May 1999.
22
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the fund perform in the 12-month period ended September 30, 1998?
For the 12-month period ended September 30, 1998, Class A shares produced a
total return of -11.79%, unadjusted for sales charge. For the same period, the
Standard & Poor's 500 Stock Index (S&P 500) returned 7.70%.
Portfolio
Characteristics
---------------
Total Net Assets $441,315,494
...........................................................................
Number of Holdings 92
...........................................................................
P/E Ratio 28.1x
...........................................................................
Beta 1.14
...........................................................................
What was the investment environment like during the period?
Economic weakness in emerging markets overshadowed the U.S. stock market during
the 12 months. In October 1997, a currency and financial crisis in Asia
triggered a sell-off in U.S. stocks. The market recovered quickly from the
October downturn and, while stocks were volatile, they made strong gains into
mid-July 1998. In August, Russia devalued its currency and the Russian economy
nearly collapsed. Investors grew concerned that a similar economic fate awaited
the emerging markets of Latin America. Market sentiment turned negative and
investors sold their stocks. From July through September 1998, the U.S. stock
market experienced its steepest quarterly decline in nearly a decade.
Why did economic problems in the emerging markets have such a strong impact on
U.S. stocks?
Many U.S. companies export goods and services to emerging market countries. When
these countries go into recession, they make fewer purchases, which results in a
decline in revenues and profits for U.S. companies. The price of a company's
stock is linked to its profit outlook, and investors tend to sell or avoid
stocks of companies with poor prospective profits.
How did you manage the fund during the period?
We continued to use a bottom-up investment approach that combines quantitative
and qualitative analysis. The Fund was well diversified among various companies
and economic sectors. We invested in a combination of large-, mid- and small-cap
stocks.
What affected the fund's performance?
About a third of the portfolio was invested in small- and mid-cap stocks. This
hurt performance as investors became concerned about the international financial
system and engaged in a flight to the perceived greater safety of large-cap
stocks and away from small- to mid-cap stocks.
The flight to quality was the biggest issue for us; however, performance was
held back by some individual stocks as well. MedPartners declined when a merger
with Phycore didn't work out; Cendant's stock price was affected by overstated
earnings that had to be restated downward; and Sunbeam's stock price declined
when the company's sales strategy didn't work out as anticipated, and it tried
to push its products through distribution channels too aggressively.
23
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Finance & Insurance 12.0%
....................................................................
Healthcare Products & Services 9.7%
....................................................................
Information Services & Technology 9.6%
....................................................................
Food & Beverage Products 7.1%
....................................................................
Oil / Energy 7.0%
....................................................................
Where did you find new opportunities?
We added Fred Meyer, a West Coast supermarket chain, to the portfolio. This
company was attractive because of its low valuation and strong prospects for
growth relative to its peers. Fred Meyer is consolidating some recent
acquisitions, which should result in cost savings and more rapid growth. We
believe the company should benefit from its focus on the northwest, where it has
only modest competition and where the economy is growing more rapidly than in
other parts of the U.S. We also invested in Boston Scientific, a medical
products developer that specializes in cardiovascular products. Boston
Scientific's stock was attractively valued, and we believe its growth should
pick up dramatically as it introduces new products over the next several months.
We also added American Home Products (AHP) whose stock price is among the lowest
of the major pharmaceutical companies. We believe the company should also
benefit from new product introductions. Finally, we boosted the Fund's position
in America Online, which should benefit from the continued rapid growth of the
internet; and we added to Microsoft, which is benefiting from growth in the
computer industry and demand for personal computers.
Did you eliminate stocks from the portfolio?
We sold IBM, which we believed had become fully valued, and held other
technology stocks in the portfolio that we believe have the potential to grow
more rapidly than IBM. We reduced the Fund's position in Air Touch, a cellular
phone company. A year ago, we added to our Air Touch position because we felt it
was undervalued and overlooked by investors. As investors realized Air Touch's
potential, the company's stock price advanced significantly and we were able to
take some profits in the stock.
Top 10 Holdings
-----------------------------
(based on 9/30/98 net assets)
MCI WorldCom, Inc. 4.8%
........................................................................
Microsoft Corp. 3.9%
........................................................................
Everest Reinsurance Holdings, Inc. 3.7%
........................................................................
Mobil Corp. 3.4%
........................................................................
General Electric Co. 3.1%
........................................................................
America Online, Inc. Delaware 2.7%
........................................................................
NationsBank Corp. 2.4%
........................................................................
Conseco, Inc. 2.4%
........................................................................
Nabisco Holdings Corp. 2.4%
........................................................................
Fred Meyer, Inc. 2.4%
........................................................................
What is your outlook?
Economic problems in foreign economies remain unresolved, and as a result, there
is uncertainty about the impact they will have on U.S. profits and the U.S.
economy. Such uncertainty will probably contribute to continued stock market
volatility in the short term. Longer term, we are confident that when we get
through this problem period, there will be continued growth. We encourage
investors to focus on the long term when evaluating the Fund's performance. In
managing the Fund, we concentrate on buying the best companies we can find at
the best values. Many of these are small- and mid-cap companies, which have
relatively little exposure to foreign markets, but have been out of favor with
investors. When the market calms down and investors begin considering small- and
mid-cap stocks again, we believe we could see some solid rebounds.
24
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Fund at a Glance as of September 30, 1998
Strategic Growth Fund's approach includes stocks of all sizes of companies,
including the large-cap stocks that have been the market leaders.
Portfolio
Management
-------------------------
[PHOTO OF MAUREEN E. CULLINANE APPEARS HERE]
Maureen E. Cullinane, CFA
Tenure: April 1995
- --------------------------------------------------------------------------------
CURRENT INVESTMENT STYLE/1/
- --------------------------------------------------------------------------------
[GRAPHIC APPEARS HERE]
Morningstar's Style Box is based on a portfolio date as of 9/30/98.
The Equity Style Box placement is based on a fund's price-to-earnings and price-
to-book ratio relative to the S&P 500, as well as the size of the companies in
which it invests, or median market capitalization.
/1/Source: 1998 Morningstar, Inc.
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S&P 500 is an unmanaged index and does not include
transaction costs associated with buying and selling securities nor any
management fees. The CPI is a commonly used measure of inflation and does not
represent an investment return. It is not possible to invest directly in an
index.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
- --------------------------------------------------------------------------------
Class A Class B Class C
Inception Date 1/20/98 9/11/35 1/22/98
...............................................................................
Average Annual Returns
................................................................................
1 year with sales charge -- -0.67% --
................................................................................
1 year w/o sales charge -- 3.87% --
................................................................................
3 years -- 16.12% --
................................................................................
5 years -- 13.50% --
................................................................................
10 years -- 14.84% --
................................................................................
Since Inception** 0.99% 11.44% 3.11%
...............................................................................
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
................................................................................
12-month capital gain distributions
per share -- $1.32 --
...............................................................................
* Adjusted for maximum sales charge.
** Represents cumulative returns for Class A and C shares; these classes opened
in January 1998 and do not have annual returns yet.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date CPI S&P500 Class B
------- -------- -------- --------
9/30/88 $ 10,000 $ 10,000 $ 10,000
9/30/89 $ 10,434 $ 13,301 $ 12,870
9/30/90 $ 11,077 $ 12,071 $ 11,276
9/30/91 $ 11,452 $ 15,834 $ 15,387
9/30/92 $ 11,795 $ 17,583 $ 16,266
9/30/93 $ 12,112 $ 19,869 $ 20,963
9/30/94 $ 12,471 $ 20,602 $ 21,047
9/30/95 $ 12,788 $ 26,730 $ 25,010
9/30/96 $ 13,172 $ 32,165 $ 27,354
9/30/97 $ 13,456 $ 45,175 $ 38,386
9/30/98 $ 13,656 $ 49,261 $ 39,908
Comparison of a $10,000 investment in Evergreen Strategic Growth Fund Class B,
versus a similar investment in the Standard & Poor's 500 Index (S&P 500) and the
Consumer Price Index (CPI).
Standard & Poor's 500 Index is an unmanaged index of 500 publicly traded U.S.
stocks and is often used as an indicator of the performance of the overall stock
market.
25
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
How did the Fund perform?
For the 12 months ended September 30, 1998, the Evergreen Strategic Growth
Fund's Class B shares had a total return of 3.87%, unadjusted for any sales
charges. The average growth fund had a return of -1.44%, as measured by Lipper
Analytical Services, Inc., an independent monitor of mutual fund performance.
During the same 12-month period, the overall S&P 500 Index had an average return
of 9.05%.
As you can see, the Fund outperformed its competitive group of mutual funds,
while it trailed the S&P 500. The Fund did better than most other growth funds
because of our emphasis on investing in strong companies with records of
consistent earnings growth. Strategic Growth Fund's approach includes stocks of
all sizes of companies, including the large-cap stocks that have been the market
leaders. We tended to have minimal investments in small company stocks recently,
because they have experienced a severe downturn. The Fund underperformed the S&P
500 because the index is dominated by the large company stocks, which clearly
were the most popular stocks during the 12 months.
Portfolio
Characteristics
---------------
Total Net Assets $836,766,397
...........................................................................
Number of Holdings 62
...........................................................................
Beta 1.05
...........................................................................
P/E Ratio 32.4x
...........................................................................
What was the investment environment like during the period?
The first nine months of the fiscal year, from October 1997 through June 1998,
were generally favorable. We had a continuation of moderate growth, stable-to-
declining interest rates and very little inflation; stocks did very well.
Then, in the final three months, the market corrected as the Asian currency and
financial crisis of last year rippled throughout world markets. Investors became
worried that corporate earnings would come under pressure because of a global
economic slowdown. U.S. companies could be affected because they may face more
competition from foreign companies in the U.S., and would have a more difficult
time selling internationally. Investors also worried that there would be a
credit crunch, because banks would not provide sufficient loans for the growth-
plans of companies. The Federal Reserve Board has been lowering short-term
interest rates to address this problem, but investors remain concerned.
The extremely high valuations of stock prices -- after more than two years of
very strong performance -- also contributed to the correction. In previous
reports, we warned that the market could not sustain the performance it had been
enjoying. We were beginning to see signs of euphoria and over-confidence about
the market. It was inevitable that it would end, and it did, because the
valuations were too high and they had to correct.
The combination of two factors -- investors expecting slower earnings' growth
and lowering the price/earnings multiple they were willing to pay for growth --
created a double whammy. The result was a significant correction. International
stocks and small company stocks have been in their own bear markets, and we have
seen the crack in the market for large company stocks. To date, the price of the
average stock on the New York Stock Exchange declined more than 35% from its
high.
26
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
At the beginning of the fiscal year, the Fund's two largest areas of emphasis
were healthcare and financial services. Has this changed?
We continue to have a heavy weighting in pharmaceutical and healthcare
companies, which comprised more than 27% of the portfolio at the end of the
fiscal year. The pharmaceutical and health care industries, in general, have
very consistent records of earnings growth. The fundamental characteristics of
the drug industry, in particular, are very strong. After years of research, many
new drugs are now being introduced to the market, and the aging of the
population in the U.S. is building demand for these products. Among the
pharmaceutical companies in the portfolio were Pfizer, Warner-Lambert, and
Schering-Plough. In healthcare equipment, we held Medtronic, a manufacturer of
pacemakers and other implantable devices. Other healthcare-related investments
include Health Management Associates (HMA), a hospital management company;
Cardinal Health, a drug distribution company and IMS Health, which provides
pharmaceutical companies with important information regarding sales and market
share.
We have reduced our holdings in financial services, particularly since June.
After being one of the market leaders for the past few years, the banking
industry was affected by fears of a credit crunch and a slowing economy, as well
as by trading losses and loans to foreign companies. We saw reductions in
earnings growth projections in the financial services sector, and eliminated a
number of companies, including J.P. Morgan and Travelers.
Top 5 Industries
----------------
(based on 9/30/98 net assets)
Information Services & Technology 15.5%
.........................................................................
Healthcare Products & Services 13.7%
.........................................................................
Pharmaceuticals 13.7%
.........................................................................
Oil / Energy 9.2%
.........................................................................
Publishing, Broadcasting & Entertainment 8.8%
.........................................................................
What other areas have you emphasized?
We stepped up our investments among better-quality, industry-leading technology
companies, which continued to post good earnings reports. Our holdings include
companies like Microsoft, EMC, Intel and Cisco Systems.
We continued to emphasize broadcasting and advertising, with about 9% of the
Fund's net assets still committed there at the end of the fiscal year. Companies
such as Clear Channel and CBS continued to show good earnings growth. Moreover,
we believe advertising spending will continue to be healthy, despite an economic
slowdown, as companies fight for market position. Despite this forecast, many of
the stock prices in this industry fell by more than 25% during the market
correction, so we see excellent value here.
We also have maintained a position -- about 9% of net assets at the end of the
fiscal year -- in energy companies. We increased the emphasis somewhat when it
appeared that oil prices might rise again. Our major positions are in leading
international oil companies such as AMOCO, Mobil, Unocal and Exxon. These
companies have been relatively attractive on a total return basis, with their
healthy dividend yields adding to any potential price gains.
27
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
Portfolio Manager Interview
At the end of the period, the amount invested in cash and cash equivalents had
risen to 8% from 3% at the mid-point of the fiscal year in March. We would not
characterize this as a defensive move, because we are prepared to re-invest this
money as we find attractive opportunities.
Top 10 Holdings
---------------
(based on 9/30/98 net assets)
Warner-Lambert Co. 3.4%
........................................................................
General Electric Co. 3.4%
........................................................................
Schering-Plough Corp. 3.2%
........................................................................
American Home Products Corp. 3.2%
........................................................................
Pfizer, Inc. 2.8%
........................................................................
EMC Corp. 2.8%
........................................................................
Microsoft Corp. 2.5%
........................................................................
Pharmacia & Upjohn, Inc. 2.4%
........................................................................
International Business Machines Corp. 2.1%
........................................................................
Time Warner, Inc. 2.1%
........................................................................
What is your outlook?
We think we have been through the toughest period in the market. The economy is
slowing, but this slowdown already is reflected in stock prices. The choppiness
we have been seeing in the market probably will continue, but we believe we are
close to the bottom of the correction. We see good values in the market,
especially in areas like mid-cap stocks, which have been neglected by investors
for a very long period. As we look toward 1999, we see many opportunities for
positive performance, although we do not expect to see the market gains of 30%
or more that we saw during the past three years.
28
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended October 31,
---------------------------------------- --------------------------
1998 1997 1996 1995*(a) 1994 (a) 1993 (a)
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
CLASS A SHARES
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE
BEGINNING OF YEAR $ 23.48 $ 21.04 $ 17.37 $ 13.85 $ 14.44 $ 11.76
-------- -------- ------- ------- ----------- -----------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.21)# (0.15) (0.16) (0.13)# (0.12)#
Net realized and
unrealized gains or
losses on securities (1.12) 2.65 4.46 3.68 (0.22) 3.06
-------- -------- ------- ------- ----------- -----------
Total from investment
operations (1.37) 2.44 4.31 3.52 (0.35) 2.94
-------- -------- ------- ------- ----------- -----------
LESS DISTRIBUTIONS
From net realized gain
on securities (0.85) 0 (0.64) 0 (0.24) (0.26)
-------- -------- ------- ------- ----------- -----------
Total distributions (0.85) 0 (0.64) 0 (0.24) (0.26)
-------- -------- ------- ------- ----------- -----------
NET ASSET VALUE END OF
YEAR $ 21.26 $ 23.48 $ 21.04 $ 17.37 $ 13.85 $ 14.44
-------- -------- ------- ------- ----------- -----------
TOTAL RETURN+ (5.93%) 11.60% 25.62% 25.42% (2.42%) 25.31%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $137,776 $173,982 $96,608 $70,858 $64,635 $58,053
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.33% 1.26% 1.22% 1.47%++ 1.25% 1.31%
Total expenses,
excluding indirectly
paid expenses 1.32% 1.25% N/A N/A N/A N/A
Net investment income (1.14%) (1.05%) (0.86%) (1.12%)++ (0.92%) (0.92%)
PORTFOLIO TURNOVER RATE 22% 56% 33% 31% 59% 48%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997 1996 1995**
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 23.18 $ 20.89 $ 17.35 $15.82
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.41)# (0.37)# (0.16) (0.03)
Net realized and unrealized gains or
losses on securities (1.14) 2.66 4.34 1.56
------- ------- ------- ------
Total from investment operations (1.55) 2.29 4.18 1.53
------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------- ------- ------- ------
Total distributions (0.85) 0 (0.64) 0
------- ------- ------- ------
NET ASSET VALUE END OF YEAR $ 20.78 $ 23.18 $ 20.89 $17.35
------- ------- ------- ------
TOTAL RETURN+ (6.82%) 10.96% 24.88% 9.67%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $36,301 $41,167 $21,644 $2,858
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.08% 2.02% 1.98% 2.09%++
Total expenses, excluding indirectly
paid expenses 2.07% 2.01% N/A N/A
Net investment income (1.88%) (1.80%) (1.60%) (1.71%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the eleven-month period ended September 30, 1995. The fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1995.
** For the period from July 7, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
(a) Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of
Evergreen Trust, acquired substantially all of the net assets of ABT Emerg-
ing Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that
ended on October 31 was the accounting survivor in the combination. Accord-
ingly, the information above includes the result of operations of ABT
Emerging Growth Fund prior to June 30, 1995.
See Combined Notes to Financial Statements.
29
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
CLASS C SHARES
- ----------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $23.16 $20.88 $17.31 $16.42
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.41)# (0.36)# (0.15) (0.01)
Net realized and unrealized gains or
losses on securities (1.15) 2.64 4.36 0.90
------ ------ ------ ------
Total from investment operations (1.56) 2.28 4.21 0.89
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------ ------ ------ ------
Total distributions (0.85) 0 (0.64) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.75 $23.16 $20.88 $17.31
------ ------ ------ ------
TOTAL RETURN+ (6.87%) 10.92% 25.11% 5.42%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $2,570 $3,992 $ 991 $ 416
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.08% 2.02% 1.96% 2.09%++
Total expenses, excluding indirectly
paid expenses 2.07% 2.01% N/A N/A
Net investment income (1.88%) (1.80%) (1.57%) (1.51%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------
1998 1997 1996 1995**
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $ 23.57 $ 21.09 $ 17.38 $15.79
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.20)# (0.17)# (0.06) (0.01)
Net realized and unrealized gains or
losses on securities (1.06) 2.65 4.41 1.60
------- ------- ------- ------
Total from investment operations (1.26) 2.48 4.35 1.59
------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain on securities (0.85) 0 (0.64) 0
------- ------- ------- ------
Total distributions (0.85) 0 (0.64) 0
------- ------- ------- ------
NET ASSET VALUE END OF YEAR $ 21.46 $ 23.57 $ 21.09 $17.38
------- ------- ------- ------
TOTAL RETURN (5.43%) 11.76% 25.84% 10.07%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $28,314 $44,384 $25,918 $1,889
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.08% 1.01% 0.97% 1.08%++
Total expenses, excluding indirectly
paid expenses 1.07% 1.00% N/A N/A
Net investment income (0.89%) (0.78%) (0.60%) (0.71%)++
PORTFOLIO TURNOVER RATE 22% 56% 33% 31%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from August 3, 1995 (commencement of class operations) to
September 30, 1995.
** For the period from July 11, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
30
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.96 $17.64 $15.55 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06# 0.11# 0.12 0.01
Net realized and unrealized gains or
losses on securities (1.31) 5.71 2.61 3.57
------ ------ ------ ------
Total from investment operations (1.25) 5.82 2.73 3.58
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (0.10) (0.09) (0.06) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.60) (0.50) (0.64) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $21.11 $22.96 $17.64 $15.55
------ ------ ------ ------
TOTAL RETURN+ (5.59%) 33.72% 18.07% 29.91%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 183 $ 161 $ 87 $ 29
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.44% 1.40% 1.45% 1.70%++
Total expenses, excluding fee waivers and
expense reimbursements N/A N/A N/A 1.75%++
Net investment income 0.24% 0.58% 0.63% 0.13%++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.69 $17.49 $15.48 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.12)# (0.03)# (0.03) (0.02)
Net realized and unrealized gains or
losses on securities (1.25) 5.64 2.64 3.53
------ ------ ------ ------
Total from investment operations (1.37) 5.61 2.61 3.51
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income 0 0 (0.02) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.50) (0.41) (0.60) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.82 $22.69 $17.49 $15.48
------ ------ ------ ------
TOTAL RETURN+ (6.18%) 32.69% 17.29% 29.32%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 624 $ 503 $ 254 $ 74
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.19% 2.15% 2.18% 2.32%++
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A N/A 2.34%++
Net investment income (0.50%) (0.16%) (0.10%) (0.48%)++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
31
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $22.66 $17.47 $15.48 $11.97
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.11)# (0.04)# 0 (0.01)
Net realized and unrealized gains or
losses on securities (1.26) 5.64 2.61 3.52
------ ------ ------ ------
Total from investment operations (1.37) 5.60 2.61 3.51
------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income 0 0 (0.04) 0
From net realized gain on securities (0.50) (0.41) (0.58) 0
------ ------ ------ ------
Total distributions (0.50) (0.41) (0.62) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $20.79 $22.66 $17.47 $15.48
------ ------ ------ ------
TOTAL RETURN+ (6.19%) 32.67% 17.29% 29.32%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 13 $ 9 $ 6 $ 2
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.19% 2.16% 2.14% 2.12%++
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 2.38% 5.31%++
Net investment income (0.50%) (0.18%) (0.07%) (0.31%)++
PORTFOLIO TURNOVER RATE 7% 12% 15% 19%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS Y SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $23.07 $17.71 $15.59 $14.62 $14.46
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.12# 0.16# 0.24 0.10 0.07
Net realized and unrealized gains or
losses on securities (1.30) 5.73 2.55 3.10 0.79
------ ------ ------ ------ ------
Total from investment operations (1.18) 5.89 2.79 3.20 0.86
------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net investment income (0.14) (0.12) (0.09) (0.07) (0.09)
From net realized gain on securities (0.50) (0.41) (0.58) (2.16) (0.61)
------ ------ ------ ------ ------
Total distributions (0.64) (0.53) (0.67) (2.23) (0.70)
------ ------ ------ ------ ------
NET ASSET VALUE END OF YEAR $21.25 $23.07 $17.71 $15.59 $14.62
------ ------ ------ ------ ------
TOTAL RETURN (5.25%) 34.08% 18.43% 26.79% 6.16%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $1,028 $1,104 $ 841 $ 612 $ 526
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.18% 1.15% 1.15% 1.16% 1.13%
Interest expense N/A N/A N/A 0.06% 0.09%
Net investment income 0.49% 0.80% 0.93% 0.53% 0.40%
PORTFOLIO TURNOVER RATE 7% 12% 15% 19% 19%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
32
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $26.68 $17.31 $18.41 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.24)# (0.15)# (0.10) (0.10)
Net realized and unrealized gains or
losses on securities (5.17) 9.52 (0.44) 2.75
------ ------ ------ ------
Total from investment operations (5.41) 9.37 (0.54) 2.65
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.88 $26.68 $17.31 $18.41
------ ------ ------ ------
TOTAL RETURN+ (21.49%) 54.13% (2.90%) 16.81%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $4,741 $2,438 $ 903 $1,089
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.64% 1.79% 1.73% 1.51%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 1.63% 1.78% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 3.08% 4.33%++
Net investment income (0.95%) (0.73%) (0.52%) (1.03%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
NET ASSET VALUE BEGINNING OF YEAR $26.14 $17.07 $18.30 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.42)# (0.28)# (0.25) (0.20)
Net realized and unrealized gains or
losses on securities (5.02) 9.35 (0.42) 2.74
------ ------ ------ ------
Total from investment operations (5.44) 9.07 (0.67) 2.54
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.31 $26.14 $17.07 $18.30
------ ------ ------ ------
TOTAL RETURN+ (22.07%) 53.13% (3.64%) 16.12%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $4,236 $1,713 $1,461 $2,020
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.38% 2.59% 2.47% 2.26%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 2.37% 2.58% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 3.26% 3.66%++
Net investment income (1.70%) (1.44%) (1.28%) (1.77%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
33
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996 1995*
- --------------------------------------------------------------------------------
CLASS C SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $26.16 $17.09 $18.31 $15.76
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.43)# (0.25)# (0.35) (0.20)
Net realized and unrealized gains or
losses on securities (5.01) 9.32 (0.31) 2.75
------ ------ ------ ------
Total from investment operations (5.44) 9.07 (0.66) 2.55
------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (1.39) 0 (0.56) 0
------ ------ ------ ------
Total distributions (1.39) 0 (0.56) 0
------ ------ ------ ------
NET ASSET VALUE END OF YEAR $19.33 $26.16 $17.09 $18.31
------ ------ ------ ------
TOTAL RETURN+ (22.05%) 53.07% (3.58%) 16.18%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $3,093 $ 261 $ 27 $ 62
RATIOS TO AVERAGE NET ASSETS:
Total expenses 2.39% 2.56% 2.44% 2.25%++
Interest expense 0.03% 0.02% 0.02% N/A
Total expenses, excluding indirectly
paid expenses 2.38% 2.55% N/A N/A
Total expenses, excluding fee waivers
and expense reimbursements N/A N/A 32.28% 41.34%++
Net investment income (1.71%) (1.50%) (1.35%) (1.76%)++
PORTFOLIO TURNOVER RATE 47% 59% 160% 84%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------- Year Ended
1998 1997 1996 1995 1994** May 31, 1994
- -------------------------------------------------------------------------------------------
CLASS Y SHARES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 26.83 $ 17.35 $ 18.42 $ 21.74 $ 21.20 $ 20.87
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.18)# (0.09)# (0.08) (0.23) (0.05) (0.07)
Net realized and
unrealized gains or
losses on securities (5.21) 9.57 (0.43) 0.59 0.59 1.67
------- ------- ------- ------- ------- -------
Total from investment
operations (5.39) 9.48 (0.51) 0.36 0.54 1.60
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
From net realized gain
on securities (1.39) 0 (0.56) (3.68) 0 (1.27)
------- ------- ------- ------- ------- -------
Total distributions (1.39) 0 (0.56) (3.68) 0 (1.27)
------- ------- ------- ------- ------- -------
NET ASSET VALUE END OF
YEAR $ 20.05 $ 26.83 $ 17.35 $ 18.42 $ 21.74 $ 21.20
------- ------- ------- ------- ------- -------
TOTAL RETURN (21.28%) 54.64% (2.73%) 4.76% 2.55% 7.64%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $39,112 $50,732 $39,622 $64,721 $99,340 $96,357
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.40% 1.59% 1.55% 1.36% 1.37%++ 1.26%
Interest expense 0.03% 0.02% 0.02% N/A N/A N/A
Total expenses,
excluding indirectly
paid expenses 1.39% 1.58% N/A N/A N/A N/A
Total expenses,
excluding fee waivers
and expense
reimbursements N/A N/A 1.60% N/A N/A N/A
Net investment income (0.70%) (0.45%) (0.38%) (0.87%) (0.70%)++ (0.33%)
PORTFOLIO TURNOVER RATE 47% 59% 160% 84% 36% 89%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
** For the four-month period ended September 30, 1994. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1994.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
34
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
------------------- --------------------------------------
1998 1997* 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------
CLASS A SHARES
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 22.69 $ 19.52 $ 19.56 $ 15.54 $ 17.11 $ 15.84
-------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.09)# (0.03)# (0.06) 0 0.04 (0.07)
Net realized and
unrealized gains or
losses on securities 1.03 4.05 2.15 5.58 (1.00) 3.07
-------- -------- -------- -------- ------- -------
Total from investment
operations 0.94 4.02 2.09 5.58 (0.96) 3.00
-------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
-------- -------- -------- -------- ------- -------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
-------- -------- -------- -------- ------- -------
NET ASSET VALUE END OF
YEAR $ 21.50 $ 22.69 $ 19.52 $ 19.56 $ 15.54 $ 17.11
-------- -------- -------- -------- ------- -------
TOTAL RETURN+ 4.43% 21.45% 11.31% 36.94% (5.66%) 19.33%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $156,220 $162,847 $154,825 $135,079 $99,569 $90,404
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.32% 1.32%++ 1.33% 1.38% 1.41% 1.51%
Total expenses,
excluding indirectly
paid expenses 1.32% 1.31%++ 1.32% 1.37% N/A N/A
Net investment income (0.38%) (0.20%)++ (0.29%) 0.00% 0.27% (0.48%)
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
------------------- ------------------------------------
1998 1997* 1996 1995 1994 1993**
- -------------------------------------------------------------------------------------------
CLASS B SHARES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 21.71 $ 18.83 $ 19.10 $ 15.34 $ 17.06 $17.29
-------- -------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.15)# (0.17) (0.09) (0.06) (0.05)
Net realized and
unrealized gains or
losses on securities 0.99 3.88 2.03 5.41 (1.60) 1.55
-------- -------- ------- ------- ------- ------
Total from investment
operations 0.74 3.73 1.86 5.32 (1.66) 1.50
-------- -------- ------- ------- ------- ------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.06) (1.73)
-------- -------- ------- ------- ------- ------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.06) (1.73)
-------- -------- ------- ------- ------- ------
NET ASSET VALUE END OF
YEAR $ 20.32 $ 21.71 $ 18.83 $ 19.10 $ 15.34 $17.06
-------- -------- ------- ------- ------- ------
TOTAL RETURN+ 3.64% 20.68% 10.31% 35.70% (6.57%) 9.02%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $114,068 $110,349 $89,921 $71,636 $32,266 $7,423
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.10% 2.18%++ 2.20% 2.29% 2.30% 2.57%++
Total expenses,
excluding indirectly
paid expenses 2.10% 2.17%++ 2.18% 2.27% N/A N/A
Net investment income (1.16%) (1.06%)++ (1.15%) (0.94%) (0.58%) (1.73%)++
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
** For the period from August 2, 1993 (commencement of class operations) to
December 31, 1993.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
35
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended December 31,
----------------- -----------------------------------
1998 1997** 1996 1995 1994 1993*
- ---------------------------------------------------------------------------------------
CLASS C SHARES
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 21.74 $ 18.86 $ 19.13 $ 15.37 $17.09 $17.29
------- ------- ------- ------- ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.25)# (0.15)# (0.18) (0.13) (0.07) (0.06)
Net realized and
unrealized gains or
losses on securities 1.01 3.88 2.04 5.45 (1.04) 1.59
------- ------- ------- ------- ------ ------
Total from investment
operations 0.76 3.73 1.86 5.32 (1.11) 1.53
------- ------- ------- ------- ------ ------
LESS DISTRIBUTIONS
From net realized gain
on securities (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
------- ------- ------- ------- ------ ------
Total distributions (2.13) (0.85) (2.13) (1.56) (0.61) (1.73)
------- ------- ------- ------- ------ ------
NET ASSET VALUE END OF
YEAR $ 20.37 $ 21.74 $ 18.86 $ 19.13 $15.37 $17.09
------- ------- ------- ------- ------ ------
TOTAL RETURN+ 3.73% 20.65% 10.29% 35.62% (6.56%) 9.20%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(THOUSANDS) $13,752 $16,067 $17,628 $13,963 $9,900 $3,620
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 2.11% 2.18%++ 2.21% 2.30% 2.30% 2.48%++
Total expenses,
excluding indirectly
paid expenses 2.11% 2.17%++ N/A N/A N/A N/A
Net investment income (1.16%) (1.05%)++ (1.17%) (0.91%) (0.63%) (1.64%)++
PORTFOLIO TURNOVER RATE 159% 76% 173% 159% 137% 162%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30,
----------------
1998 1997***
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF YEAR $22.68 $19.98
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.02)# (0.01)#
Net realized and unrealized gains or losses on securities 1.01 3.56
------ ------
Total from investment operations 0.99 3.55
------ ------
LESS DISTRIBUTIONS
From net realized gain on securities (2.13) (0.85)
------ ------
Total distributions (2.13) (0.85)
------ ------
NET ASSET VALUE END OF YEAR $21.54 $22.68
------ ------
TOTAL RETURN 4.67% 18.60%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (THOUSANDS) $ 571 $ 5
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.11% 1.24%++
Total expenses, excluding indirectly paid expenses 1.11% 1.24%++
Net investment income (0.09%) (0.21%)++
PORTFOLIO TURNOVER RATE 159% 76%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from August 2, 1993 (commencement of class operations) to
December 31, 1993.
** For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
*** For the period from January 13, 1997 (commencement of class operations) to
September 30, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
36
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 7.75
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.04)#
Net realized and unrealized gains or losses on securities (1.99)
------
Total from investment operations (2.03)
------
NET ASSET VALUE END OF PERIOD $ 5.72
------
TOTAL RETURN+ (26.19%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 589
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.15%++
Total expenses, excluding indirectly paid expenses 1.15%++
Net investment income (0.50%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
<TABLE>
<CAPTION>
Year Ended
September 30, Year Ended May 31,
--------------- ---------------------------------
1998 1997** 1997 1996 1995 1994
- ---------------------------------------------------------------------------------
CLASS B SHARES
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 9.44 $ 8.44 $10.35 $ 8.62 $ 7.64 $ 7.95
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.07)# (0.04)# (0.11) (0.13) (0.07) (0.12)
Net realized and
unrealized gains or
losses on securities (2.90) 1.74 (0.78) 2.87 1.68 0.63
------ ------ ------ ------ ------ ------
Total from investment
operations (2.97) 1.70 (0.89) 2.74 1.61 0.51
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
From net realized gain
on securities (0.78) (0.70) (1.02) (1.01) (0.63) (0.82)
------ ------ ------ ------ ------ ------
Total distributions (0.78) (0.70) (1.02) (1.01) (0.63) (0.82)
------ ------ ------ ------ ------ ------
NET ASSET VALUE END OF
YEAR $ 5.69 $ 9.44 $ 8.44 $10.35 $ 8.62 $ 7.64
------ ------ ------ ------ ------ ------
TOTAL RETURN+ (33.91%) 21.43% (8.61%) 33.03% 23.58% 6.84%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(MILLIONS) $ 200 $1,546 $1,407 $2,006 $1,460 $1,006
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.36% 1.77%++ 1.75% 1.73% 1.78% 1.73%
Total expenses,
excluding indirectly
paid expenses 1.36% 1.77%++ 1.73% 1.72% N/A N/A
Net investment income (0.89%) (1.43%)++ (1.32%) (1.34%) (1.10%) (1.49%)
PORTFOLIO TURNOVER RATE 97% 28% 48% 94% 38% 60%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
** For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
37
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF YEAR $ 7.73
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.10)#
Net realized and unrealized gains or losses on securities (1.93)
------
Total from investment operations (2.03)
------
NET ASSET VALUE END OF YEAR $ 5.70
------
TOTAL RETURN+ (26.26%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR (MILLIONS) $ 4
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.90%++
Total expenses, excluding indirectly paid expenses 1.90%++
Net investment income (1.32%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS Y SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $ 7.73
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.02)#
Net realized and unrealized gains or losses on securities (1.97)
------
Total from investment operations (1.99)
------
NET ASSET VALUE END OF PERIOD $ 5.74
------
TOTAL RETURN (25.74%)
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 1
RATIOS TO AVERAGE NET ASSETS:
Total expenses 0.91%++
Total expenses, excluding indirectly paid expenses 0.91%++
Net investment income (0.33%)++
PORTFOLIO TURNOVER RATE 97%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
38
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
October 31,
------------------------
Period Ended June 30,
Period Ended ---------------------------- Retail Class Prior Class
September 30, 1998**** 1998 1997 1996***++ 1995** 1994*
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 22.43 $ 21.13 $ 17.28 $ 17.08 $15.00 $ 15.39
------- ------- ------- ------- ------ -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0)(a) (0.02) 0.07 0.12 0.18 0.11
Net realized and
unrealized gains or
losses on securities (4.09) 4.24 5.32 1.49 2.87 0.22
------- ------- ------- ------- ------ -------
Total from investment
operations (4.09) 4.22 5.39 1.61 3.05 0.33
------- ------- ------- ------- ------ -------
LESS DISTRIBUTIONS
From net investment
income 0 0 (0.07) (0.11) (0.17) (0.11)
From net realized gain
on securities 0 (2.92) (1.47) (1.30) (0.80) (0.61)
------- ------- ------- ------- ------ -------
Total distributions 0 (2.92) (1.54) (1.41) (0.97) (0.72)
------- ------- ------- ------- ------ -------
NET ASSET VALUE END OF
PERIOD $ 18.34 $ 22.43 $ 21.13 $ 17.28 $17.08 $ 15.00
------- ------- ------- ------- ------ -------
TOTAL RETURN+ (18.23%) 21.54% 32.74% 19.11% 21.94% 2.21%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $15,910 $20,509 $16,043 $11,178 $6,591 $50,128
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.18%++ 1.25% 1.23% 1.22%++ 1.34% 1.49%++
Total expenses,
excluding fee waivers
and expense
reimbursements 1.25%++ 1.32% 1.28% 1.26%++ 1.53% 1.51%++
Net investment income (0.06%)++ (0.10%) 0.38% 0.89%++ 1.23% 0.75%++
PORTFOLIO TURNOVER RATE 28% 61% 79% 114% 119% 35%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from March 15, 1994 (commencement of class operations) to
October 31, 1994
** On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment
income, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of
February 21, 1995. The results were combined with the results of operations
and distributions for each applicable class for the period February 21,
1995 through October 31, 1995. For the year ended October 31, 1995, the
Financial Highlights' ratio of expenses, net investment income, total
return, and the per share investment activities and distributions reflect
this allocation.
*** The per share amount for the Fund for the year ended June 30, 1996
represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
**** For the three-month period ended September 30,1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30,
1998.
++ On April 15, 1996, the Conestoga Equity Fund was acquired by CoreFunds,
Inc. At that time the Retail Class Shares of the Fund were exchanged for
Class A Shares.
(a) Less than one cent per share.
See Combined Notes to Financial Statements.
39
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended Year Ended
September 30, 1998*** June 30, 1998****
- ------------------------------------------------------------------------------
CLASS B SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE BEGINNING OF PERIOD $22.33 $22.76(b)
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.03) (0.09)
Net realized and unrealized gains or
losses on securities (4.07) 2.90
------ ------
Total from investment operations (4.10) 2.81
------ ------
LESS DISTRIBUTIONS
From net investment income 0 0
From net realized gain on securities 0 (3.24)(b)
------ ------
Total distributions 0 (3.24)
------ ------
NET ASSET VALUE END OF PERIOD $18.23 $22.33
------ ------
TOTAL RETURN+ (18.36%) 14.38%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $ 413 $ 349
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.94%++ 2.00%++
Total expenses, excluding fee waivers
and expense reimbursements 2.00%++ 2.07%++
Net investment income (0.76%)++ (0.85%)++
PORTFOLIO TURNOVER RATE 28% 61%
</TABLE>
<TABLE>
<CAPTION>
Institutional
Class
-----------------
Year Ended June 30,
Period Ended ---------------------------- Year Ended
September 30, 1998*** 1998 1997 1996**++ October 31, 1995*
- -----------------------------------------------------------------------------------------------
CLASS Y SHARES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF PERIOD $ 22.43 $ 21.11 $ 17.26 $ 17.07 $ 15.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.01 0.04 0.12 0.14 0.19
Net realized and
unrealized gains or
losses on securities (4.09) 4.24 5.32 1.49 2.87
-------- -------- -------- -------- --------
Total from investment
operations (4.08) 4.28 5.44 1.63 3.06
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
From net investment
income 0 (0.04) (0.12) (0.14) (0.19)
From net realized gain
on securities 0 (2.92) (1.47) (1.30) (0.80)
-------- -------- -------- -------- --------
Total distributions 0 (2.96) (1.59) (1.44) (0.99)
-------- -------- -------- -------- --------
NET ASSET VALUE END OF
PERIOD $ 18.35 $ 22.43 $ 21.11 $ 17.26 $ 17.07
-------- -------- -------- -------- --------
TOTAL RETURN (18.19%) 21.90% 33.10% 19.24% 22.00%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD
(THOUSANDS) $424,992 $563,987 $515,015 $414,824 $378,352
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 0.93%++ 1.00% 0.98% 0.97% 1.05%++
Total expenses,
excluding fee waivers
and expense
reimbursements 1.00%++ 1.07% 1.03% 1.01% 1.10%++
Net investment income 0.19%++ 0.15% 0.63% 1.15% 1.44%++
PORTFOLIO TURNOVER RATE 28% 61% 79% 114% 119%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* On February 21, 1995, the Shares of the Fund were redesignated as either
Retail or Institutional Shares. On that date, the Fund's net investment
income, expenses and distributions for the period November 1, 1994 through
February 20, 1995 were allocated to each class of Shares. The basis for the
allocation was the relative net assets of each class of Shares as of
February 21, 1995. The results were combined with the results of operations
and distributions for each applicable class for the period February 21,
1995 through October 31, 1995. For the year ended October 31, 1995, the
Financial Highlights' ratio of expenses, net investment income, total
return, and the per share investment activities and distributions reflect
this allocation.
** The per share amount for the Fund for the year ended June 30, 1996
represents the period from November 1, 1995 to June 30, 1996. All prior
years are for the periods November 1 to October 31.
*** For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
**** For the period from November 7, 1997 (commencement of class operations) to
June 30, 1998.
++ On April 15, 1996, the Conestoga Equity Fund was acquired by CoreFund, Inc.
At the time the institutional Class Shares of the Fund were exchanged for
Class Y Shares.
(a) Less than one cent per share.
(b) Amounts adjusted to reflect a reverse stock split which occurred on June
24, 1998.
See Combined Notes to Financial Statements.
40
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS A SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.12
-----
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01#
Net realized and unrealized gains or losses on securities 0.54
-----
Total from investment operations 0.55
-----
NET ASSET VALUE END OF PERIOD $9.67
-----
TOTAL RETURN+ 6.03%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (MILLIONS) $ 706
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.10%++
Total expenses, excluding indirectly paid expenses 1.10%++
Net investment income 0.08%++
PORTFOLIO TURNOVER RATE 141%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended October 31,
---------------------------- -----------------------------
1998 1997** 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------
CLASS B SHARES
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
BEGINNING OF YEAR $ 10.61 $ 8.68 $8.05 $7.54 $9.00 $7.60
------------ ------------ ----- ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income (0.03) 0.01# (0.04) (0.02) 0 (0.06)
Net realized and
unrealized gains or
losses on securities 0.39 2.96 1.04 1.13 0.23 1.89
------------ ------------ ----- ----- ----- -----
Total from investment
operations 0.36 2.97 1.00 1.11 0.23 1.83
------------ ------------ ----- ----- ----- -----
LESS DISTRIBUTIONS
From net realized gain
on securities (1.32) (1.04) (0.36) (0.60) (1.69) (0.40)
------------ ------------ ----- ----- ----- -----
From net investment
income (0.02) 0 (0.01) 0 0 (0.03)
NET ASSET VALUE END OF
YEAR $ 9.63 $ 10.61 $8.68 $8.05 $7.54 $9.00
------------ ------------ ----- ----- ----- -----
Total distributions (1.34) (1.04) (0.37) (0.60) (1.69) (0.43)
TOTAL RETURN+ 3.87% 37.74% 12.95% 15.05% 3.55% 24.97%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF YEAR
(MILLIONS) $ 130 $ 920 $ 497 $ 492 $ 417 $ 404
RATIOS TO AVERAGE NET
ASSETS:
Total expenses 1.36% 1.19%++ 1.91% 2.01% 1.73% 1.83%
Total expenses,
excluding indirectly
paid expenses 1.36% 1.18%++ 1.90% 2.00% N/A N/A
Net investment income (0.26%) 0.12%++ (0.48%) (0.25%) (0.17%) (0.57%)
PORTFOLIO TURNOVER RATE 141% 71% 156% 140% 68% 65%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
** For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
41
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
September 30, 1998*
- ------------------------------------------------------------------------------
CLASS C SHARES
- ------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE BEGINNING OF PERIOD $9.25
-----
INCOME FROM INVESTMENT OPERATIONS
Net investment income (0.07)#
Net realized and unrealized gains or losses on securities 0.45
-----
Total from investment operations 0.38
-----
NET ASSET VALUE END OF PERIOD $9.63
-----
TOTAL RETURN+ 4.11%
RATIOS/SUPPLEMENTAL DATA
NET ASSETS END OF PERIOD (THOUSANDS) $ 453
RATIOS TO AVERAGE NET ASSETS:
Total expenses 1.84%++
Total expenses, excluding indirectly paid expenses 1.84%++
Net investment income (0.80%)++
PORTFOLIO TURNOVER RATE 141%
</TABLE>
+ Excluding sales charges.
++ Annualized.
* For the period from January 20, 1998 (commencement of class operations) to
September 30, 1998.
# Net investment income is based on average shares outstanding during the
period.
See Combined Notes to Financial Statements.
42
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Aggressive Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 99.1%
BUILDING - 0.5%
80,000 Oakwood Homes Corporation............................ $ 1,050,000
------------
BUSINESS SERVICES - 10.2%
100,000 Analysts International Corporation................... 3,000,000
112,500 *Fiserv, Inc......................................... 5,182,031
150,000 Paychex, Inc......................................... 7,734,375
50,000 *Saville Systems Plc, ADR............................ 725,000
125,000 *Sterling Commerce, Inc. ............................ 4,328,125
------------
20,969,531
------------
COMMUNICATION SYSTEMS &
SERVICES - 10.3%
262,500 *Cisco Systems, Inc. ................................ 16,225,781
100,000 *MCI WorldCom, Inc. ................................. 4,887,500
------------
21,113,281
------------
EDUCATIONAL SERVICES - 0.7%
60,000 *Sylvan Learning Systems, Inc. ...................... 1,402,500
------------
FINANCIAL - 4.5%
150,000 SunAmerica, Inc. .................................... 9,150,000
------------
HEALTHCARE - 18.3%
130,000 HBO & Company........................................ 3,753,750
225,000 *Health Management Associates, Inc. ................. 4,106,250
60,000 *HEALTHSOUTH Corporation............................. 633,750
217,500 *MedQuist, Inc. ..................................... 6,878,437
130,000 Medtronic, Inc. ..................................... 7,523,750
150,000 *Renal Care Group, Inc. ............................. 3,843,750
160,000 *VISX, Inc........................................... 10,720,000
------------
37,459,687
------------
OIL/GAS - DRILLING - 8.1%
70,000 *Cliffs Drilling Company............................. 1,382,500
80,000 Diamond Offshore Drilling, Inc. ..................... 2,080,000
116,000 ENSCO International, Inc. ........................... 1,254,250
115,000 *Global Marine, Inc. ................................ 1,272,188
140,000 *Marine Drilling Companies, Inc. .................... 1,610,000
140,000 *Noble Drilling Corporation.......................... 2,065,000
180,000 *Patterson Energy, Inc. ............................. 1,192,500
100,000 *R & B Falcon Corporation............................ 1,200,000
130,000 Transocean Offshore, Inc. ........................... 4,509,375
------------
16,565,813
------------
OIL/GAS - EQUIPMENT &
SERVICES - 6.6%
256,000 *Global Industries Ltd. ............................. 2,960,000
63,000 Halliburton Company.................................. 1,799,438
240,000 *Petroleum Geo-Services ADR.......................... 3,810,000
48,000 Schlumberger Ltd. ................................... 2,415,000
120,000 *Weatherford International Inc....................... $ 2,595,000
------------
13,579,438
------------
RETAIL (SPECIALTY) - 15.7%
115,000 *Action Performance Companies, Inc. ................. 3,105,000
150,000 *Bed Bath & Beyond, Inc. ............................ 3,506,250
100,000 *Central Garden & Pet Company........................ 1,850,000
160,000 Family Dollar Stores, Inc. .......................... 2,520,000
60,000 Fastenal Company..................................... 1,500,000
230,000 Home Depot, Inc. .................................... 9,085,000
180,000 *Office Depot, Inc. ................................. 4,038,750
806 *Sound Advice, Inc.
Warrants Expires 6/14/99+ .......................... 0
225,000 *Staples, Inc. ...................................... 6,609,375
------------
32,214,375
------------
SOFTWARE/TECHNOLOGY - 24.2%
125,000 *American Power Conversion Corp. .................... 4,710,937
212,000 *BMC Software, Inc. ................................. 12,733,250
49,500 *Citrix Systems, Inc. ............................... 3,514,500
170,000 *EMC Corporation..................................... 9,721,875
130,000 *Microsoft Corporation............................... 14,308,125
129,375 *Network Associates, Inc. ........................... 4,592,813
------------
49,581,500
------------
Total Common Stocks
(cost $132,823,397)................................. 203,086,125
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
CONVERTIBLE NOTES - 0.0% (B)
HEALTHCARE - 0.0% (B)
$ 85 *Surgical Laser Technologies
8.00%, 7/30/99+..................................... 0
------------
SHORT-TERM INVESTMENTS - 0.7%
REPURCHASE AGREEMENT - 0.7%
$1,509,000 State Street Bank & Trust Company
Investments in a repurchase
agreement, in a joint trading
account purchased 9/30/98,
4.75% maturing 10/1/98,
maturity value $1,509,199
(cost $1,509,000) (a)............................... 1,509,000
------------
Total Short-Term Investments
(cost $1,509,000)................................... 1,509,000
------------
TOTAL INVESTMENTS -
(COST $134,332,397).......................... 99.8% 204,595,125
OTHER ASSETS AND
LIABILITIES - NET............................ 0.2 367,620
----- ------------
NET ASSETS -.................................. 100.0% $204,962,745
===== ============
* Non-Income Producing Securities.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Funds' Board of Trustees.
(a) The repurchase agreement is fully collateralized by U.S. Government and/or
agency obligations based on market prices plus accrued interest at
September 30, 1998.
(b) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts.
See Combined Notes to Financial Statements.
43
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 82.4%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.2%
92,900 *Lear Corp. ...................................... $ 4,064,375
--------------
BANKS - 15.6%
435,624 1st Source Corp. ................................. 13,967,194
90,450 Amcore Financial, Inc. ........................... 2,057,737
100,000 *American Bancshares, Inc. ....................... 900,000
174,975 AmSouth Bancorp................................... 5,971,022
1,500 Anchor Financial Corp. ........................... 53,250
160,660 Arrow Financial Corp. ............................ 4,618,975
233,100 Associated Banc Corp. ............................ 7,328,081
121,495 Banc One Corp. ................................... 5,178,724
45,000 Bank of Commerce.................................. 517,500
1,064,480 BankBoston Corp. ................................. 35,127,840
242,437 BSB Bancorp, Inc. ................................ 6,742,779
170,000 Cape Cod Bank & Trust Co. ........................ 2,932,500
50,000 Cardinal Financial Corp. ......................... 393,750
55,000 CCB Financial Corp. .............................. 5,541,250
36,750 *Century Bancshares, Inc. ........................ 312,375
140,018 Chittenden Corp. ................................. 4,200,540
67,500 *Columbia Banking Systems, Inc. .................. 1,282,500
125,500 Comerica, Inc. ................................... 6,878,969
65,000 Compass Bancshares, Inc. ......................... 2,145,000
109,318 Cornerstone Bank**................................ 2,261,516
70,000 Corus Bankshares, Inc. ........................... 2,380,000
70,000 Crestar Financial Corp. .......................... 3,972,500
14,800 Cullen/Frost Bankers, Inc. ....................... 714,100
62,500 First State Bancorp............................... 1,183,594
31,513 FNB Corp. ........................................ 882,364
60,393 Glacier Bancorp Inc. ............................. 1,423,017
210,000 Gold Banc Corp., Inc. ............................ 3,570,000
889,540 Hibernia Corp. Cl. A.............................. 12,842,734
319,042 Hubco, Inc. ...................................... 8,095,691
37,500 Independent Bankshares, Inc. ..................... 435,938
3,000 ING Groep N V, ADR................................ 131,625
51,000 Letchworth Independent
Bancshares Corp. ................................ 790,500
133,187 M & T Bank Corp. ................................. 61,399,207
22,000 Merchants Bancorp, Inc. .......................... 495,000
169,143 National City Corp. .............................. 11,152,867
613,510 NationsBank Corp. ................................ 32,822,785
150,000 North Fork Bancorp, Inc. ......................... 3,000,000
188,838 Old Kent Financial Corp. ......................... 5,594,326
33,593 One Valley Bancorp of West
Virginia, Inc. .................................. 1,085,474
36,300 Premier National Bancorp Inc. .................... 614,831
66,000 Sandwich Bancorp, Inc. ........................... 3,795,000
50,000 Seacoast Banking Corp. of Florida
Cl. A............................................ 1,487,500
136,512 State Financial Services Corp. Cl. A.............. 2,371,896
83,975 Summit Bancorp.................................... 3,149,062
410,000 *Surety Capital Corp.**........................... 1,101,875
65,650 Union Planters Corp. ............................. 3,298,912
112,145 *United Security Bancorp.......................... 1,766,284
78,570 Univest Corp. of Pennsylvania..................... 2,714,348
30,000 USBancorp, Inc. .................................. 570,000
34,000 Webster Financial Corp. .......................... 828,750
53,137 West Coast Bancorp, Inc. (Ore.)................... 890,045
110,000 Westamerica Bancorp. ............................. 3,183,125
45,560 Western Bancorp. ................................. 1,543,345
--------------
287,698,197
--------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 6.1%
14,000 Carlisle Companies, Inc. ......................... 545,125
30,000 *Castle & Cooke, Inc. ............................ 450,000
136,250 Cavalier Homes, Inc. ............................. 1,268,828
288,100 *Champion Enterprises, Inc. ...................... 6,698,325
421,625 Clayton Homes, Inc. .............................. 7,378,437
220,900 *Crossmann Communities, Inc. ..................... 4,445,613
661,710 D.R. Horton, Inc. ................................ 10,587,360
170,000 Eagle Hardware & Garden, Inc. .................... 3,686,875
80,000 *Furniture Brands International, Inc. ............ 1,560,000
260,600 *Genlyte Group, Inc. ............................. 5,342,300
30,000 Hon Industries, Inc. ............................. 708,750
70,800 Juno Lighting, Inc. .............................. 1,584,150
120,600 *Knoll, Inc. ..................................... 2,638,125
370,200 La-Z-Boy Chair Co. ............................... 7,265,175
336,740 Lennar Corp. ..................................... 7,513,511
262,000 Lowe's Companies, Inc. ........................... 8,334,875
159,700 *M/I Schottenstein Homes, Inc. ................... 2,954,450
160,000 Miller (Herman), Inc. ............................ 3,160,000
110,250 *Monaco Coach Corp. .............................. 2,783,813
159,300 Oakwood Homes Corp. .............................. 2,090,813
28,250 *Palm Harbor Homes, Inc. ......................... 702,719
34,000 Pillowtex Corp. .................................. 998,750
88,000 *Royal Group Technologies Ltd. ................... 1,474,000
54,472 Southdown, Inc. .................................. 2,451,240
119,000 *Southern Energy Homes, Inc. ..................... 833,000
40,000 Standard Pacific Corp. ........................... 565,000
81,200 *Stanley Furniture Co., Inc. ..................... 1,410,850
90,000 *Sundance Homes, Inc. ............................ 140,625
129,400 TJ International, Inc. ........................... 2,426,250
612,200 *Toll Brothers, Inc. ............................. 14,042,337
201,500 *US Home Corp. ................................... 5,919,062
--------------
111,960,358
--------------
BUSINESS EQUIPMENT &
SERVICES - 0.9%
50,000 Artesyn Technologies Inc. ........................ 862,500
297,130 First Data Corp. ................................. 6,982,555
160,000 *In Focus Systems, Inc. .......................... 960,000
266,697 *Paxar Corp. ..................................... 2,366,936
164,700 *Zebra Technologies Corp. Cl. A................... 5,517,450
--------------
16,689,441
--------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.5%
62,221 Delta & Pine Land Co. ............................ 2,737,724
150,000 H.B. Fuller Co. .................................. 5,681,250
39,800 Nalco Chemical Co. ............................... 1,174,100
16,500 OM Group, Inc. ................................... 465,094
44
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
CHEMICAL & AGRICULTURAL
PRODUCTS - CONTINUED
359,568 Schulman (A.), Inc. .............................. $ 5,078,898
361,200 Sigma-Aldrich Corp. .............................. 10,429,650
92,700 Tredegar Industries, Inc. ........................ 1,697,568
--------------
27,264,284
--------------
COMMUNICATION SYSTEMS &
SERVICES - 2.4%
45,000 *American Tower Systems Corp. .................... 1,147,500
299,250 *Andrew Corp. .................................... 3,965,062
247,500 *Cisco Systems, Inc. ............................. 15,298,594
232,000 *Coherent Communications Systems
Corp., Inc. ..................................... 2,167,750
50,000 *DSP Group, Inc. ................................. 737,500
74,800 Echostar Communications Corp. .................... 1,795,200
120,000 *Inter-Tel, Inc. ................................. 1,552,500
50,000 *Loral Space & Communications..................... 737,500
235,000 Orbital Sciences Corp. ........................... 6,594,687
185,000 *Powertel, Inc. .................................. 2,509,063
126,000 *Tellabs, Inc. ................................... 5,016,375
155,000 *Vertex Communications Corp. ..................... 2,848,125
--------------
44,369,856
--------------
CONSUMER PRODUCTS &
SERVICES - 3.3%
140,000 Aaron Rents, Inc. Cl. B........................... 2,100,000
792,298 Cendant Corp. .................................... 9,210,464
145,800 Commonwealth Industries, Inc. .................... 1,184,625
151,300 Crown Crafts, Inc. ............................... 1,200,944
481,700 *Gaylord Container Corp. Cl. A.................... 1,565,525
63,300 Gucci Group....................................... 2,286,713
374,150 Harman International
Industries, Inc. ................................ 13,726,628
132,300 Heilig-Meyers Co. ................................ 950,906
201,030 K2, Inc. ......................................... 3,555,718
326,815 Lancaster Colony Corp. ........................... 10,049,561
140,000 *LoJack Corp. .................................... 1,505,000
180,000 *Nautica Enterprises, Inc. ....................... 3,363,750
70,000 Noble Affiliates, Inc. ........................... 2,231,250
181,600 *North Face, Inc. ................................ 2,360,800
40,000 *Recovery Engineering, Inc. ...................... 335,000
45,000 St. John Knits, Inc. ............................. 725,625
53,800 Toro Co. ......................................... 1,112,988
109,000 Valspar Corp. .................................... 3,263,187
--------------
60,728,684
--------------
ELECTRICAL EQUIPMENT &
SERVICES - 1.9%
76,500 Applied Power, Inc. Cl. A......................... 2,089,406
80,400 *Atmel Corp. ..................................... 728,625
388,933 Baldor Electric Co. .............................. 8,507,909
62,500 *Brooks Automation, Inc. ......................... 621,094
96,400 *Dupont Photomasks, Inc. ......................... 2,072,600
50,000 *Electro Scientific Industries, Inc............... 793,750
27,000 *Franklin Electric Co., Inc. ..................... 1,707,750
130,100 *Hadco Corp. ..................................... 3,154,925
159,600 Harmon Industries, Inc. .......................... 3,511,200
103,000 Jabil Circuit, Inc. .............................. 3,579,250
75,000 *KLA-Tencor Corp. ................................ 1,865,625
46,500 *Sanmina Corp. ................................... 1,307,813
226,400 *SMART Modular Technologies, Inc.................. 4,655,350
50,000 *Vicon Industries, Inc. .......................... 356,250
--------------
34,951,547
--------------
FINANCE & INSURANCE - 10.9%
48,528 Aegon NV.......................................... 3,779,118
71,228 Allmerica Financial Corp. ........................ 4,246,969
368,800 AMBAC Financial Group, Inc. ...................... 17,702,400
49,000 Concord Pacific Group Inc. ....................... 28,910
121,900 Countrywide Credit Industries, Inc. .............. 5,074,087
111,600 Dain Rauscher Corp. .............................. 3,515,400
380,000 Edwards (A.G.), Inc. ............................. 11,518,750
68,200 Enhance Financial Services
Group, Inc. ..................................... 2,016,163
70,000 Executive Risk, Inc. ............................. 3,154,375
23,700 *Farm Family Holdings, Inc. ...................... 722,850
507,600 Federal Home Loan Mortgage Corp. ................. 25,094,475
618,000 Federal National Mortgage
Association...................................... 39,706,500
37,700 Fidelity National Financial, Inc. ................ 1,274,731
342,000 First American Financial Corp. ................... 10,944,000
85,000 *FPIC Insurance Group, Inc. ..................... 2,358,750
50,000 *Itla Capital Corp. .............................. 687,500
113,100 John Nuveen Co. Cl. A............................. 4,029,188
16,000 Landamerica Financial Group, Inc. ................ 820,000
148,266 Legg Mason, Inc. ................................. 3,901,249
93,000 *Life USA Holdings, Inc. ......................... 1,220,625
91,515 MBIA, Inc. ....................................... 4,913,212
30,000 *Mego Mortgage Corp. ............................. 15,000
75,385 Metris Companies Inc. ............................ 3,514,826
507,600 MGIC Investment Corp. ............................ 18,717,750
38,200 Mutual Risk Mgmt Ltd. ............................ 1,351,325
15,000 Ohio Casualty Corp. .............................. 581,250
318,400 Paine Webber Group, Inc. ......................... 9,552,000
100,000 Penn-America Group, Inc. ......................... 925,000
40,000 Price (T.) Rowe & Associates, Inc. ............... 1,175,000
54,692 Providian Financial Corp. ........................ 4,638,565
33,200 Reinsurance Group Of America...................... 1,718,100
86,000 ReliaStar Financial Corp. ........................ 3,354,000
75,107 Resource Bancshares Mortgage
Group, Inc. ..................................... 1,333,149
65,000 State Auto Financial Corp. ....................... 901,875
57,500 SunAmerica, Inc. ................................. 3,507,500
89,250 Trenwick Group, Inc. ............................. 2,599,406
39,300 Waddell & Reed Financial, Inc. ................... 746,700
--------------
201,340,698
--------------
FOOD & BEVERAGE PRODUCTS - 0.1%
16,500 Coca Cola Bottling Co. ........................... 990,000
40,000 Wendy's International, Inc. ...................... 887,500
--------------
1,877,500
--------------
45
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS &
SERVICES - 11.7%
24,000 *Abiomed, Inc. ................................... $ 255,000
220,000 *ADAC Laboratories................................ 5,280,000
60,000 Arrow International, Inc. ........................ 1,672,500
114,500 Beckman Coulter, Inc. ............................ 5,911,062
90,000 Beverly Enterprises, Inc. ........................ 720,000
190,000 Biomet, Inc. ..................................... 6,590,625
128,298 *Boston Scientific Corp. ......................... 6,591,310
146,200 *Chad Therapeutics, Inc. ......................... 402,050
205,300 Columbia/HCA Healthcare Corp. .................... 4,118,831
8,025 *Coram Healthcare Corp. Warrants-
$22.125 Expiring 7/11/99+........................ 0
100,000 Depuy, Inc. ...................................... 3,500,000
185,000 Dura Pharmaceuticals, Inc. ....................... 2,023,438
10,000 *Elan Corp Plc, ADR............................... 720,625
112,800 *Exactech, Inc. .................................. 747,300
40,000 *Express Scripts, Inc. Cl. A...................... 3,290,000
100,000 First Health Group Corp. ......................... 2,425,000
10,000 *Forest Labs, Inc. ............................... 343,750
47,666 *Foundation Health Systems, Inc. ................. 446,869
440,000 HBO & Co. ........................................ 12,705,000
105,862 *Health Management Associates,
Inc. Cl. A....................................... 1,931,982
23,600 *HEALTHSOUTH Corp. ............................... 249,275
235,000 *Hologic, Inc. ................................... 3,055,000
265,000 *Idexx Laboratories, Inc. ........................ 6,326,875
30,000 Invacare Corp. ................................... 705,000
390,000 Johnson & Johnson................................. 30,517,500
26,800 *Lincare Holdings, Inc. .......................... 1,038,500
53,100 *Maxxim Medical, Inc. ............................ 1,364,006
235,800 McKesson Corp. ................................... 21,605,175
500,000 Merck & Co., Inc. ................................ 64,781,250
35,000 Meridian Diagnostics, Inc. ....................... 266,875
1,446 Pacificare Health Systems, Inc. Cl. A ............ 101,943
4,545 *Pacificare Health Systems, Inc. Cl. B ........... 338,603
209,163 Pharmeric, Inc. .................................. 1,137,324
100,000 Somanetics Corp. ................................. 181,250
97,500 *St. Jude Medical, Inc. .......................... 2,254,687
468,000 Stryker Corp. .................................... 15,912,000
90,000 *Sun Healthcare Group, Inc. ...................... 585,000
72,950 *Tenet Healthcare Corp. .......................... 2,097,312
58,800 U.S. Physical Therapy, Inc. ...................... 543,900
40,900 *VISX, Inc. ...................................... 2,740,300
45,600 West Co., Inc. ................................... 1,311,000
--------------
216,788,117
--------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 4.8%
242,000 AptarGroup, Inc. ................................. 5,505,500
36,300 BHA Group Holdings, Inc. Cl. A.................... 426,525
40,500 *Chemfab Corp. ................................... 793,547
290,000 *Dionex Corp. .................................... 6,742,500
187,000 Donaldson, Inc. .................................. 2,992,000
122,000 Dover Corp. ...................................... 3,766,750
191,400 Furon Co. ........................................ 3,325,575
128,000 *Input/Output, Inc. .............................. 1,016,000
324,200 Kaydon Corp. ..................................... 8,530,512
361,600 Leggett & Platt, Inc. ............................ 7,503,200
18,400 Nacco Industries, Inc. Cl. A...................... 1,840,000
60,000 *Osmonics, Inc. .................................. 622,500
247,900 Pall Corp. ....................................... 5,500,281
185,200 Park Electrochemical Corp. ....................... 2,523,350
133,200 Robbins & Myers, Inc. ............................ 2,822,175
6,400 *Simula, Inc. .................................... 52,800
241,500 Snap-on, Inc. .................................... 7,441,219
185,000 Spartech Corp. ................................... 3,179,688
20,000 *Special Devices, Inc. ........................... 652,500
147,200 Tecumseh Products Co. Cl. A....................... 7,222,000
57,800 Tecumseh Products Co. Cl. B....................... 2,976,700
256,000 Teleflex, Inc. ................................... 8,960,000
19,250 United Rental, Inc. .............................. 460,797
50,000 Wescast Industries, Inc. ......................... 1,171,875
104,000 Woodward Governor Co. ............................ 2,392,000
--------------
88,419,994
--------------
INFORMATION SERVICES &
TECHNOLOGY - 8.3%
100,000 *Advanced Communications
Systems, Inc. ................................... 943,750
119,850 *Analytical Surveys, Inc. ........................ 2,786,513
120,000 Autodesk, Inc. ................................... 3,150,000
40,000 Compaq Computer Corp. ............................ 1,265,000
75,000 Computer Associates
International, Inc. ............................. 2,775,000
52,000 Comverse Technology, Inc. ........................ 2,125,500
120,000 *Dialogic Corp. .................................. 3,345,000
183,900 Fair Issac & Co., Inc. ........................... 6,137,662
335,000 *Gateway 2000, Inc. .............................. 17,461,875
397,468 Hewlett-Packard Co. .............................. 21,040,962
150,000 InfoUSA, Inc. Cl. A............................... 871,875
150,000 InfoUSA, Inc. Cl. B............................... 1,068,750
598,000 Intel Corp. ...................................... 51,278,500
100,000 *Macromedia, Inc. ................................ 1,625,000
229,000 Micros Systems, Inc. ............................. 6,870,000
160,995 Molex, Inc. ...................................... 4,668,855
33,750 *National Instruments Corp. ...................... 841,641
430,000 *Parametric Technology Corp. ..................... 4,326,875
406,000 *Sun Microsystems, Inc. .......................... 20,223,875
--------------
152,806,633
--------------
LEISURE & TOURISM - 0.0% (A)
75,000 American Skiing Co. .............................. 525,000
--------------
OIL/ENERGY - 0.5%
35,000 *Barrett Resources Corp. ......................... 706,563
40,000 *COHO Energy, Inc. ............................... 193,750
60,000 *Global Marine, Inc. ............................. 663,750
30,000 KN Energy, Inc. .................................. 1,537,500
50,000 *Noble Drilling Corp. ............................ 737,500
20,000 Penn Virginia Corp. .............................. 438,750
242,600 Precision Drilling Corp. ......................... 3,047,662
118,590 Tosco Corp. ...................................... 2,549,685
--------------
9,875,160
--------------
46
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
OIL FIELD SERVICES - 0.5%
35,000 ENSCO International, Inc. ........................ $ 378,438
140,000 *Global Industries Ltd. .......................... 1,618,750
170,000 *Hvide Marine, Inc. Cl. A......................... 1,221,875
61,500 Lufkin Industries, Inc. .......................... 1,599,000
34,000 *Oceaneering International, Inc. ................. 484,500
100,000 *Offshore Logistics, Inc. ........................ 1,262,500
118,000 *R & B Falcon Corp. .............................. 1,416,000
30,000 Stolt Comex Seaway SA ADR......................... 258,750
60,000 *Stolt Comex Seaway, SA........................... 577,500
--------------
8,817,313
--------------
PAPER & PACKAGING - 0.4%
31,815 Kimberly-Clark Corp. ............................. 1,288,508
107,000 St. Joe Corp. .................................... 2,554,625
186,662 Wausau Mosinee Paper Corp. ....................... 2,683,266
--------------
6,526,399
--------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 6.5%
29,500 Banta Corp. ...................................... 803,875
504,000 Belo (A.H.) Corp. Ser. A ......................... 10,080,000
150,000 Cadmus Communications Corp. ...................... 2,925,000
45,000 *Chancellor Media Corp. .......................... 1,501,875
1,714,000 *Clear Channel Communications, Inc................ 81,415,000
10,000 Gaylord Entertainment Co. ........................ 298,125
205,800 *Jacor Communications, Inc. ...................... 10,418,625
137,500 *Obie Media Corp. ................................ 1,615,625
190,000 Wiley (John) & Sons, Inc. Cl. A................... 11,673,125
--------------
120,731,250
--------------
REAL ESTATE - 1.7%
141,460 *Alexander's, Inc. REIT........................... 10,857,055
46,200 Apartment Investment & Management Co..............
Cl. A REIT....................................... 1,744,050
172,500 *Candlewood Hotel Co., Inc. ...................... 1,056,562
54,000 Chelsea GCA Realty, Inc. REIT..................... 1,849,500
78,000 Del Webb Corp. ................................... 1,642,875
75,000 Entertainment Properties Trust REIT............... 1,387,500
19,062 Equity Residential Properties
Trust REIT....................................... 804,178
20,000 Forest City Enterprises, Inc. .................... 420,000
47,400 *FRP Properties, Inc. ............................ 1,048,725
73,900 *Grubb & Ellis Co. ............................... 646,625
2,090 Horizon Group Properties, Inc. REIT............... 4,964
120,000 *Host Marriott Corp. ............................. 1,522,500
20,000 Irvine Apartment Communities, Inc.
REIT............................................. 537,500
32,600 *John Q. Hammons Hotels, Inc. Cl. A............... 146,700
70,000 LNR Property Corp. ............................... 1,351,875
81,200 Newhall Land & Farming Co. ....................... 1,898,050
51,783 Oxford Properties Group Inc. ..................... 526,164
441,661 *Prime Hospitality Corp. ......................... 3,091,627
29,850 Prime Retail, Inc. ............................... 292,903
115,000 *Servico, Inc. ................................... 862,500
--------------
31,691,853
--------------
RETAILING & WHOLESALE - 2.2%
145,000 Avnet, Inc. ...................................... $ 5,337,812
199,000 *Cole National Corp. Cl. A........................ 4,141,687
120,000 *Costco Companies, Inc. .......................... 5,685,000
32,730 CVS Corp. ........................................ 1,433,983
98,200 Dillards, Inc. ................................... 2,780,288
10,000 Ethan Allen Interiors, Inc. ...................... 362,500
236,800 Fingerhut Companies, Inc. ........................ 2,604,800
100,000 Finish Line, Inc. Cl. A........................... 931,250
50,000 *Footstar, Inc. .................................. 1,134,375
80,000 *Home Products International, Inc. ............... 680,000
151,600 *Jones Apparel Group, Inc. ....................... 3,477,325
29,500 *Payless Shoesource, Inc. ........................ 1,220,563
167,078 *Saks, Inc. ...................................... 3,748,813
402,000 Seaway Food Town, Inc.**.......................... 5,577,750
50,000 *Tommy Hilfiger Corp. ............................ 2,050,000
--------------
41,166,146
--------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 0.3%
40,000 ADC Telecommunications, Inc. ..................... 845,000
158,000 *Aspect Telecommunications Corp. ................. 3,792,000
55,000 Scientific Atlanta, Inc. ......................... 1,161,875
--------------
5,798,875
--------------
THRIFT INSTITUTIONS - 0.7%
185,100 First Palm Beach Bancorp, Inc. ................... 6,478,500
73,500 *Hawthorne Financial Corp. ....................... 1,111,687
148,500 Maryland Federal Bancorp, Inc. ................... 5,346,000
--------------
12,936,187
--------------
TRANSPORTATION - 1.9%
125,000 ASA Holdings, Inc. ............................... 4,437,500
97,900 Comair Holdings, Inc. ............................ 2,814,625
78,000 Delta Air Lines, Inc. ............................ 7,585,500
41,400 GATX Corp. ....................................... 1,368,788
217,465 *Heartland Express, Inc. ......................... 3,588,172
645,250 Southwest Airlines Co. ........................... 12,905,000
120,000 U.S. Freightways Corp. ........................... 2,385,000
--------------
35,084,585
--------------
Total Common Stocks
(cost $851,112,658).............................. 1,522,112,452
--------------
CONVERTIBLE PREFERRED - 0.0% (A)
REAL ESTATE - 0.0% (A)
10,000 Prime Retail, Inc. ............................... 170,000
--------------
Total Convertible Preferred
(cost $381,196).................................. 170,000
--------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 20.0%
COMMERCIAL PAPER - 14.6%
$27,000,000 Aluminum Co. America
5.51%, 10/30/98.................................. 26,880,157
12,650,000 Aristar, Inc.
5.35%, 11/10/98.................................. 12,574,803
47
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Evergreen Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - CONTINUED
COMMERCIAL PAPER - CONTINUED
$20,600,000 Avon Capital Corp. 5.48%, 11/9/98.................. $ 20,477,705
16,350,000 BHF Finance
5.52%, 10/1/98.................................... 16,350,000
22,000,000 BMW U.S. Capital Corp.
5.50%, 10/13/98................................... 21,959,667
7,300,000 BTR Dunlop Finance, Inc.
5.50%, 11/19/98................................... 7,245,351
Duke Capital Corp.:
9,850,000 5.53%, 10/6/98..................................... 9,842,435
7,075,000 5.53%, 10/8/98..................................... 7,067,392
8,750,000 Great Lakes Chemical Corp. 5.50%,
10/1/98........................................... 8,750,000
6,725,000 International Business Machines
5.50%, 10/22/98................................... 6,703,424
2,640,000 Oil Insurance Limited
5.52%, 10/20/98................................... 2,632,309
16,000,000 Old Line Funding Corp.
5.52%, 11/4/98.................................... 15,916,587
Park Avenue Recreation Corp.:
17,200,000 5.37%, 11/16/98.................................... 17,081,979
3,700,000 5.52%, 10/28/98.................................... 3,684,682
46,700,000 Republic Industries Funding Corp.
5.54%, 10/29/98................................... 46,498,775
7,500,000 Sharp Electronics Corp.
5.65%, 11/10/98................................... 7,452,917
Sothebys Inc.:
4,900,000 5.52%, 11/5/98..................................... 4,873,703
5,680,000 5.53%, 11/6/98..................................... 5,648,590
2,900,000 Southern Co.
5.50%, 10/15/98................................... 2,893,797
4,500,000 Star Marketers Acceptance Corp.
5.55%, 10/27/98................................... 4,481,962
11,600,000 Triple A One Funding Corp. 5.53%,
10/27/98.......................................... 11,553,671
8,450,000 TRW, Inc.
5.53%, 10/14/98................................... 8,433,126
--------------
269,003,032
--------------
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 5.4%
50,000,000 Federal Home Loan Bank Consolidated
Discount Notes 5.10%, 11/4/98..................... 49,759,167
50,000,000 Federal Home Loan Mortgage Discount
Notes 5.45%, 10/14/98............................. 49,901,597
--------------
99,660,764
--------------
Total Short-Term Investments
(cost $368,663,796)............................... 368,663,796
--------------
TOTAL INVESTMENTS -
(COST $1,220,157,650).................... 102.4% 1,890,946,248
OTHER ASSETS AND LIABILITIES - NET........ (2.4) (43,616,230)
----- --------------
NET ASSETS -.............................. 100.0% $1,847,330,018
===== ==============
* Non-Income Producing Securities.
** Investment in non-controlled affiliate holding over 5% of outstanding voting
shares. At September 30, 1998, the Fund held investments in the following
securities:
DIVIDENDS
SECURITY NAME SHARES COST VALUE EARNED
-----------------------------------------------------------------------------
Cornerstone Bank 109,318 $1,089,310 $2,261,516 $34,385
Seaway Food Town, Inc. 402,000 1,563,474 5,577,750 64,320
Surety Capital Corp. 410,000 1,559,388 1,101,875 --
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Funds' Board of Trustees.
(a) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipt
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
48
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 94.4%
BANKS - 11.9%
38,720 BT Financial Corp. ................................... $ 1,045,440
20,000 CNB Financial Corp. .................................. 400,000
2,500 First Keystone Financial, Inc ........................ 34,063
40,000 First Oak Brook Bancshares, Inc. Cl. A................ 790,000
2,964 First West Virginia Bancorp, Inc. .................... 75,397
40,495 Independent Bank Corp. ............................... 895,952
14,500 Northern States Financial Corp. ...................... 397,844
7,500 Peoples Bancorp, Inc. ................................ 194,062
20,000 Second Bancorp, Inc. ................................. 520,000
47,587 Washington Trust Bancorp, Inc. ....................... 1,014,198
41,875 West Coast Bancorp, Inc. (Ore.)....................... 701,406
-----------
6,068,362
-----------
BUILDING, CONSTRUCTION &
FURNISHINGS - 11.2%
15,000 American Woodmark Corp. .............................. 380,625
28,250 Cavalier Homes, Inc. ................................. 263,078
25,000 *Crossmann Communities, Inc. ......................... 503,125
25,000 Decorator Industries, Inc. ........................... 187,500
55,000 *Genlyte Group, Inc. ................................. 1,127,500
45,000 *Koala Corp. ......................................... 596,250
15,500 *M/I Schottenstein Homes, Inc. ....................... 286,750
52,000 *Mity Lite, Inc. ..................................... 825,500
50,000 *Modtech, Inc. ....................................... 875,000
40,000 *Stanley Furniture Co., Inc. ......................... 695,000
-----------
5,740,328
-----------
BUSINESS EQUIPMENT &
SERVICES - 3.4%
50,000 *Equitrac Corp. ...................................... 925,000
20,000 *Execustay Corp. ..................................... 180,000
89,750 General Employment Enterprises, Inc. ................. 628,250
-----------
1,733,250
-----------
CHEMICAL & AGRICULTURAL
PRODUCTS - 3.2%
66,000 Balchem Corp. ........................................ 585,750
52,100 Chase Corp. .......................................... 514,487
46,318 Hawkins Chemical, Inc. ............................... 463,180
56,000 *Top Air Manufacturing, Inc. ......................... 98,000
-----------
1,661,417
-----------
CONSUMER PRODUCTS &
SERVICES - 7.1%
35,000 Cooker Restaurant Corp. .............................. 341,250
31,000 *Escalade Inc. ....................................... 620,000
104,000 First Years, Inc. .................................... 1,482,000
72,400 *Fountain Power Boat Industries, Inc. ................ 452,500
72,500 *Play By Play Toys & Novelties, Inc. ................. 761,250
-----------
3,657,000
-----------
ELECTRICAL EQUIPMENT &
SERVICES - 5.0%
30,000 *Ault, Inc. .......................................... 146,250
63,270 *Del Global Technologies Corp. ....................... 466,616
19,200 *Graham Corp. ........................................ 216,000
8,400 L.S. Starrett, Co. Cl. A.............................. 289,800
62,800 *OSI Systems, Inc. ................................... 478,850
8,500 *Powell Industries, Inc. ............................. 65,875
15,500 Todd-AO Corp. Cl. A................................... 114,313
110,000 *Vicon Industries, Inc. .............................. 783,750
-----------
2,561,454
-----------
FINANCE & INSURANCE - 3.1%
63,500 *ACE Cash Express, Inc. .............................. 762,000
16,600 *CorVel Corp. ........................................ 643,250
11,804 Grand Premier Financial, Inc. ........................ 177,060
-----------
1,582,310
-----------
FOOD & BEVERAGE PRODUCTS - 1.1%
28,333 Worthington Foods, Inc. .............................. 548,952
-----------
HEALTHCARE PRODUCTS & SERVICES - 8.5%
245,000 *Air Methods Corp. ................................... 918,750
58,000 *Alcide Corp. ........................................ 1,004,125
120,500 *Biosource International, Inc. ....................... 376,563
44,888 Del Laboratories, Inc. ............................... 875,316
10,000 *Empi, Inc. .......................................... 160,000
45,000 Kewaunee Scientific Corp. ............................ 525,937
67,800 *Neogen Corp. ........................................ 491,550
-----------
4,352,241
-----------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 12.8%
50,000 *AG Services of America, Inc. ........................ 712,500
44,600 Badger Meter, Inc. ................................... 1,304,550
11,500 *Benthos, Inc. ....................................... 53,906
20,000 *Chemfab Corp. ....................................... 391,875
14,850 *Ducommun, Inc. ...................................... 297,000
40,000 *General Bearing Corp. ............................... 250,000
23,000 General Magnaplate Corp. ............................. 96,313
35,000 Gorman Rupp Co. ...................................... 551,250
40,000 *Meade Instruments Corp. ............................. 387,500
53,250 Met-Pro Corp. ........................................ 599,062
22,500 Modern Controls, Inc. ................................ 118,125
71,000 RPC, Inc. ............................................ 630,125
17,500 *Special Devices, Inc. ............................... 570,938
46,350 World Fuel Services Corp. ............................ 576,478
-----------
6,539,622
-----------
INFORMATION SERVICES &
TECHNOLOGY - 10.0%
75,000 *Advanced Communications Systems, Inc. ............... 707,813
71,200 *American Science & Engineering, Inc. ................ 863,300
15,000 *Analytical Surveys, Inc. ............................ 348,750
29,600 *Diversified Corporate Resources Inc. ................ 229,400
59,500 *Equinox Systems, Inc. ............................... 476,000
27,000 *Norstan, Inc. ....................................... 472,500
90,300 *Plasma Therm, Inc. .................................. 287,831
40,000 *SBS Technologies, Inc. .............................. 1,000,000
50,000 *Tidel Technologies Inc. ............................. 78,125
100,000 *WPI Group, Inc. ..................................... 662,500
-----------
5,126,219
-----------
49
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Micro Cap Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
OIL/ENERGY - 0.4%
14,500 *Prima Energy Corp. .................................. $ 213,875
-----------
OIL FIELD SERVICES - 2.6%
48,500 *Dawson Geophysical Co. .............................. 563,813
28,000 *Eagle Geophysical, Inc. ............................. 194,250
55,000 *Omni Energy Services Corp. .......................... 567,187
-----------
1,325,250
-----------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 1.0%
29,420 *Clark (Dick) Productions, Inc. ...................... 422,912
10,000 *Obie Media Corp. .................................... 117,500
-----------
540,412
-----------
RETAILING & WHOLESALE - 3.7%
20,000 *Bowlin Outdoor Advertising &
Travel Centers, Inc. ................................ 100,000
40,000 Craftmade International Inc. ......................... 602,500
20,000 *Kenneth Cole Productions, Inc. Cl. A................. 358,750
65,000 *Rocky Shoes & Boots, Inc. ........................... 520,000
45,000 *Shoe Pavilion, Inc. ................................. 298,125
-----------
1,879,375
-----------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.5%
70,000 *Cognitronics Corp. .................................. 726,250
98,400 Hickory Tech Corp..................................... 1,156,200
60,000 *Vari L Inc. ......................................... 405,000
-----------
2,287,450
-----------
THRIFT INSTITUTIONS - 4.6%
30,000 Horizon Financial Corp. .............................. 405,000
14,600 Iroquois Bancorp, Inc. ............................... 306,600
30,710 Parkvale Financial Corp. ............................. 913,622
25,000 *WSFS Financial Corp. ................................ 401,563
19,000 York Financial Corp. ................................. 332,500
-----------
2,359,285
-----------
TRANSPORTATION - 0.3%
5,100 Kenan Transport Co. .................................. 155,550
-----------
Total Common Stocks
(cost $45,961,869)................................... 48,332,352
-----------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.1%
U.S. GOVERNMENT AGENCY
OBLIGATIONS - 5.1%
Federal Home Loan Bank Discount Notes:
$ 475,000 5.20%, 10/14/98....................................... 474,108
1,100,000 5.22%, 10/14/98....................................... 1,097,926
685,000 5.35%, 10/14/98....................................... 683,677
Federal Home Loan Mortgage Discount Notes:
140,000 5.44%, 10/2/98........................................ 139,979
220,000 5.45%, 10/14/98....................................... 219,567
-----------
2,615,257
-----------
Total Short-Term Investments
(cost $2,615,257).................................... 2,615,257
-----------
TOTAL INVESTMENTS -
(COST $48,577,126)............................ 99.5% 50,947,609
OTHER ASSETS AND LIABILITIES - NET............. 0.5 235,037
----- -----------
NET ASSETS -................................... 100.0% $51,182,646
===== ===========
* Non-Income Producing Securities.
See Combined Notes to Financial Statements.
50
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 89.9%
ADVERTISING & RELATED
SERVICES - 1.4%
200,000 *Outdoor Systems, Inc................................... $ 3,900,000
------------
AUTOMOTIVE EQUIPMENT & MANUFACTURING - 1.2%
40,000 Chrysler Corp........................................... 1,915,000
35,000 Ford Motor Co........................................... 1,642,812
------------
3,557,812
------------
BANKS - 1.2%
29,400 BankBoston Corp......................................... 970,200
35,000 Fleet Financial Group, Inc.............................. 2,570,313
------------
3,540,513
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.7%
105,000 *Furniture Brands International, Inc. .................. 2,047,500
------------
BUSINESS EQUIPMENT &
SERVICES - 2.2%
120,000 Paychex, Inc. .......................................... 6,172,500
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 2.0%
100,000 Monsanto Co............................................. 5,637,500
------------
COMMUNICATION SYSTEMS &
SERVICES - 1.3%
140,000 *American Tower Systems Corp............................ 3,570,000
------------
DIVERSIFIED COMPANIES - 2.5%
130,000 Tyco International Ltd. ................................ 7,182,500
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.1%
110,000 General Electric Co..................................... 8,751,875
------------
FINANCE & INSURANCE - 7.2%
25,000 American Express Co. ................................... 1,940,625
60,000 American International Group, Inc....................... 4,620,000
23,587 Associates First Capital Corp. Cl. A.................... 1,539,052
100,000 Federal Home Loan Mortgage Corp......................... 4,943,750
140,000 Greenpoint Financial Corp............................... 4,462,500
35,000 Lincoln National Corp................................... 2,878,750
------------
20,384,677
------------
HEALTHCARE PRODUCTS &
SERVICES - 11.8%
54,250 Cardinal Health, Inc.................................... 5,601,313
65,000 HBO & Co................................................ 1,878,906
281,250 *Health Management Associates,
Inc. Cl. A............................................. 5,132,813
115,000 IMS Health, Inc......................................... 7,122,812
75,000 Medtronic, Inc.......................................... 4,340,625
94,100 Omnicare, Inc........................................... 3,317,025
100,000 *Steris Corp............................................ 2,828,125
82,700 *Universal Health Services, Inc. Cl. B.................. 3,452,725
------------
33,674,344
------------
INFORMATION SERVICES &
TECHNOLOGY - 16.8%
134,600 *EMC Corp............................................... 7,697,438
90,000 *Gateway 2000, Inc...................................... 4,691,250
40,000 Intel Corp.............................................. 3,431,250
45,000 International Business Machines Corp. .................. 5,760,000
130,000 *Learning Co., Inc...................................... 2,575,625
100,000 *Lycos, Inc............................................. 3,378,125
125,000 *Microchip Technology, Inc.............................. 2,722,656
63,000 *Microsoft Corp. ....................................... 6,935,906
80,000 *PeopleSoft, Inc........................................ 2,612,500
60,000 *Solectron Corp......................................... 2,880,000
105,000 *Sun Microsystems, Inc.................................. 5,233,594
------------
47,918,344
------------
LEISURE & TOURISM - 0.8%
90,000 Disney Walt Co. ........................................ 2,278,125
------------
OIL/ENERGY - 3.0%
108,400 Anadarko Petroleum Corp. ............................... 4,261,475
115,000 Burlington Resources, Inc............................... 4,298,125
------------
8,559,600
------------
PHARMACEUTICALS - 16.7%
175,000 American Home Products Corp............................. 9,165,625
115,000 *Forest Labs Inc........................................ 3,953,125
70,200 Pfizer, Inc............................................. 7,436,812
140,000 Pharmacia & Upjohn, Inc. ............................... 7,026,250
90,000 Schering-Plough Corp. .................................. 9,320,625
140,000 Warner-Lambert Co....................................... 10,570,000
------------
47,472,437
------------
PUBLISHING, BROADCASTING & ENTERTAINMENT - 8.6%
160,000 CBS Corp................................................ 3,880,000
105,000 *Clear Channel Communications, Inc...................... 4,987,500
70,000 Time Warner, Inc........................................ 6,129,375
85,000 *Viacom, Inc. Cl. B..................................... 4,930,000
150,000 *World Color Press, Inc................................. 4,650,000
------------
24,576,875
------------
RETAILING & WHOLESALE - 3.2%
162,500 *Staples, Inc. ......................................... 4,778,516
80,000 Wal-Mart Stores, Inc.................................... 4,370,000
------------
9,148,516
------------
TELECOMMUNICATION SERVICES & EQUIPMENT - 6.2%
250,000 *Antec Corp............................................. 3,859,375
100,000 *Ascend Communications, Inc. ........................... 4,553,125
60,000 *Broadcom Corp.......................................... 4,252,500
78,750 *Cisco Systems, Inc. ................................... 4,870,195
------------
17,535,195
------------
Total Common Stocks
(cost $216,338,856).................................... 255,908,313
------------
51
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Omega Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 9.9%
REPURCHASE AGREEMENT - 9.9%
$28,216,000 Keystone Joint
Repurchase Agreement,
Investments in
repurchase agreements, in a joint
trading account purchased
9/30/98, 5.60%, maturing 10/1/98,
maturity value $28,220,389,
(cost $28,216,000) (a)............................ $ 28,216,000
------------
Total Short-Term
Investments
(cost $28,216,000)................................ 28,216,000
------------
TOTAL INVESTMENTS -
(COST $244,554,856)......................... 99.8% 284,124,313
OTHER ASSETS AND LIABILITIES - NET........... 0.2 486,890
----- ------------
NET ASSETS................................... 100.0% $284,611,203
===== ============
* Non-Income Producing Securities.
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
See Combined Notes to Financial Statements.
52
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 91.6%
ADVERTISING & RELATED
SERVICES - 1.9%
360,400 *ADVO, Inc. ........................................ $ 8,807,275
300,000 *Outdoor Systems Inc. .............................. 5,850,000
------------
14,657,275
------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.5%
184,100 *Dura Automotive Systems, Inc. ..................... 4,786,600
373,720 *Tower Automotive, Inc. ............................ 7,380,970
------------
12,167,570
------------
BANKS - 9.4%
294,862 *Astoria Financial Corp. ........................... 12,439,490
318,240 BostonFed Bancorp, Inc. ............................ 5,410,080
206,300 Charter One Financial, Inc. ........................ 5,105,925
30,200 Dime Community Bancorp, Inc. ....................... 625,706
171,370 *Long Island Bancorp, Inc. ......................... 8,268,602
577,620 *North Fork Bancorp, Inc. .......................... 11,552,400
222,294 Queens County Bancorp, Inc. ........................ 5,876,898
847,235 *Sovereign Bancorp, Inc. ........................... 11,225,864
559,760 *TCF Financial Corp. ............................... 11,125,230
104,938 *Westamerica Bancorp ............................... 3,030,085
------------
74,660,280
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.8%
100,000 Miller (Herman), Inc. .............................. 1,993,750
181,700 *Wackenhut Corrections Corp. ....................... 4,031,469
------------
6,025,219
------------
BUSINESS EQUIPMENT &
SERVICES - 5.2%
175,855 *BISYS Group, Inc. (a).............................. 7,710,143
909,340 *Comdisco, Inc. .................................... 12,389,757
37,000 *CSG System International, Inc. .................... 1,640,719
369,000 *GTS Duratek, Inc. ................................. 2,098,688
127,700 *Mercury Interactive Corp. ......................... 5,072,084
100,000 *Policy Management Systems Corp..................... 4,050,000
96,300 *Rental Service Corp. .............................. 1,733,400
150,000 *Superior Consultant, Inc. ......................... 6,431,250
------------
41,126,041
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.0%
270,940 *OM Group, Inc. .................................... 7,637,121
------------
CONSUMER PRODUCTS &
SERVICES - 4.0%
396,869 *Equity Corp. International......................... 8,929,552
352,900 *Helen of Troy Ltd. ................................ 6,815,381
16,600 Oneida Ltd. ....................................... 282,200
101,700 *Rock Of Ages Corp. Cl. A........................... 1,137,769
124,000 *Russ Berrie & Co., Inc. ........................... 2,363,750
172,500 *Scotts Co. Cl. A................................... 5,282,813
182,900 Universal Corp. .................................... 6,538,675
------------
31,350,140
------------
EDUCATION - 6.1%
100,000 *Apollo Group Inc. ................................. $ 2,800,000
1,500 *Bright Horizons Family Solutions,
Inc. .............................................. 31,781
279,600 *CBT Group Public Ltd. ............................. 3,783,338
1,448,600 *Computer Learning Centers, Inc. ................... 11,452,994
1,024,968 *Devry, Inc. ....................................... 24,022,687
56,400 *Education Management Corp. ........................ 2,023,350
100,000 *ITT Educational Services Inc. ..................... 3,200,000
50,000 Strayer Education, Inc. ............................ 1,290,625
------------
48,604,775
------------
ELECTRICAL EQUIPMENT &
SERVICES - 7.5%
411,080 *DII Group, Inc. ................................... 4,971,499
350,000 Lattice Semiconductor Corp. ........................ 8,695,312
237,778 Maxim Integrated Products, Inc. .................... 6,635,492
200,000 *Microchip Technology, Inc. ........................ 4,356,250
200,000 *Parlex Corp. ...................................... 1,831,250
512,514 *Sipex Corp. ....................................... 13,069,107
100,000 *Sofamor/Danek Group, Inc. ......................... 8,900,000
100,000 *Solectron Corp. ................................... 4,800,000
200,000 *Windmere Durable Holdings, Inc. ................... 1,125,000
150,000 *Xilinx, Inc. ...................................... 5,245,313
------------
59,629,223
------------
FINANCE & INSURANCE - 6.5%
100,000 Arthur J. Gallagher & Co. .......................... 4,125,000
110,670 Delphi Financial Group, Inc. ....................... 4,357,631
100,000 *E Trade Group, Inc. ............................... 1,862,500
360,000 Federated Investors, Inc. Cl. B..................... 5,175,000
148,422 *First Alliance Co. ................................ 932,276
250,000 Firstplus Financial Group, Inc. .................... 2,859,375
248,800 *Freedom Securities Corp. .......................... 3,296,600
186,023 *HCC Insurance Holdings, Inc. ...................... 3,604,196
200,000 Horace Mann Educators Corp. ........................ 6,000,000
202,500 Leucadia National Corp. ............................ 5,935,781
150,000 Mercury General Corp. .............................. 5,625,000
199,200 *Ocwen Financial Corp. ............................. 1,743,000
58,200 *Penn-America Group, Inc. .......................... 538,350
100,000 Reinsurance Group America, Inc. .................... 5,893,750
------------
51,948,459
------------
FOOD & BEVERAGE PRODUCTS - 0.3%
148,000 *Buffets, Inc. ..................................... 1,586,375
36,900 *Twinlab Corp. ..................................... 943,256
------------
2,529,631
------------
HEALTHCARE PRODUCTS &
SERVICES - 9.5%
68,900 *Access Health, Inc................................. 2,534,228
286,000 *Arterial Vascular Engineering, Inc. ............... 10,573,062
20,500 *Chirex, Inc. ...................................... 244,719
306,000 *Cyberonics, Inc.................................... 1,845,563
131,100 *Envoy Corp. ....................................... 2,835,038
180,000 *Graham Field Health Products, Inc. ................ 461,250
770,358 *Health Management Associates, Inc. Cl..............
A.................................................. 14,059,033
53
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
HEALTHCARE PRODUCTS & SERVICES - CONTINUED
277,585 *Idexx Laboratories, Inc. .......................... $ 6,609,993
135,620 *Pediatrix Medical Group, Inc. ..................... 6,085,947
165,000 *Renal Care Group, Inc. ............................ 4,222,969
21,200 *Rexall Sundown, Inc. .............................. 328,600
200,000 *Steris Corp........................................ 5,656,250
200,000 *Sunrise Assisted Living, Inc....................... 6,881,250
253,380 *Thermo Cardiosystems, Inc.......................... 4,054,080
385,751 *Total Renal Care Holdings, Inc..................... 9,258,024
------------
75,650,006
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 3.5%
500,000 *Halter Marine Group, Inc. ......................... 5,687,500
248,300 *Kaydon Corp. ...................................... 6,533,394
882,000 Roper Industries, Inc............................... 15,324,750
------------
27,545,644
------------
INFORMATION SERVICES & TECHNOLOGY -
12.7%
150,000 *Acxiom Corp........................................ 3,721,875
173,000 *Avid Technology, Inc............................... 4,092,531
150,000 *BMC Software, Inc.................................. 9,004,687
250,000 *Broadvision, Inc................................... 2,625,000
121,000 *CMG Information Services, Inc...................... 6,443,250
150,000 *DAOU Systems, Inc.................................. 860,156
380,000 *Electronics for Imaging, Inc. ..................... 8,063,125
137,800 *FileNet Corp....................................... 1,929,200
100,000 *IDX Systems Corp................................... 5,271,875
200,000 *Learning Company, Inc.............................. 3,962,500
3,100 *Lycos, Inc......................................... 104,722
416,000 *Mapics, Inc. ...................................... 9,126,000
200,000 *Maximus, Inc. ..................................... 6,100,000
100,000 *Network Appliance, Inc............................. 5,068,750
32,400 *Platinum Software Corp. ........................... 329,063
210,000 *PMC-Sierra, Inc.................................... 6,654,375
66,300 *Project Software & Development,
Inc. .............................................. 890,906
812,300 *Radiant Systems, Inc............................... 6,219,172
515,816 Safeguard Scientifics, Inc. ........................ 13,378,977
125,000 *Transition Systems, Inc............................ 1,039,063
90,000 *Unisys Corp........................................ 2,047,500
100,000 *Veritas DGC, Inc................................... 1,668,750
51,997 *Wind River Systems, Inc. .......................... 2,463,358
------------
101,064,835
------------
LEISURE & TOURISM - 1.6%
240,000 *Gametech International, Inc........................ 757,500
150,000 *Global Vacation Group, Inc......................... 1,078,125
447,800 *Rio Hotel & Casino, Inc............................ 6,185,238
300,000 *Steiner Leisure Ltd................................ 4,668,750
------------
12,689,613
------------
METAL PRODUCTS & SERVICES - 0.3%
329,700 Maverick Tube Corp.................................. 2,266,688
------------
OIL / ENERGY - 1.3%
1,307,656 *Newpark Resources, Inc............................. 8,990,135
100,000 *Seven Seas Petroleum, Inc. ........................ 1,037,500
------------
10,027,635
------------
OIL FIELD SERVICES - 0.5%
360,100 *R & B Falcon Corp.................................. 4,321,200
------------
PHARMACEUTICALS - 0.2%
100,000 *Millennium Pharmaceuticals......................... 1,718,750
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 3.0%
227,600 *Big Flower Holdings, Inc........................... 5,320,150
13,200 *Cox Radio, Inc..................................... 463,650
108,700 *Hearst-Argyle Television, Inc. .................... 3,627,862
259,000 *Jacor Communications, Inc. ........................ 13,103,781
83,700 *Sinclair Broadcast Group, Inc. Cl. A............... 1,354,894
------------
23,870,337
------------
REAL ESTATE - 0.0% (B)
4,900 *Host Marriott Corp................................. 62,169
------------
RETAILING & WHOLESALE - 6.4%
300,000 *AnnTaylor Stores Corp.............................. 6,093,750
55,500 *Brylane, Inc. ..................................... 888,000
1,002,480 *Corporate Express, Inc. ........................... 11,935,777
124,200 *Cutter & Buck, Inc................................. 2,879,888
150,000 Ethan Allen Interiors, Inc.......................... 5,437,500
231,900 *Gadzooks, Inc. .................................... 2,116,088
200,000 *Good Guys, Inc..................................... 1,168,750
186,500 *Goodys Family Clothing, Inc........................ 2,232,172
103,500 *Kenneth Cole Productions, Inc. Cl. A............... 1,856,531
352,500 Pier 1 Imports, Inc................................. 2,643,750
140,000 *REX Stores Corp.................................... 1,487,500
200,000 Ross Stores, Inc.................................... 5,762,500
400,000 *Stage Stores, Inc.................................. 4,875,000
100,000 Talbots, Inc........................................ 1,787,500
------------
51,164,706
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 4.5%
500,000 *Advanced Fibre Communications...................... 3,421,875
345,000 *Antec Corp. ....................................... 5,325,937
79,000 *Esprit Telecom Group, Plc, ADR..................... 2,044,125
211,600 *LCC International, Inc. ........................... 1,005,100
800,000 Premiere Technologies, Inc. ........................ 3,800,000
566,400 Scientific Atlanta, Inc............................. 11,965,200
251,800 *Univision Communications, Inc. Cl. A............... 7,491,050
50,000 *Viatel, Inc........................................ 528,125
------------
35,581,412
------------
TRANSPORTATION - 1.3%
112,700 *ASA Holdings, Inc. ................................ 3,986,763
150,399 *Coach USA, Inc..................................... 3,712,975
141,900 *Covenant Transport, Inc. Cl. A..................... 1,605,244
84,900 *Eagle USA Airfreight, Inc. ........................ 1,191,253
------------
10,496,235
------------
UTILITIES - TELEPHONE - 2.6%
316,000 *McLeod USA, Inc., Cl. A............................ 6,873,000
50,000 *Rural Celluar Corp. Cl. A.......................... 606,250
54
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Small Company Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
UTILITIES - TELEPHONE - CONTINUED
345,000 *United States Cellular Corp........................ $ 10,285,312
150,000 *Vanguard Cellular Systems, Inc. Cl.
A.................................................. 2,831,250
------------
20,595,812
------------
Total Common Stocks
(cost $738,183,241)................................ 727,390,776
------------
WARRANTS - 0.0% (B)
LEISURE & TOURISM - 0.0% (B)
49,395 Casino America, Inc., Warrants Expires
5/3/2001........................................... 494
------------
Total Warrants
(cost $284,412).................................... 494
------------
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.0%
REPURCHASE AGREEMENT - 8.0%
$35,000,000 Goldman Sachs Repurchase Agreement purchased
9/30/98, 5.60%, maturing 10/1/98, maturity value
$35,005,444 (cost $35,000,000) (c)................. $ 35,000,000
28,340,000 Keystone Joint Repurchase Agreement Investments in
repurchase agreements, in a joint trading account,
purchased 9/30/98, 5.60%, maturing 10/1/98,
maturity value $28,344,408
(cost $28,340,000) (d)............................. 28,340,000
------------
63,340,000
------------
Total Short-Term Investments (cost $63,340,000)..... 63,340,000
------------
TOTAL INVESTMENTS -
(COST $801,807,653)......................... 99.6% 790,731,270
OTHER ASSETS AND
LIABILITIES - NET........................... 0.4 3,164,548
----- ------------
NET ASSETS - ................................ 100.0% $793,895,818
===== ============
* Non-Income Producing Securities.
(a) At September 30, 1998, the Fund owned 175,855 shares of common stock
of The BISYS Group, Inc. at a cost of $4,437,038. During the twelve
months ended September 30, 1998 the Fund earned no dividend income
from this investment. These shares were purchased prior to Evergreen
Distributors Inc., a wholly owned subsidiary of The BISYS Group,
Inc., becoming the Fund's principal underwriter and BISYS Fund
Services, Inc. becoming the Fund's sub-administrator.
(b) Less than one-tenth percent.
(c) At September 30, 1998, the repurchase agreement was fully collateralized by:
$35,000,000 FNMA, 6.131%, 4/01/35; value including interest - $35,294,148.
(d) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
55
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 95.3%
AEROSPACE & DEFENSE - 0.5%
67,800 Boeing Co............................................. $ 2,326,388
------------
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 0.8%
48,700 Ford Motor Co......................................... 2,285,856
99,500 Pep Boys-Manny Moe & Jack............................. 1,330,813
------------
3,616,669
------------
BANKS - 6.0%
85,700 BankBoston Corp. ..................................... 2,828,100
152,800 Mellon Bank Corp...................................... 8,413,550
201,600 NationsBank Corp...................................... 10,785,600
113,100 Summit Bancorp........................................ 4,241,250
------------
26,268,500
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 2.1%
199,200 Clayton Homes, Inc. .................................. 3,486,000
47,600 Lennar Corp........................................... 1,062,075
142,000 Lowe's Companies, Inc................................. 4,517,375
------------
9,065,450
------------
BUSINESS EQUIPMENT &
SERVICES - 3.2%
123,200 Lucent Technologies, Inc. ............................ 8,508,500
138,200 Seagate Technology.................................... 3,463,637
153,100 Thermo Electron Corp. ................................ 2,306,069
------------
14,278,206
------------
CAPITAL GOODS - 0.2%
38,500 Case Corp............................................. 837,375
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 2.3%
84,600 Monsanto Co........................................... 4,769,325
22,700 Potash Corp. of Saskatchewan, Inc. ................... 1,194,588
123,800 Praxair, Inc. ........................................ 4,046,712
------------
10,010,625
------------
COMMUNICATION SYSTEMS &
SERVICES - 5.5%
56,253 *AirTouch Communications, Inc. ....................... 3,206,421
433,800 *MCI WorldCom, Inc. .................................. 21,201,975
------------
24,408,396
------------
CONSUMER PRODUCTS &
SERVICES - 2.1%
669,400 Cendant Corp. ........................................ 7,781,775
14,700 Clorox Co. ........................................... 1,212,750
39,900 USA Detergents, Inc. ................................. 319,200
------------
9,313,725
------------
DIVERSIFIED COMPANIES - 1.7%
95,300 AlliedSignal, Inc..................................... 3,371,237
36,100 ITT Industries, Inc................................... 1,222,888
43,900 Textron, Inc.......................................... 2,661,438
------------
7,255,563
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.3%
171,400 General Electric Co................................... 13,637,012
14,300 Honeywell, Inc........................................ 916,094
------------
14,553,106
------------
FINANCE & INSURANCE - 12.0%
74,000 Ace Ltd. ............................................. 2,220,000
54,700 Aetna, Inc............................................ 3,801,650
78,400 American International Group, Inc. ................... 6,036,800
352,600 Conseco, Inc. ........................................ 10,776,338
438,900 Everest Reinsurance Holdings, Inc. ................... 16,376,456
160,100 Lehman Brothers Holdings, Inc......................... 4,522,825
243,000 Travelers Group, Inc.................................. 9,112,500
------------
52,846,569
------------
FOOD & BEVERAGE PRODUCTS - 7.1%
166,505 Canandaigua Wine Co., Inc............................. 6,576,947
597,600 Chiquita Brands International, Inc. .................. 6,312,150
32,500 Landry's Seafood Restaurant, Inc. .................... 219,375
297,600 Nabisco Holdings Corp. Cl. A.......................... 10,695,000
36,100 Pepsico, Inc.......................................... 1,062,694
261,900 RJR Nabisco Holdings Corp. ........................... 6,596,606
------------
31,462,772
------------
HEALTHCARE PRODUCTS &
SERVICES - 9.7%
171,500 American Home Products Corp........................... 8,982,312
200,800 *Boston Scientific Corp............................... 10,316,100
31,800 Bristol-Myers Squibb Co. ............................. 3,303,225
524,900 *MedPartners, Inc. ................................... 1,705,925
277,800 Mylan Laboratories, Inc............................... 8,195,100
62,380 Pfizer, Inc. ......................................... 6,608,381
91,700 U.S Surgical Corp. ................................... 3,822,744
------------
42,933,787
------------
INDUSTRIAL SPECIALTY PRODUCTS &
SERVICES - 2.8%
99,600 Browning Ferris Industries, Inc. ..................... 3,012,900
59,600 Magna International, Inc. Cl. A....................... 3,464,250
352,600 United States Filter Corp. ........................... 5,641,600
------------
12,118,750
------------
INFORMATION SERVICES &
TECHNOLOGY - 9.6%
108,400 America Online, Inc. Delaware......................... 12,059,500
83,300 Computer Associates International,
Inc. ................................................ 3,082,100
155,100 *Microsoft Corp. ..................................... 17,070,694
151,500 Storage Technology Corp. ............................. 3,853,781
97,300 Texas Instruments, Inc. .............................. 5,132,575
165,900 VLSI Technology, Inc.................................. 1,264,987
------------
42,463,637
------------
LEISURE & TOURISM - 0.5%
128,100 Hilton Hotels Corp. .................................. 2,185,706
------------
56
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Stock Selector Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - CONTINUED
METAL PRODUCTS & SERVICES - 1.1%
129,470 Crown Cork & Seal Co., Inc. .......................... $ 3,463,322
109,100 Freeport McMoran Copper & Gold,
Inc., Cl. B.......................................... 1,295,563
------------
4,758,885
------------
OIL / ENERGY - 7.0%
68,400 Apache Corp. ......................................... 1,833,975
77,696 British Petroleum Plc, ADR............................ 6,778,997
200,100 Mobil Corp............................................ 15,195,094
59,800 Triton Energy Ltd. ................................... 594,263
188,600 USX Marathon Group.................................... 6,683,512
------------
31,085,841
------------
OIL FIELD SERVICES - 0.6%
99,600 *R & B Falcon Corp. .................................. 1,195,200
64,000 Tidewater, Inc. ...................................... 1,328,000
------------
2,523,200
------------
PHARMACEUTICALS - 0.8%
73,500 Human Genome Sciences, Inc. .......................... 2,205,000
86,300 ICN Pharmaceuticals, Inc. ............................ 1,510,250
------------
3,715,250
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 1.8%
70,100 Emmis Broadcasting Corp. Cl. A........................ 2,646,275
268,600 USA Networks, Inc. ................................... 5,220,912
------------
7,867,187
------------
REAL ESTATE - 0.0% (B)
7,200 Glenborough Reality Trust, Inc. ...................... 153,000
------------
RETAILING & WHOLESALE - 6.8%
87,600 Abercrombie & Fitch Co. .............................. 3,854,400
217,100 Corporate Express, Inc. .............................. 2,591,631
273,105 Fred Meyer, Inc. ..................................... 10,616,957
296,200 *General Nutrition Companies, Inc. ................... 3,202,663
98,200 IMC Global, Inc....................................... 1,902,625
34,300 Kroger Co............................................. 1,715,000
275,902 *Saks, Inc............................................ 6,190,551
------------
30,073,827
------------
TELECOMMUNICATION SERVICES
& EQUIPMENT - 2.4%
19,525 Leap Wireless International, Inc. .................... 91,523
234,800 Metromedia International Group, Inc. ................. 909,850
78,100 Qualcomm, Inc. ....................................... 3,743,919
187,400 *Qwest Communications
International, Inc................................... 5,867,963
------------
10,613,255
------------
TRANSPORTATION - 1.3%
63,600 Burlington Northern
Santa Fe Corp. ...................................... 2,035,200
7,600 Canadian National
Railway Co. ......................................... 339,150
36,100 CNF Transportation,
Inc.................................................. 1,051,412
22,000 Delta Air Lines, Inc.................................. 2,139,500
------------
5,565,262
------------
UTILITIES - ELECTRIC - 3.4%
223,900 AES Corp. ............................................ 8,298,295
135,800 Calenergy, Inc. ...................................... 3,598,700
44,800 FPL Group, Inc. ...................................... 3,122,000
------------
15,018,995
------------
UTILITIES - TELEPHONE - 0.7%
49,200 *McLeod USA, Inc., Cl.
A.................................................... 1,076,250
155,600 Star Telecommunications, Inc. ........................ 1,925,550
------------
3,001,800
------------
Total Common Stocks
(cost $418,849,083).................................. 420,321,726
------------
PREFERRED STOCKS - 1.8%
PUBLISHING, BROADCASTING
& ENTERTAINMENT - 1.8%
355,200 News Corp. Ltd. ...................................... 7,947,600
------------
Total Preferred Stocks
(cost $7,558,657).................................... 7,947,600
------------
- --------------------------------------------------------------------------------
Principal
Amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.2%
REPURCHASE AGREEMENT - 1.2%
$5,340,608 Dresdner Bank AG 5.00%, purchased
9/30/98, maturing 10/1/98, maturity
value $5,341,350
(cost $5,340,608) (a)............................... 5,340,608
------------
Total Short-Term Investments
(cost $5,340,608)................................... 5,340,608
------------
TOTAL INVESTMENTS -
(COST $431,748,348).......................... 98.3% 433,609,934
OTHER ASSETS AND
LIABILITIES - NET............................ 1.7 7,705,560
----- ------------
NET ASSETS - ................................. 100.0% $441,315,494
===== ============
* Non-Income Producing Securities.
(a) At September 30, 1998, the repurchase agreement was collateralized
by: $5,315,000 U.S. Treasury Notes, 5.62%, 12/31/99; value including
accrued interest - $5,451,184.
(b) Less than one-tenth percent.
SUMMARY OF ABBREVIATIONS:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
57
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
September 30, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 92.2%
AUTOMOTIVE EQUIPMENT &
MANUFACTURING - 1.3%
115,000 Chrysler Corp. ...................................... $ 5,505,625
120,000 Ford Motor Co. ...................................... 5,632,500
------------
11,138,125
------------
BANKS - 1.7%
183,400 BankBoston Corp...................................... 6,052,200
110,000 Fleet Financial Group, Inc. ......................... 8,078,125
------------
14,130,325
------------
BUILDING, CONSTRUCTION &
FURNISHINGS - 0.6%
275,000 *Furniture Brands International, Inc. ............... 5,362,500
------------
BUSINESS EQUIPMENT &
SERVICES - 1.8%
297,500 Paychex, Inc. ....................................... 15,302,656
------------
CHEMICAL & AGRICULTURAL
PRODUCTS - 1.7%
255,000 Monsanto Co. ........................................ 14,375,625
------------
COMMUNICATION SYSTEMS & SERVICES - 1.5%
255,000 *MCI WorldCom, Inc................................... 12,471,094
------------
DIVERSIFIED COMPANIES - 1.9%
281,600 Tyco International Ltd. ............................. 15,558,400
------------
ELECTRICAL EQUIPMENT &
SERVICES - 3.4%
355,000 General Electric Co. ................................ 28,244,688
------------
FINANCE & INSURANCE - 7.6%
80,000 American Express Co. ................................ 6,210,000
157,500 American International Group, Inc. .................. 12,127,500
72,073 Associates First Capital Corp. Cl. A................. 4,702,763
280,000 Federal Home Loan Mortgage Corp. .................... 13,842,500
430,000 Greenpoint Financial Corp............................ 13,706,250
110,000 Lincoln National Corp................................ 9,047,500
97,500 Travelers Group, Inc................................. 3,656,250
------------
63,292,763
------------
FOOD & BEVERAGE PRODUCTS - 0.8%
115,000 Coca Cola Co......................................... 6,626,875
------------
HEALTHCARE PRODUCTS &
SERVICES - 13.7%
141,200 Cardinal Health, Inc. ............................... 14,578,900
192,500 HBO & Co. ........................................... 5,564,453
510,000 *Health Management Associates,
Inc. Cl. A.......................................... 9,307,500
250,000 IMS Health, Inc...................................... 15,484,375
165,000 Lilly (Eli) & Co. ................................... 12,921,563
225,000 Medtronic, Inc. ..................................... 13,021,875
323,700 Omnicare, Inc. ...................................... 11,410,425
400,000 Pharmacia & Upjohn, Inc. ............................ 20,075,000
435,000 *Tenet Healthcare Corp. ............................. 12,506,250
------------
114,870,341
------------
INFORMATION SERVICES &
TECHNOLOGY - 15.5%
210,000 *BMC Software, Inc. ................................. 12,606,563
410,600 *EMC Corp. .......................................... 23,481,187
300,000 *Gateway 2000, Inc. ................................. 15,637,500
125,000 Intel Corp........................................... 10,722,656
140,000 International Business Machines Corp. ............... 17,920,000
275,000 *Microchip Technology, Inc. ......................... 5,989,844
190,000 *Microsoft Corp. .................................... 20,917,813
175,000 *Solectron Corp...................................... 8,400,000
275,000 *Sun Microsystems, Inc. ............................. 13,707,031
------------
129,382,594
------------
LEISURE & TOURISM - 0.9%
292,500 Disney Walt Co. ..................................... 7,403,906
------------
OIL / ENERGY - 9.2%
150,000 Amoco Corp. ......................................... 8,081,250
303,400 Anadarko Petroleum Corp. ............................ 11,927,413
340,000 Burlington Resources, Inc. .......................... 12,707,500
215,000 Exxon Corp. ......................................... 15,090,312
100,000 Mobil Corp........................................... 7,593,750
250,000 Texaco, Inc.......................................... 15,671,875
165,000 Unocal Corp.......................................... 5,981,250
------------
77,053,350
------------
PHARMACEUTICALS - 13.7%
510,000 American Home Products Corp. ........................ 26,711,250
222,800 Pfizer, Inc.......................................... 23,602,875
260,000 Schering-Plough Corp. ............................... 26,926,250
400,000 *Shire Pharmaceuticals Group Plc. ................... 8,675,000
380,000 Warner-Lambert Co. .................................. 28,690,000
------------
114,605,375
------------
PUBLISHING, BROADCASTING &
ENTERTAINMENT - 8.8%
475,000 CBS Corp............................................. 11,518,750
275,000 *Clear Channel Communications, Inc. ................. 13,062,500
110,000 *Tele Communications, Inc. .......................... 4,307,187
200,000 Time Warner, Inc. ................................... 17,512,500
270,000 *Viacom, Inc. Cl. B.................................. 15,660,000
370,000 *World Color Press, Inc. ............................ 11,470,000
------------
73,530,937
------------
RETAILING & WHOLESALE - 4.5%
235,000 CVS Corp. ........................................... 10,295,937
482,500 *Staples, Inc. ...................................... 14,188,516
250,000 Wal-Mart Stores, Inc. ............................... 13,656,250
------------
38,140,703
------------
TELECOMMUNICATION SERVICES &
EQUIPMENT - 3.6%
285,000 *Ascend Communications, Inc. ........................ 12,976,406
232,500 *Cisco Systems, Inc. ................................ 14,378,672
65,000 *Iridium World Communications, Inc. Cl. A............ 2,494,375
------------
29,849,453
------------
Total Common Stocks
(cost $632,520,201)................................. 771,339,710
------------
58
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Strategic Growth Fund
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS(continued)
September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURES - 0.0% (A)
IRON & STEEL - 0.0% (A)
$ 180,000 Compania Vale do Rio
Doce Navegacao SA
1.00%, 12/31/99..................................... $ 15
------------
Total Convertible
Debentures
(cost $0)........................................... 15
------------
SHORT-TERM INVESTMENTS - 6.8%
REPURCHASE AGREEMENT - 6.8%
50,000,000 Goldman Sachs Repurchase
Agreement purchased 9/30/98,
5.60%, maturing 10/1/98, maturity
value $50,007,778
(cost $50,000,000) (b).............................. 50,000,000
7,210,000 Keystone Joint Repurchase
Agreement Investments in
repurchase agreements, in a joint
trading account, purchased 9/30/98,
5.60%, maturing 10/1/98, maturity
value $7,211,122
(cost $7,210,000) (c)............................... 7,210,000
------------
57,210,000
------------
Total Short-Term Investments
(cost $57,210,000).................................. 57,210,000
------------
TOTAL INVESTMENTS -
(COST $689,730,201).......................... 99.0% 828,549,725
OTHER ASSETS AND
LIABILITIES - NET............................ 1.0 8,216,672
----- ------------
NET ASSETS.................................... 100.0% $836,766,397
===== ============
* Non-Income Producing Securities.
(a) Less than one-tenth percent.
(b) At September 30, 1998, the repurchase agreement was fully collateralized by:
$32,682,000 FNMA, 6.131%, 10/01/32; value including interest -$32,935,340
and $17,318,000 FNMA, 6.131%, 10/01/32; value including interest -
$17,452,437.
(c) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
September 30, 1998.
See Combined Notes to Financial Statements.
59
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
September 30, 1998
<TABLE>
<CAPTION>
SMALL
AGGRESSIVE COMPANY STOCK
STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA GROWTH SELECTOR
GROWTH
FUND FUND FUND FUND FUND FUND
FUND
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at value
(identified cost -
$134,332,397,
$1,220,157,650,
$48,577,126,
$244,554,856,
$801,807,653,
$431,748,348 and
$689,730,201,
respectively).......... $204,595,125 $1,890,946,248 $50,947,609 $284,124,313 $790,731,270 $433,609,934
$828,549,725
Cash.................... 465 26,416 92,830 797 95
12,782 660
Receivable for
investments sold....... 0 6,612,960 417,095 3,755,380 16,559,126 14,442,937
11,254,465
Receivable for Fund
shares sold............ 824,870 2,100,765 47,424 248,094 2,070,141
316,529 305,018
Dividends and interest
receivable............. 19,404 968,458 16,744 83,323 63,713
650,785 289,419
Unamortized
organization
expenses............... 9,452 0 0 0 0
0 0
Prepaid expenses and
other assets........... 25,589 55,633 18,693 53,412 148,027
58,600 87,225
- ---------------------------------------------------------------------------------------------------------------------------
Total assets.......... 205,474,905 1,900,710,480 51,540,395 288,265,319 809,572,372 449,091,567
840,486,512
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments
purchased.............. 0 1,058,303 242,856 2,864,344 13,780,148 2,189,707
2,497,239
Payable for Fund shares
repurchased............ 361,716 50,538,714 22,219 499,960 1,265,088
5,048,361 563,653
Advisory fee payable.... 97,879 1,374,242 41,322 171,812 366,836
238,997 367,236
Distribution fee
payable................ 27,171 138,993 9,412 96,926 121,880
4,116 115,080
Due to related
parties................ 3,487 0 0 3,800 14,820
98,714 10,589
Accrued expenses and
other liabilities...... 21,907 270,210 41,940 17,274 127,782
196,178 166,318
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities..... 512,160 53,380,462 357,749 3,654,116 15,676,554 7,776,073
3,720,115
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS.............. $204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494
$836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS REPRESENTED
BY
Paid-in capital......... $114,799,483 $1,168,338,213 $47,674,345 $210,183,587 $737,059,904 $347,671,295
$581,723,646
Undistributed net
investment income...... (13,651) 1,991,530 (12,286) (4,940) (31,807)
231,576 (20,596)
Accumulated
undistributed net
realized gains or
losses on securities,
futures contracts and
foreign currency
related transactions... 19,914,185 6,211,677 1,150,104 34,863,099 67,944,104 91,551,143
116,243,773
Net unrealized gains or
losses on securities
and foreign currency
related transactions... 70,262,728 670,788,598 2,370,483 39,569,457 (11,076,383) 1,861,480
138,819,574
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS...... $204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494
$836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSISTS OF
Class A................. $137,776,477 $ 182,590,060 $ 4,741,438 $156,219,847 $589,233,330 $ 15,910,099
$706,279,735
Class B................. 36,301,385 623,644,288 4,235,649 114,068,435 199,876,815 413,056
130,033,248
Class C................. 2,570,475 12,620,017 3,093,122 13,752,251 4,086,881
- -- 453,414
Class Y................. 28,314,408 1,028,475,653 39,112,437 570,670 698,792
424,992,339 --
- ---------------------------------------------------------------------------------------------------------------------------
$204,962,745 $1,847,330,018 $51,182,646 $284,611,203 $793,895,818 $441,315,494
$836,766,397
- ---------------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
Class A................. 6,480,639 8,648,992 238,535 7,266,503 102,955,378 867,445
73,001,272
Class B................. 1,746,951 29,947,478 219,404 5,612,889 35,096,950 22,664
13,507,691
Class C................. 123,875 607,099 160,013 675,119 717,391
- -- 47,090
Class Y................. 1,319,266 48,390,516 1,951,003 26,492 121,812
23,166,413 --
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER
SHARE
Class A................. $ 21.26 $ 21.11 $ 19.88 $ 21.50 $ 5.72 $ 18.34
$ 9.67
- ---------------------------------------------------------------------------------------------------------------------------
Class A - Offering
price (based on sales
charge of 4.75%) $ 22.32 $ 22.16 $ 20.87 $ 22.57 $ 6.01 $ 19.25
$ 10.15
- ---------------------------------------------------------------------------------------------------------------------------
Class B................. $ 20.78 $ 20.82 $ 19.31 $ 20.32 $ 5.69 $ 18.23
$ 9.63
- ---------------------------------------------------------------------------------------------------------------------------
Class C................. $ 20.75 $ 20.79 $ 19.33 $ 20.37 $ 5.70 --
$ 9.63
- ---------------------------------------------------------------------------------------------------------------------------
Class Y................. $ 21.46 $ 21.25 $ 20.05 $ 21.54 $ 5.74 $
18.35 --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
60
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
Year Ended September 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK
STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH
SELECTOR GROWTH
FUND FUND FUND FUND FUND
FUND* FUND
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
INVESTMENT INCOME
Dividends (net of
foreign withholding
taxes of $0,
$19,485, $0, $319,
$0, $23,917 and
$76,459,
respectively)....... $ 356,777 $ 14,368,085 $ 401,736 $ 2,005,311 $ 3,276,542 $ 1,414,664
$ 7,315,512
Interest............. 81,217 18,768,768 22,193 828,568 2,909,517
47,371 3,145,575
Securities lending
income.............. 0 0 0 0 913,249
0 0
- -----------------------------------------------------------------------------------------------------------------------------
Total income........ 437,994 33,136,853 423,929 2,833,879 7,099,308 1,462,035
10,461,087
EXPENSES
Advisory fee......... 1,390,081 17,536,054 615,473 2,214,127 6,367,129
968,973 4,870,007
Distribution Plan
expenses............ 812,992 6,797,255 79,603 1,697,051 5,187,679
12,491 3,317,412
Transfer agent fees.. 635,857 4,017,835 97,049 641,820 2,944,028
9,509 1,767,753
Trustees fees and
expenses............ 3,956 51,288 382 5,723 32,253
1,442 21,940
Custodian fees....... 66,285 529,231 13,795 84,057 390,606
22,867 380,772
Administrative
service fees........ 68,149 0 0 50,291 223,424
35,239 155,809
Professional fees.... 32,284 66,617 34,549 24,051 89,868
45,045 40,864
Printing............. 166,429 938,445 4,630 170,808 681,437
64,076 336,141
Registration fees.... 107,748 209,637 76,137 103,951 222,287
141,793 83,057
Amortization of
organization
expenses............ 5,110 0 0 0 0
0 0
Other................ 14,996 51,099 17,678 11,042 65,692
14,311 45,627
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses...... 3,303,887 30,197,461 939,296 5,002,921 16,204,403 1,315,746
11,019,382
Less: Indirectly paid
expenses............ (2,512) (9,972) (3,229) (2,813) (51,786)
0 (10,940)
Fee waivers and/or
reimbursement from
investment
adviser............ 0 0 0 0 0
(85,492) 0
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses........ 3,301,375 30,187,489 936,067 5,000,108 16,152,617 1,230,254
11,008,442
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT
INCOME.............. (2,863,381) 2,949,364 (512,138) (2,166,229) (9,053,309)
231,781 (547,355)
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAINS OR
LOSSES ON
SECURITIES, FUTURES
CONTRACTS AND
FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gains or
losses on:
Securities.......... 21,129,001 11,080,737 1,277,329 47,348,560 92,508,170 17,941,434
149,288,259
Futures contracts... 0 0 0 0 3,075,767
0 0
Foreign currency
related
transactions....... 0 0 0 0 (493)
(205) 260,070
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains or
losses on
securities, futures
contracts, foreign
currency related
transactions and
foreign currency
related
transactions........ 21,129,001 11,080,737 1,277,329 47,348,560 95,583,444 17,941,229
149,548,329
- -----------------------------------------------------------------------------------------------------------------------------
Net change in
unrealized gains or
losses on securities
and foreign currency
related
transactions........ (32,882,258) (131,256,024) (14,974,624) (33,661,614) (507,105,194) (120,015,197)
(105,851,911)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gains or
losses on
securities, futures
contracts and
foreign currency
related
transactions........ (11,753,257) (120,175,287) (13,697,295) 13,686,946 (411,521,750) (102,073,968)
43,696,418
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS..... $(14,616,638) $(117,225,923) $(14,209,433) $11,520,717 $(420,575,059) $(101,842,187) $
43,149,063
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
See Combined Notes to Financial Statements.
61
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year Ended June 30, 1998
<TABLE>
<CAPTION>
STOCK
SELECTOR
FUND
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Dividends....................................................... $ 6,255,049
Interest........................................................ 348,724
- --------------------------------------------------------------------------------
Total income................................................... 6,603,773
EXPENSES
Advisory fee.................................................... 4,270,615
Distribution Plan expenses...................................... 49,441
Transfer agent fees............................................. 179,534
Custodian fees.................................................. 984
Administrative service fees..................................... 1,442,317
Professional fees............................................... 63,803
Printing........................................................ 79,413
Registration fees............................................... 71,862
Other........................................................... 78,284
- --------------------------------------------------------------------------------
Total expenses................................................. 6,236,253
Less: Fee waivers and/or expense reimbursements................. (421,178)
- --------------------------------------------------------------------------------
Net expenses................................................... 5,815,075
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME........................................... 788,698
- --------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS OR LOSSES ON SECURITIES
Net realized gains or losses on securities...................... 99,737,743
Net change in unrealized gains or losses on securities.......... 10,477,319
- --------------------------------------------------------------------------------
Net realized and unrealized gains or losses on securities....... 110,215,062
- --------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS............ $111,003,760
- --------------------------------------------------------------------------------
</TABLE>
See Combined Notes to Financial Statements.
62
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended September 30, 1998
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK
STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH
SELECTOR GROWTH
FUND FUND FUND FUND FUND
FUND* FUND
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
<C>
OPERATIONS
Net investment
income.......... $ (2,863,381) $ 2,949,364 $ (512,138) $ (2,166,229) $ (9,053,309) $ 231,781
$ (547,355)
Net realized
gains or losses
on securities,
futures
contracts and
foreign currency
related
transactions.... 21,129,001 11,080,737 1,277,329 47,348,560 95,583,444 17,941,229
149,548,329
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... (32,882,258) (131,256,024) (14,974,624) (33,661,614) (507,105,194) (120,015,197)
(105,851,911)
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... (14,616,638) (117,225,923) (14,209,433) 11,520,717 (420,575,059)
(101,842,187) 43,149,063
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (756,350) 0 0 0
0 0
Class B......... 0 0 0 0 0
0 (1,289,169)
Class Y......... 0 (6,894,401) 0 0 0
0 0
From net realized
gains
Class A......... (6,090,321) (3,670,523) (142,183) (14,940,773) 0
0 0
Class B......... (1,515,887) (11,529,535) (114,702) (10,805,705) (124,537,167) 0
(113,103,093)
Class C......... (134,112) (199,185) (57,650) (1,549,758) 0
0 0
Class Y......... (1,606,606) (23,699,502) (2,593,995) (493) 0
0 0
- ------------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... (9,346,926) (46,749,496) (2,908,530) (27,296,729) (124,537,167) 0
(114,392,262)
- ------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 68,811,650 2,735,869,664 28,365,456 56,200,250 489,047,720
34,074,181 74,908,829
Payment for
shares
redeemed........ (111,550,305) (2,543,496,256) (17,334,111) (70,377,012) (834,438,095) (75,761,134)
(188,432,304)
Net asset value
of shares issued
in reinvestment
of
distributions... 8,139,247 40,835,635 2,124,920 25,295,379 105,065,592 0
101,552,338
Shares issued in
acquisition of
Keystone Small
Company Growth
Fund II......... 0 0 0 0 33,587,309
0 0
- ------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... (34,599,408) 233,209,043 13,156,265 11,118,617 (206,737,474) (41,686,953)
(11,971,137)
- ------------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... (58,562,972) 69,233,624 (3,961,698) (4,657,395) (751,849,700) (143,529,140)
(83,214,336)
NET ASSETS
Beginning of
year............ 263,525,717 1,778,096,394 55,144,344 289,268,598 1,545,745,518 584,844,634
919,980,733
- ------------------------------------------------------------------------------------------------------------------------------
END OF YEAR...... $ 204,962,745 $ 1,847,330,018 $ 51,182,646 $284,611,203 $ 793,895,818 $ 441,315,494 $
836,766,397
- ------------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (13,651) $ 1,991,530 $ (12,286) $ (4,940) $ (31,807) $ 231,576
$ (20,596)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
See Combined Notes to Financial Statements.
63
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
AGGRESSIVE SMALL STOCK
STRATEGIC
GROWTH EVERGREEN MICRO CAP OMEGA COMPANY GROWTH SELECTOR
GROWTH
FUND***** FUND***** FUND***** FUND**** FUND***
FUND** FUND*
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment
income.......... $ (1,900,304) $ 7,514,387 $ (209,402) $ (1,130,464) $ (7,065,364) $ 788,698
$ 655,106
Net realized
gains or losses
on securities
and foreign
currency related
transactions.... 12,171,177 36,805,817 3,640,708 17,255,823 110,149,243 99,737,743
80,803,578
Net change in
unrealized gains
or losses on
securities and
foreign currency
related
transactions.... 16,257,433 388,053,134 16,316,906 35,276,768 184,561,753 10,477,319
105,055,036
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
operations..... 26,528,306 432,373,338 19,748,212 51,402,127 287,645,632 111,003,760
186,513,720
- -----------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net
investment
income
Class A......... 0 (454,970) 0 0 0
0 0
Class B......... 0 0 0 0 0
(3,827) 0
Class Y......... 0 (5,485,239) 0 0 0
(1,044,935) 0
From net realized
gains
Class A......... 0 (2,174,311) 0 (6,112,342) 0
(2,420,586) 0
Class B......... 0 (6,498,011) 0 (4,386,128) (114,171,454) (16,877)
(59,854,176)
Class C......... 0 (143,970) 0 (657,041) 0
0 0
Class Y......... 0 (18,647,833) 0 (1) 0
(69,731,105) 0
- -----------------------------------------------------------------------------------------------------------------------------
Total
distributions
to
shareholders... 0 (33,404,334) 0 (11,155,512) (114,171,454) (73,217,330)
(59,854,176)
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from
shares sold..... 109,161,502 1,988,694,819 7,828,678 43,285,351 243,488,031 86,624,977
120,935,075
Payment for
shares
redeemed........ (99,552,842) (1,825,979,211) (14,445,981) (66,967,170) (369,839,740) (137,373,206)
(165,997,292)
Net asset value
of shares issued
in reinvestment
of
distributions... 0 28,705,464 0 10,330,073 91,854,430 66,747,336
53,539,767
Shares issued in
acquisition of
Keystone America
Hartwell
Emerging Growth
Fund............ 82,227,499 0 0 0 0
0 0
Shares issued in
acquisition of
Keystone Mid-Cap
Growth Fund (S-
3).............. 0 0 0 0 0 0
287,967,178
- -----------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in
net assets
resulting from
capital share
transactions... 91,836,159 191,421,072 (6,617,303) (13,351,746) (34,497,279) 15,999,107
296,444,728
- -----------------------------------------------------------------------------------------------------------------------------
Total increase
(decrease) in
net assets.... 118,364,465 590,390,076 13,130,909 26,894,869 138,976,899 53,785,537
423,104,272
NET ASSETS
Beginning of
period.......... 145,161,252 1,187,706,318 42,013,435 262,373,729 1,406,768,619 531,059,097
496,876,461
- -----------------------------------------------------------------------------------------------------------------------------
END OF PERIOD.... $263,525,717 $ 1,778,096,394 $ 55,144,344 $289,268,598 $1,545,745,518 $ 584,844,634 $
919,980,733
- -----------------------------------------------------------------------------------------------------------------------------
Undistributed net
investment
income.......... $ (11,041) $ 6,784,258 $ (11,658) $ (2,889) $ (16,648) $ 28,200
$ 985,051
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
** For the year ended June 30, 1997.
*** For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1997.
**** For the nine-month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
***** For the year ended September 30, 1997.
See Combined Notes to Financial Statements.
64
<PAGE>
- --------------------------------------------------------------------------------
EVERGREEN
Domestic Growth Funds
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
Prior Periods
<TABLE>
<CAPTION>
SMALL STOCK STRATEGIC
OMEGA COMPANY GROWTH SELECTOR GROWTH
FUND**** FUND*** FUND** FUND*
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income... $ (1,563,271) $ (22,139,802) $ 2,927 $ (2,412,617)
Net realized gains or
losses on securities
and foreign currency
related transactions... 35,051,903 117,982,561 66,598 70,337,618
Net change in unrealized
gains or losses on
securities and foreign
currency related
transactions........... (8,092,996) (279,047,661) 67,597 (7,283,970)
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from
operations............ 25,395,636 (183,204,902) 137,122 60,641,031
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS
From net investment
income
Class A................ 0 0 (49) 0
Class B................ 0 0 0 (478,981)
Class Y................ 0 0 (2,858) 0
From net realized gains
Class A................ (15,011,932) 0 (977) 0
Class B................ (9,027,710) (200,508,632) 0 (22,079,862)
Class C................ (1,879,136) 0 0 0
Class Y................ 0 0 (35,253) 0
- -----------------------------------------------------------------------------------
Total distributions to
shareholders.......... (25,918,778) (200,508,632) (39,137) (22,558,843)
- -----------------------------------------------------------------------------------
CAPITAL SHARE
TRANSACTIONS
Proceeds from shares
sold................... 68,666,813 1,018,919,437 60,154 65,085,209
Payment for shares
redeemed............... (69,108,584) (1,402,606,782) 39,148 (118,085,204)
Net asset value of
shares issued in
reinvestment of
distributions.......... 24,060,522 168,366,921 (92,231) 20,184,450
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 18,599,730 0 0 0
- -----------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from capital
share transactions.... 42,218,481 (215,320,424) 7,071 (32,815,545)
- -----------------------------------------------------------------------------------
Total increase
(decrease) in net
assets............... 41,695,339 (599,033,958) 105,056 5,266,643
NET ASSETS
Beginning of period..... 220,678,390 2,005,802,577 426,002 491,609,818
- -----------------------------------------------------------------------------------
END OF PERIOD........... $262,373,729 $ 1,406,768,619 $531,058 $ 496,876,461
- -----------------------------------------------------------------------------------
Undistributed net
investment income...... $ 0 $ (7,516) $ 1 $ 85,978
- -----------------------------------------------------------------------------------
</TABLE>
* For the year ended October 31, 1996.
** For the year ended June 30, 1997. Values shown in thousands. This Fund was
formerly known as the CoreFunds Inc., Core Equity Fund.
*** For the year ended May 31, 1997.
**** For the year ended December 31, 1996.
See Combined Notes to Financial Statements.
65
<PAGE>
Combined Notes to Financial Statements
1. ORGANIZATION
The Evergreen Domestic Growth Funds consist of Evergreen Aggressive Growth Fund
("Aggressive Growth Fund"), Evergreen Fund ("Evergreen Fund"), Evergreen Micro
Cap Fund ("Micro Cap Fund"), Evergreen Omega Fund ("Omega Fund"), Evergreen
Small Company Growth Fund ("Small Company Growth Fund"), Evergreen Stock Selec-
tor Fund ("Stock Selector Fund") and Evergreen Strategic Growth Fund ("Strate-
gic Growth Fund"), which are collectively referred to herein as the "Funds".
Each Fund is registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as diversified, open-end management investment companies.
Each Fund is a series of the Evergreen Equity Trust, a Delaware business Trust
organized on September 18, 1997.
The Funds offer Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing dis-
tribution fee than Class A. Class B shares are sold subject to a contingent de-
ferred sales charge that is payable upon redemption and decreases depending on
how long the shares have been held. Class C shares are sold subject to a con-
tingent deferred sales charge payable on shares redeemed within one year after
the month of purchase. Class B shares purchased after January 1, 1997 will au-
tomatically convert to Class A shares after seven years. Class B shares pur-
chased prior to January 1, 1997 retain their existing conversion rights. Class
Y shares are sold at net asset value and are not subject to contingent deferred
sales charges or distribution fees. Class Y shares are sold only to investment
advisory clients of First Union Corporation ("First Union") and its affiliates,
certain institutional investors or Class Y shareholders of record of certain
other funds managed by First Union and its affiliates.
2. REORGANIZATION OF EVERGREEN STOCK SELECTOR FUND
Effective on the close of business on July 24, 1998, Stock Selector Fund ac-
quired all of the net assets and certain liabilities of the CoreFund Core Eq-
uity Fund (the "CoreFund") through a tax-free exchange of shares. Shareholders
of Class A, Class B and Class Y shares of the CoreFund became owners of that
number of full and fractional shares of Class A, Class B, and Class Y, respec-
tively, of Stock Selector Fund having an aggregate net asset value equal to the
aggregate net asset value of their shares of the CoreFund immediately prior to
the close of business on July 24, 1998. The operating results for prior periods
have been carried forward.
3. ACQUISITION INFORMATION
Effective on the close of business on August 14, 1997, Aggressive Growth Fund
acquired the net assets of Keystone America Hartwell Emerging Growth Fund, an
open-end management investment company registered under the 1940 Act, in an ex-
change of shares. The net assets were exchanged through a non-taxable exchange
for 3,462,126, 287,735, and 87,678 Class A, Class B and Class C shares, respec-
tively, of Aggressive Growth Fund. The acquired net assets consisted primarily
of portfolio securities with unrealized appreciation of $26,393,360. The aggre-
gate net assets of Aggressive Growth Fund immediately after the acquisition
were $245,798,619.
On April 25, 1996, Omega Fund acquired the net assets of Keystone Hartwell
Growth Fund, an open-end management investment company registered under the
1940 Act, in an exchange of Class A, Class B and Class C shares. The net assets
of Keystone Hartwell Growth Fund were exchanged through a nontaxable exchange
for 910,037, 66,754, and 25,665 Class A, Class B, and Class C shares, respec-
tively, of Omega Fund. The acquired net assets consisted primarily of portfolio
securities with unrealized appreciation of $7,665,038. The aggregate net assets
of Omega Fund immediately after the acquisition were $255,527,188.
Effective at the close of business on January 2, 1998, Small Company Growth
Fund acquired the net assets of Keystone Small Company Growth Fund II, an open-
end management investment company registered under the 1940 Act, in an exchange
of shares. The net assets were exchanged through a non-taxable exchange for
1,123,086, 2,456,961, 675,716 and 87,676 Class A, Class B, Class C and Class Y
shares, respectively, of Small
66
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
Company Growth Fund. The acquired net assets consisted primarily of portfolio
securities with unrealized appreciation of $490,029. The aggregate net assets
of Small Company Growth Fund immediately after the acquisition were
$1,340,337,418.
Effective on the close of business on July 17, 1997, Strategic Growth Fund ac-
quired the net assets of Keystone Mid-Cap Growth Fund (S-3), an open-end man-
agement investment company registered under the 1940 Act, in an exchange of
shares. The net assets were exchanged through a non-taxable exchange for
28,278,170 Class B shares of Strategic Growth Fund. The acquired net assets
consisted primarily of portfolio securities with unrealized appreciation of
$63,919,167. The aggregate net assets of Strategic Growth Fund immediately af-
ter the acquisition were $880,849,984.
4. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently fol-
lowed by the Funds in the preparation of their financial statements. The poli-
cies are in conformity with generally accepted accounting principles, which re-
quire management to make estimates and assumptions that affect amounts reported
herein. Actual results could differ from these estimates.
A. VALUATION OF SECURITIES
The Funds value securities traded on a national securities exchange or included
on the Nasdaq National Market System ("NMS"), at the last reported sales price
on the exchange where primarily traded. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean be-
tween the over-the-counter bid and asked prices. Corporate bonds, other fixed-
income securities, and mortgage and other asset-backed securities are valued at
prices provided by an independent pricing service. In determining value for
normal institutional-size transactions, the pricing service uses methods based
on market transactions for comparable securities and analysis of various rela-
tionships between similar securities which are generally recognized by institu-
tional traders. Securities for which valuations are not available from an inde-
pendent pricing service, which may include restricted securities, are valued at
fair value as determined in good faith according to procedures established by
the Board of Trustees. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
B. REPURCHASE AGREEMENTS
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the securi-
ties pledged falls below the carrying value of the repurchase agreement, in-
cluding accrued interest. Each Fund will only enter into repurchase agreements
with banks and other financial institutions which are deemed by the investment
advisor to be creditworthy pursuant to guidelines established by the Board of
Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange Commis-
sion, Omega, Small Company Growth, and Strategic Growth, along with certain
other funds managed by Evergreen Investment Management Company (formerly Key-
stone Investment Management Company) ("EIMCO"), a subsidiary of First Union,
may transfer uninvested cash balances into a joint trading account. These bal-
ances are invested in one or more repurchase agreements that are fully collat-
eralized by U.S. Treasury and/or federal agency obligations.
C. FOREIGN CURRENCY
The books and records of the Funds are maintained in United States (U.S.) dol-
lars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of ex-
change; purchases and sales of investments, income and expenses at the rate of
exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain or loss resulting from changes in foreign cur-
rency exchange rates is a component of net unrealized gains or losses on secu-
rities and foreign currency related transactions. Net realized foreign currency
gains and losses resulting from changes in
67
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
exchange rates include: foreign currency gains and losses between trade date
and settlement date on investment securities transactions, foreign currency re-
lated transactions and the difference between the amounts of interest and divi-
dends recorded on the books of the Funds and the amounts actually received.
Such gains and losses are included in realized gains or losses on foreign cur-
rency related transactions. The portion of foreign currency gains and losses
related to fluctuations in exchange rates between the initial purchase trade
date and subsequent sale trade date is included in realized gains or losses on
security transactions.
D. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or liabili-
ties. Forward contracts are recorded at the forward rate and marked-to-market
daily. Realized gains and losses arising from such transactions are included in
net realized gains or losses on foreign currency related transactions. The Fund
bears the risk of an unfavorable change in the foreign currency exchange rate
underlying the forward contract and is subject to the credit risk that the
other party will not fulfill their obligations under the contract. Forward con-
tracts involve elements of market risk in excess of the amount reflected in the
statement of assets and liabilities.
E. FUTURES CONTRACTS
In order to gain exposure to or protect against changes in security values, the
Funds may buy and sell futures contracts.
The initial margin deposited with a broker when entering into a futures trans-
action is subsequently adjusted by daily payments or receipts as the value of
the contract changes. Such changes are recorded as unrealized gains or losses.
Realized gains or losses are recognized on closing the contract.
Risks of entering into futures contracts include (i) the possibility of an il-
liquid market for the contract, (ii) the possibility that a change in the value
of the contract may not correlate with changes in the value of the underlying
instrument or index, and (iii) the credit risk that the other party will not
fulfill their obligations under the contract. Futures contracts also involve
elements of market risk in excess of the amount reflected in the statement of
assets and liabilities.
F. SECURITIES LENDING
In order to generate income and to offset expenses, the Funds may lend portfo-
lio securities to brokers, dealers and other financial organizations. The
Funds' investment adviser will monitor the creditworthiness of such borrowers.
Loans of securities may not exceed 30% of a Fund's total assets and will be
collateralized by cash, letters of credit or U.S. Government securities that
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities, including accrued interest. While such
securities are on loan, the borrower will pay a Fund any income accruing there-
on, and the Fund may invest the collateral in portfolio securities, thereby in-
creasing its return. A Fund will have the right to call any such loan and ob-
tain the securities loaned at any time on five days' notice. Any gain or loss
in the market price of the loaned securities, which occurs during the term of
the loan, would affect a Fund and its investors. A Fund may pay reasonable fees
in connection with such loans.
G. SECURITY TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date there-
after when the Fund is made aware of the dividend. Foreign income may be sub-
ject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities maybe subject to foreign taxes and
are accrued as applicable.
H. FEDERAL TAXES
The Funds intend to continue to qualify as regulated investment companies under
the Internal Revenue Code of 1986, as amended (the "Code"). As such, the Funds
will not incur any federal income tax liability since they
68
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
are expected to distribute all of their net investment company taxable income
and net realized capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
I. DISTRIBUTIONS
Distributions from net investment income and/or net realized capital gains for
the Funds are declared and paid at least annually. Distributions to sharehold-
ers are recorded at the close of business on the ex-dividend date.
Income and capital gains distributions to shareholders are determined in accor-
dance with income tax regulations, which may differ from generally accepted ac-
counting principles. The significant differences between financial statements
amounts available for distribution and distributions made in accordance with
income tax regulations are primarily due to differing treatment for certain
distributions received from real estate investment trusts and certain operating
expenses.
J. CLASS ALLOCATIONS
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the rela-
tive net assets of each class. Currently, class specific expenses are limited
to expenses incurred under the Distribution Plans for each class.
K. ORGANIZATION EXPENSES
Organization expenses are amortized over a five-year period on a straight-line
basis. In the event any of the initial shares of the Funds are redeemed by any
holder during the five-year amortization period, redemption proceeds will be
reduced by any unamortized organization expenses in the same proportion as the
number of initial shares being redeemed bears to the number of initial shares
outstanding at the time of the redemption.
69
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
5. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest authorized
with a $0.001 par value. Shares of beneficial interest of the Funds are cur-
rently divided into Class A, Class B, Class C and Class Y. Currently, Stock Se-
lector Fund does not have any Class C shares and Strategic Growth Fund does not
have any Class Y shares. Transactions in shares of the Funds were as follows:
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1998 1997
------------------------ -----------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold................ 1,458,678 $ 32,751,533 2,422,550 $47,560,544
Shares redeemed............ (2,644,186) (58,974,321) (3,066,636) (61,339,895)
Shares issued in
reinvestment of
distributions............. 256,170 5,566,568 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 3,462,126 74,280,008
- -------------------------------------------------------------------------------
Net increase (decrease).... (929,338) (20,656,220) 2,818,040 60,500,657
- -------------------------------------------------------------------------------
CLASS B
Shares sold................ 438,746 9,743,538 816,049 16,534,301
Shares redeemed............ (537,072) (11,598,031) (363,564) (7,410,013)
Shares issued in
reinvestment of
distributions............. 69,204 1,481,656 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 287,735 6,092,951
- -------------------------------------------------------------------------------
Net increase (decrease).... (29,122) (372,837) 740,220 15,217,239
- -------------------------------------------------------------------------------
CLASS C
Shares sold................ 257,084 5,525,299 147,478 2,974,904
Shares redeemed............ (311,675) (6,765,435) (110,246) (2,231,375)
Shares issued in
reinvestment of
distributions............. 6,094 130,354 0 0
Shares issued in
acquisition of Keystone
America Hartwell Emerging
Growth Fund............... 0 0 87,678 1,854,540
- -------------------------------------------------------------------------------
Net increase (decrease).... (48,497) (1,109,782) 124,910 2,598,069
- -------------------------------------------------------------------------------
CLASS Y
Shares sold................ 948,746 20,791,280 2,044,324 42,091,753
Shares redeemed............ (1,556,481) (34,212,518) (1,390,494) (28,571,559)
Shares issued in
reinvestment of
distributions............. 44,007 960,669 0 0
- -------------------------------------------------------------------------------
Net increase (decrease).... (563,728) (12,460,569) 653,830 13,520,194
- -------------------------------------------------------------------------------
Net increase (decrease).... (1,570,685) $(34,599,408) 4,337,000 $91,836,159
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
EVERGREEN FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold............. 26,892,204 $ 635,409,399 10,240,806 $ 201,289,910
Shares redeemed......... (25,471,595) (602,607,887) (8,297,731) (163,949,566)
Shares issued in
reinvestment of
distributions.......... 197,302 4,386,012 141,874 2,555,157
- ------------------------------------------------------------------------------------
Net increase............ 1,617,911 37,187,524 2,084,949 39,895,501
- ------------------------------------------------------------------------------------
CLASS B
Shares sold............. 11,537,318 271,151,787 9,332,781 179,140,600
Shares redeemed......... (4,288,369) (99,320,748) (2,027,269) (39,748,674)
Shares issued in
reinvestment of
distributions.......... 516,498 11,383,615 359,029 6,426,786
- ------------------------------------------------------------------------------------
Net increase............ 7,765,447 183,214,654 7,664,541 145,818,712
- ------------------------------------------------------------------------------------
CLASS C
Shares sold............. 311,900 7,316,782 166,021 3,177,817
Shares redeemed......... (105,425) (2,443,473) (123,428) (2,398,358)
Shares issued in
reinvestment of
distributions.......... 8,349 183,677 7,595 135,795
- ------------------------------------------------------------------------------------
Net increase............ 214,824 5,056,986 50,188 915,254
- ------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 77,736,786 1,821,991,696 82,859,843 1,605,086,492
Shares redeemed......... (78,332,089) (1,839,124,148) (83,538,658) (1,619,882,613)
Shares issued in
reinvestment of
distributions.......... 1,115,299 24,882,331 1,085,192 19,587,726
- ------------------------------------------------------------------------------------
Net increase............ 519,996 7,749,879 406,377 4,791,605
- ------------------------------------------------------------------------------------
Net increase............ 10,118,178 $ 233,209,043 10,206,055 $ 191,421,072
- ------------------------------------------------------------------------------------
</TABLE>
70
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
MICRO CAP FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------
1998 1997
--------------------- ----------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................... 359,192 $ 9,478,268 115,021 $ 2,520,780
Shares redeemed................ (217,436) (5,670,641) (75,840) (1,765,373)
Shares issued in reinvestment
of distributions.............. 5,408 138,923 0 0
- ------------------------------------------------------------------------------
Net increase................... 147,164 3,946,550 39,181 755,407
- ------------------------------------------------------------------------------
CLASS B
Shares sold.................... 195,624 5,003,162 16,193 358,523
Shares redeemed................ (46,210) (1,107,294) (36,249) (699,297)
Shares issued in reinvestment
of distributions.............. 4,452 111,788 0 0
- ------------------------------------------------------------------------------
Net increase (decrease)........ 153,866 4,007,656 (20,056) (340,774)
- ------------------------------------------------------------------------------
CLASS C
Shares sold.................... 219,122 5,600,712 8,543 214,527
Shares redeemed................ (71,292) (1,779,947) (152) (3,237)
Shares issued in reinvestment
of distributions.............. 2,222 55,851 0 0
- ------------------------------------------------------------------------------
Net increase................... 150,052 3,876,616 8,391 211,290
- ------------------------------------------------------------------------------
CLASS Y
Shares sold.................... 325,348 8,283,314 216,277 4,734,848
Shares redeemed................ (335,562) (8,776,229) (609,034) (11,978,074)
Shares issued in reinvestment
of distributions.............. 70,343 1,818,358 0 0
- ------------------------------------------------------------------------------
Net increase (decrease)........ 60,129 1,325,443 (392,757) (7,243,226)
- ------------------------------------------------------------------------------
Net increase (decrease)........ 511,211 $13,156,265 (365,241) $ (6,617,303)
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
OMEGA FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------- Year Ended
1998 1997* December 31, 1996
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 1,365,259 $ 31,279,961 764,570 $ 14,997,288 1,759,793 $ 33,571,953
Shares redeemed......... (1,928,567) (43,773,765) (1,812,460) (35,414,920) (2,381,626) (44,999,521)
Shares issued in
reinvestment of
distributions.......... 652,599 13,593,635 292,502 5,545,839 736,752 13,822,516
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 910,037 16,929,242
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 89,291 1,099,831 (755,388) (14,871,793) 1,024,956 19,324,190
- -------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 1,005,764 21,758,490 1,361,525 25,967,636 1,552,928 28,806,348
Shares redeemed......... (992,163) (21,153,692) (1,280,735) (24,835,178) (1,062,059) (19,500,081)
Shares issued in
reinvestment of
distributions.......... 515,276 10,207,610 227,976 4,149,157 466,572 8,494,665
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 66,754 1,206,044
- -------------------------------------------------------------------------------------------------------
Net increase............ 528,877 10,812,408 308,766 5,281,615 1,024,195 19,006,976
- -------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 105,783 2,255,994 121,875 2,315,406 336,661 6,288,512
Shares redeemed......... (244,821) (5,151,403) (352,354) (6,717,072) (253,439) (4,608,982)
Shares issued in
reinvestment of
distributions.......... 75,246 1,493,641 34,837 635,076 95,593 1,743,341
Shares issued in
acquisition of Keystone
Hartwell Growth Fund... 0 0 0 0 25,665 464,444
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (63,792) (1,401,768) (195,642) (3,766,590) 204,480 3,887,315
- -------------------------------------------------------------------------------------------------------
CLASS Y**
Shares sold............. 38,657 905,805 232 5,021 0 0
Shares redeemed......... (12,421) (298,152) 0 0 0 0
Shares issued in
reinvestment of
distributions.......... 24 493 0 1 0 0
- -------------------------------------------------------------------------------------------------------
Net increase............ 26,260 608,146 232 5,022 0 0
- -------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. 580,636 $ 11,118,617 (642,032) $(13,351,746) 2,253,631 $ 42,218,481
- -------------------------------------------------------------------------------------------------------
</TABLE>
* For the nine month period ended September 30, 1997. The Fund changed its
fiscal year end from December 31 to September 30, effective September 30,
1997.
** Omega Fund, Class Y shares commenced operations on July 23, 1997.
71
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------- Year Ended
1998 1997* May 31, 1997
----------------------------- -------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 27,641,238 $ 212,158,414 0 0 0 0
Automatic conversion of
Class B shares to Class
A shares............... 124,181,726 962,424,518 0 0 0 0
Shares redeemed......... (49,990,672) (395,810,407) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 1,123,086 8,684,926 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 102,955,378 787,457,451 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 32,457,309 268,266,006 27,990,885 $ 243,488,031 121,645,715 $ 1,018,919,437
Automatic conversion of
Class B shares to Class
A shares............... (124,181,726) (962,424,518) 0 0 0 0
Shares redeemed......... (52,395,091) (430,471,220) (42,215,378) (369,839,740) (168,659,715)
(1,402,606,782)
Shares issued in
reinvestment of
distributions.......... 13,003,167 105,065,592 11,242,892 91,854,430 19,925,079 168,366,921
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 2,456,961 18,998,994 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net decrease............ (128,659,380) (1,000,565,146) (2,981,601) (34,497,279) (27,088,921)
(215,320,424)
- -------------------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 1,067,525 7,292,107 0 0 0 0
Shares redeemed......... (1,025,850) (7,103,508) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 675,716 5,225,388 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 717,391 5,413,987 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 174,175 1,331,193 0 0 0 0
Shares redeemed......... (140,039) (1,052,960) 0 0 0 0
Shares issued in
acquisition of Keystone
Small Company Growth
Fund II................ 87,676 678,001 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net increase............ 121,812 956,234 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
Net decrease............ (24,864,799) $ (206,737,474) (2,981,601) $ (34,497,279) (27,088,921) $
(215,320,424)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* For the four-month period ended September 30, 1997. The Fund changed its
fiscal year end from May 31 to September 30, effective September 30, 1998.
- --------------------------------------------------------------------------------
STOCK SELECTOR FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
Period Ended -------------------------------------------
September 30, 1998** 1998 1997*
------------------------ ------------------------- ----------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 9,092 $ 185,580 179,299 $ 4,004,438 181 $ 3,395
Shares redeemed......... (56,116) (1,183,750) (144,091) (3,155,375) (126) (2,376)
Shares issued in
reinvestment of
distributions.......... 0 0 119,866 2,407,663 57 1,038
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (47,024) (998,170) 155,074 3,256,726 112 2,057
- -----------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 8,269 159,003 17,128 335,684 0 0
Shares redeemed......... (1,244) (22,379) (2,484) (15,011) 0 0
Shares issued in
reinvestment of
distributions.......... 0 0 995 17,497 0 0
- -----------------------------------------------------------------------------------------------
Net increase............ 7,025 136,624 15,639 338,170 0 0
- -----------------------------------------------------------------------------------------------
CLASS Y
Shares sold............. 1,552,973 33,729,598 3,703,125 82,284,855 3,083 56,759
Shares redeemed......... (3,531,924) (74,555,005) (6,152,133) (134,202,820) (4,824) (89,855)
Shares issued in
reinvestment of
distributions.......... 0 0 3,198,533 64,322,176 2,104 38,110
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (1,978,951) (40,825,407) 749,525 12,404,211 363 5,014
- -----------------------------------------------------------------------------------------------
Net increase
(decrease)............. (2,018,950) $(41,686,953) 920,238 $ 15,999,107 475 $ 7,071
- -----------------------------------------------------------------------------------------------
</TABLE>
* Amounts shown in thousands.
** For the three-month period ended September 30, 1998. The Fund changed its
fiscal year end from June 30 to September 30, effective September 30, 1998.
72
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
- --------------------------------------------------------------------------------
STRATEGIC GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------ Year Ended October 31,
1998 1997* 1996
-------------------------- -------------------------- --------------------------
Shares Amount Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold............. 2,441,784 $ 24,888,096 0 0 0 0
Automatic conversion of
Class B shares to Class
A shares............... 80,710,264 735,774,137 0 0 0 0
Shares redeemed......... (10,150,776) (103,841,488) 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 73,001,272 656,820,745 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold............. 4,930,584 49,374,717 13,375,436 $ 120,935,075 8,012,349 $ 65,085,209
Automatic conversion of
Class B shares to Class
A shares............... (80,710,264) (735,774,137) 0 0 0 0
Shares redeemed......... (8,473,644) (84,439,886) (18,734,530) (165,997,292) (14,456,998) (118,085,204)
Shares issued in
reinvestment of
distributions.......... 11,014,353 101,552,338 6,585,457 53,539,767 2,591,072 20,184,450
Shares issued in
acquisition of Keystone
Mid Cap Growth Fund.... 0 0 28,278,170 287,967,178 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (73,238,971) (669,286,968) 29,504,533 296,444,728 (3,853,577) (32,815,545)
- -------------------------------------------------------------------------------------------------------------
CLASS C
Shares sold............. 62,655 646,015 0 0 0 0
Shares redeemed......... (15,565) (150,929) 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase............ 47,090 495,086 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net increase
(decrease)............. (190,609) $ (11,971,137) 29,504,533 $ 296,444,728 (3,853,577) $ (32,815,545)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* For the eleven-month period ended September 30, 1997. The Fund changed its
fiscal year end from October 31 to September 30, effective September 30,
1997.
6. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the year ended September 30, 1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-----------------------------
<S> <C> <C>
Aggressive Growth Fund............ $ 50,254,882 $ 98,048,122
Evergreen Fund.................... 280,760,053 119,838,170
Micro Cap Fund.................... 35,188,696 28,775,444
Omega Fund........................ 446,948,856 482,462,280
Small Company Growth Fund......... 1,178,780,023 1,576,919,572
Stock Selector Fund*.............. 137,026,533 189,768,425
Strategic Growth Fund............. 1,195,180,992 1,350,525,235
</TABLE>
-------
* For the period from July 1, 1998 to September 30, 1998.
On September 30, 1998, the composition of unrealized appreciation and deprecia-
tion of investment securities based on the aggregate cost of investments for
federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Net
Gross Gross Unrealized
Unrealized Unrealized Appreciation/
Tax Cost Appreciation Depreciation (Depreciation)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive
Growth Fund... $ 134,332,397 $ 89,730,633 $ 19,467,905 $ 70,262,728
Evergreen
Fund.......... 1,220,062,867 763,461,052 92,577,671 670,883,381
Micro Cap
Fund.......... 48,587,737 8,495,470 6,135,598 2,359,872
Omega Fund..... 244,819,986 45,136,485 5,832,158 39,304,327
Small Company
Growth Fund... 804,094,846 126,219,606 139,583,182 (13,363,576)
Stock Selector
Fund.......... 434,533,188 76,298,087 77,221,341 (923,254)
Strategic
Growth Fund... 690,147,444 152,211,650 13,809,384 138,402,266
</TABLE>
Small Company Growth Fund loaned securities during the year ended September 30,
1998 to certain brokers who paid the Fund a negotiated lenders' fee. At Septem-
ber 30, 1998, the Fund had no securities on loan.
At September 30, 1998, Small Company Growth Fund for federal tax purposes, had
a capital loss carryforward of approximately $104,728,148. Pursuant to the In-
ternal Revenue Code, such capital loss carryforward will expire in 2006.
73
<PAGE>
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
7. DISTRIBUTION PLANS
Evergreen Distributor, Inc. ("EDI"), a wholly-owned subsidiary of The BISYS
Group Inc. ("BISYS") serves as principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares as allowed by
Rule 12b-1 of the 1940 Act. Distribution plans permit each Fund to reimburse
its principal underwriter for costs related to selling shares of the fund and
for various other services. These costs, which consist primarily of commissions
and services fees to broker-dealers who sell shares of the Fund, are paid by
shareholders through expenses called "Distribution Plan expenses". Each class,
except Class Y, currently pays a service fee equal to 0.25% of the average
daily net asset of the class. Class B and Class C also presently pay distribu-
tion fees equal to 0.75% of the average daily net assets of the Class. Distri-
bution Plan expenses are calculated daily and paid monthly. With respect to
Class B and Class C shares, the principal underwriter may pay 12b-1 fees
greater than the allowable annual amounts the Funds are permitted to pay. The
Funds may reimburse the principal underwriter for such excess amounts in later
years with annual interest at the prime rate plus 1.00%.
During the year ended September 30, 1998, amounts paid to EDI and/or its prede-
cessor pursuant to each Fund's Class A, Class B and Class C Distribution Plans
were as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1998
------------------------------
Class A Class B Class C
<S> <C> <C> <C>
------------------------------
Aggressive Growth Fund.......... $ 386,073 $ 392,895 $ 34,024
Evergreen Fund.................. 487,965 6,189,891 119,399
Micro Cap Fund.................. 11,483 39,503 28,617
Omega Fund...................... 369,456 1,170,948 156,647
Small Company Growth Fund....... 1,539,502 3,613,415 34,762
Stock Selector Fund*............ 11,597 894 0
Strategic Growth Fund........... 1,356,293 1,959,585 1,534
</TABLE>
-------
* For the period from July 1, 1998 to September 30, 1998.
Each of the Distribution Plans may be terminated at any time by vote of the In-
dependent Trustees or by vote of a majority of the outstanding voting shares of
the respective class.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
8. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The Capital Management Group of First Union ("CMG"), the investment adviser for
Aggressive Growth Fund, is entitled to an annual fee of 0.60% of the average
daily net assets, pursuant to the Fund's investment advisory agreement.
Pursuant to an agreement with Evergreen Fund and Micro Cap Fund, Evergreen As-
set Management Corp. ("EAMC"), a wholly owned subsidiary of First Union, is en-
titled to an annual fee based on each of Evergreen Fund's and Micro Cap Fund's
average daily net assets, respectively, in accordance with the following sched-
ule:
<TABLE>
<S> <C>
First $750 million......................................... 1.00%
Next $250 million.......................................... 0.90%
Over $1 billion............................................ 0.80%
</TABLE>
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
Evergreen Fund and Micro Cap Fund. Lieber & Company provides these services at
no additional cost to the Funds.
EIMCO, as the investment adviser for Omega Fund, Small Company Growth Fund and
Strategic Growth Fund, receives a management fee that is calculated daily and
paid monthly for providing investment advisory and management services. For
Omega Fund, the management fee paid to EIMCO is determined by applying percent-
age rates starting at 0.75% and declining to 0.50% per annum as net assets in-
crease, to the average daily net asset value of the Fund. For Small Company
Growth Fund and Strategic Growth Fund, the management fee paid to EIMCO is de-
termined by applying percentage rates starting at 0.70% and declining to 0.35%
per annum as net assets increase, to the average daily net asset value of the
Fund.
74
<PAGE>
[LOGO]
COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
The investment adviser to Stock Selector Fund is Meridian Investment Company
("Meridian"). Meridian is an indirect subsidiary of First Union. Meridian man-
ages investments and supervises the daily business affairs of Stock Selector
Fund subject to the authority of the Trustees. Meridian is entitled to an an-
nual fee equal to 0.74% of the Fund's average daily net assets.
Prior to the reorganization of Stock Selector Fund on July 27, 1998, CoreStates
Investment Advisers, Inc. ("CSIA") provided investment advisory services for
Stock Selector Fund (formerly CoreFund Core Equity Fund). For its services,
CSIA was entitled to an annual fee of 0.74% of the average daily net assets,
pursuant to the Fund's investment advisory agreement dated April 12, 1996. Ad-
visory fees were computed daily and paid monthly. Additionally, in 1998, CSIA
voluntarily waived a portion of their fees in order to assist the Core Equity
Fund in maintaining competitive expense ratios.
Evergreen Investment Services ("EIS"), a subsidiary of First Union, is the ad-
ministrator and BISYS Fund Services ("BISYS") is sub-administrator to the
Funds. As administrator, EIS provides the Funds with facilities, equipment and
personnel. As sub-administrator to the Funds, BISYS provides the officers of
the Funds. The administrator and sub-administrator for each Fund are entitled
to an annual fee based on the average daily net assets of the funds adminis-
tered by EIS for which First Union or its investment advisory subsidiaries are
also the investment advisers. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The sub-ad-
ministration fee is calculated by applying percentage rates, which start at
0.01% and decline to .004% per annum as net assets increase, to the average
daily net asset value of the Fund. For Evergreen Fund and Micro Cap Fund, the
administration and sub-administration fee is paid by their respective invest-
ment adviser and is not a Fund expense. For the year ended September 30, 1998,
Aggressive Growth Fund paid administrative fees to EIS of $68,149. EIS and
BISYS provide administration and sub-administration services to Omega Fund,
Small Company Growth Fund and Strategic Growth Fund at no additional cost.
Omega Fund, Small Company Growth Fund and Strategic Growth Fund reimbursed
EIMCO for certain administrative and accounting expenses amounting to $50,291,
$223,424 and $155,809, respectively, for the year ended September 30, 1998.
Prior to the reorganization of Stock Selector Fund on July 1, 1998, SEI Fund
Resources ("SFR") acted as the Fund's Administrator. Under the terms of this
agreement, SFR was entitled to receive an annual fee of 0.25% on the average
net assets of the Fund. SFR voluntarily waived a portion of their fees in order
to assist the Fund in maintaining competitive expense ratios.
Lieber & Company also provides brokerage services with respect to substantially
all security transactions of Evergreen Fund and Micro Cap Fund effected on the
New York or American Stock Exchanges. For the year ended September 30, 1998,
Evergreen Fund and Micro Cap Fund incurred $405,182 and $56,631 respectively,
in brokerage commissions with Lieber & Company. Lieber & Company is reimbursed
by EAMC, at no additional expense to the Fund, for its cost of providing in-
vestment advisory services.
Evergreen Service Company ("ESC"), an indirect, wholly-owned subsidiary of
First Union, serves as the transfer and dividend disbursing agent for the
Funds. The Funds have entered into an expense offset arrangement with ESC, re-
lating to certain cash balances held at First Union for the benefit of the Ev-
ergreen Funds.
Prior to the reorganization of Stock Selector Fund on July 1, 1998, Boston Fi-
nancial Data Services ("BFDS"), a wholly owned subsidiary of State Street Bank
and Trust Company acted as the Fund's Transfer Agent. As such, BFDS provided
transfer agency, dividend disbursing and shareholder servicing to the Fund.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
Prior to the reorganization of Stock Selector Fund on July 24, 1998, CoreStates
Bank (now First Union) served as Custodian to the Company. Under the Custodian
Agreement, CoreStates Bank held the Fund's securities and cash items, made re-
ceipts and disbursements of money on behalf of the Fund, collected and received
all
75
<PAGE>
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COMBINED NOTES TO FINANCIAL STATEMENTS(continued)
income and other payments and distributions on account of the Fund's securities
and performed other related services.
9. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
10. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are al-
located to deferral accounts which are included in the accrued expenses for the
Funds. The investment performance of the deferral accounts are based on the in-
vestment performance of certain Evergreen Funds. Any gains earned or losses in-
curred in the deferral accounts are reported in the Fund's Trustees's fees and
expenses. Trustees will be paid either in one lump sum or in quarterly install-
ments for up to ten years at their election, not earlier than either the year
in which the Trustee ceases to be a member of the Board of Trustees or January
1, 2000. As of September 30, 1998, the value of the Trustees deferral account
for Aggressive Growth Fund, Evergreen Fund, Micro Cap Fund, Omega Fund, Small
Company Growth Fund, Stock Selector Fund and Strategic Growth Fund were
$13,652, $87,519, $12,286, $4,940, $31,807, $472 and $20,597.
11. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5 mil-
lion committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all partici-
pating Funds. State Street served as agent for the Banks, and as agent was en-
titled to a fee of $15,000 which was allocated to all of the participating
Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union pro-
vided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400 mil-
lion ($275 million committed and $125 million uncommitted). The credit facility
is allocated among the Banks, under the terms of the financing agreement. The
credit facility is to be accessed by the Funds for temporary or emergency pur-
poses only and is subject to each Fund's borrowing restrictions. Borrowings un-
der this facility bear interest at 0.50% per annum above the Federal Funds
rate. A commitment fee of 0.065% per annum will be incurred on the unused por-
tion of the committed facility, which will be allocated to all funds. State
Street serves as administrative agent for the Banks, and as administrative
agent is entitled to a fee of $20,000 per annum which is allocated to all of
the Funds.
At September 30, 1998, Stock Selector Fund was not included in this financing
agreement.
During the year ended September 30, 1998, the Funds had no significant
borrowings under these agreements.
76
<PAGE>
[LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF TRUSTEES OR DIRECTORS AND SHAREHOLDERS OF
EVERGREEN AGGRESSIVE GROWTH FUND, EVERGREEN FUND,
EVERGREEN MICRO CAP FUND AND
EVERGREEN STOCK SELECTOR FUND
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, and the related statements of operations and
of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Evergreen Aggressive Growth Fund,
Evergreen Fund, Evergreen Micro Cap Fund (formerly Evergreen Micro Cap Fund,
Inc.) and Evergreen Stock Selector Fund (formerly Core Equity Fund) (the
"Funds") at September 30, 1998, and the results of their operations, the
changes in their net assets and the financial highlights for the periods indi-
cated, in conformity with generally accepted accounting principles. These fi-
nancial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Funds' management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and per-
form the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presenta-
tion. We believe that our audits, which included confirmation of securities at
September 30, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above. The financial highlights of
Evergreen Aggressive Growth Fund for each of the two years in the period ended
October 31, 1994, and the financial highlights of Evergreen Micro Cap Fund for
the year ended September 30, 1995, the four month period ended September 30,
1994 and the year ended May 31, 1994, were audited by other auditors, whose
opinions, dated November 29, 1994 and November 16, 1995, respectively were un-
qualified. The Statement of Operations of Evergreen Stock Selector Fund for the
year ended June 30, 1998, the Statement of Changes in Net Assets for each of
the two years in the period ended June 30, 1998 and the financial highlights
for each of the five years in the period ended June 30, 1998 were audited by
other auditors, whose opinion dated August 25, 1998 was unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
November 12, 1998
77
<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
The Trustees and Shareholders of
Evergreen Equity Trust
We have audited the accompanying statements of assets and liabilities, includ-
ing the schedules of investments, of three of the Funds, listed below, compris-
ing Evergreen Equity Trust as of September 30, 1998, and the related statements
of operations, and changes in net assets, and financial highlights for each of
the years or periods listed below:
Evergreen Omega Fund -- statement of operations for the year ended September
30, 1998, statements of changes in net assets for the year ended September
30, 1998, the nine-month period ended September 30, 1997 and the year ended
December 31, 1996 and the financial highlights for the years or periods pre-
sented on pages 35 through 36.
Evergreen Small Company Growth Fund -- statement of operations for the year
ended September 30, 1998, statements of changes in net assets for the year
ended September 30, 1998, the four-month period ended September 30, 1997 and
the year ended May 31, 1997 and the financial highlights for the years or
periods presented on pages 37 through 38.
Evergreen Strategic Growth Fund -- statement of operations for the year
ended September 30, 1998, statements of changes in net assets for the year
ended September 30, 1998, the eleven-month period ended September 30, 1997
and the year ended October 31, 1996 and the financial highlights for the
years or periods presented on pages 41 through 42.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these fi-
nancial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements and financial high-
lights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of September 30, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Ever-
green Omega Fund, Evergreen Small Company Growth Fund and Evergreen Strategic
Growth Fund as of September 30, 1998, the results of their operations, changes
in their net assets and financial highlights for each of the years or periods
specified in the first paragraph above in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
November 6, 1998
78
<PAGE>
[LOGO]
ADDITIONAL INFORMATION
YEAR 2000 (UNAUDITED)
Like other investment companies, the Funds could be adversely affected if the
computer systems used by the Funds' investment advisers and the Funds' other
service providers are not able to perform their intended functions effectively
after 1999 because of the inability of computer software to distinguish the
year 2000 from the year 1900. The Funds' investment advisers are taking steps
to address this potential year 2000 problem with respect to the computer sys-
tems that they use and to obtain satisfactory assurances that comparable steps
are being taken by the Funds' other major service providers. At this time, how-
ever, there can be no assurance that these steps will be sufficient to avoid
any adverse impact on the Funds from this problem.
79
<PAGE>
[LOGO]
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
Pursuant to section 852 of the Internal Revenue Code, the Funds have
designated the following amounts as long-term 28% capital gain dis-
tributions and long-term 20% capital gain distributions for the fis-
cal year ended September 30, 1998:
<TABLE>
<CAPTION>
Aggregate Per Share
----------------------- -----------
28% 20% 28% 20%
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Aggressive Growth Fund.... $ 0 $ 9,346,926 $ 0 $0.85
Evergreen Fund............ 15,413,075 18,551,491 0.20 0.23
Micro Cap Fund............ 0 364,949 0 0.17
Omega Fund................ 5,029,778 18,460,511 0.37 1.36
Small Company Growth
Fund..................... 0 0 0.00 0.00
Stock Selector Fund....... 0 0 0.00 0.00
Strategic Growth Fund..... 46,908,169 25,866,052 0.54 0.30
</TABLE>
For corporate shareholders, the following percentages of ordinary in-
come dividends paid during the fiscal year ended September 30, 1998
qualified for the dividends received deduction.
<TABLE>
<S> <C>
Aggressive Growth Fund................................... 0.00%
Evergreen Fund........................................... 100.00%
Micro Cap Fund........................................... 0.00%
Omega Fund............................................... 52.63%
Small Company Growth Fund................................ 0.00%
Stock Selector Fund...................................... 0.00%
Strategic Growth Fund.................................... 74.36%
</TABLE>
80
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Florida Municipal Money Market Fund
New Jersey Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal Bond Fund
Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Tax Strategic Equity Fund
Strategic Growth Fund
Stock Selector Fund
Evergreen Fund
Omega Fund
Small Company Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
Global Opportunities Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800.346.3858
Investor Services
800.343.2898
Retirement Plan Services
800.247.4075
www.evergreen-funds.com
32990 540979 RV2 11/98
BULK RATE
U.S. POSTAGE
[LOGO OF EVERGREEN FUNDS(SM) PAID
APPEARS HERE] PERMIT NO. 19
HUDSON, MA
200 Berkeley Street
Boston, MA 02116
<PAGE>
Evergreen
Domestic
Growth Funds
March 31, 1998
Semiannual Report
(Evergreen Funds(SM) logo appears here)
<PAGE>
Table of Contents
<TABLE>
<S> <C>
Letter to Shareholders ..................... 1
Evergreen Aggressive Growth Fund
Fund at a Glance ........................ 2
Portfolio Manager Interview ............. 3
Evergreen Fund
Fund at a Glance ........................ 5
Portfolio Manager Interview ............. 6
Evergreen Micro Cap Fund
Fund at a Glance ........................ 9
Portfolio Manager Interview ............. 10
Evergreen Omega Fund
Fund at a Glance ........................ 13
Portfolio Manager Interview ............. 14
Evergreen Small Company Growth Fund
Fund at a Glance ........................ 16
Portfolio Manager Interview ............. 17
Evergreen Strategic Growth Fund
Fund at a Glance ........................ 19
Portfolio Manager Interview ............. 20
</TABLE>
<TABLE>
<S> <C>
Financial Highlights
Evergreen Aggressive Growth Fund ........ 22
Evergreen Fund .......................... 25
Evergreen Micro Cap Fund ................ 28
Evergreen Omega Fund .................... 31
Evergreen Small Company Growth Fund ..... 34
Evergreen Strategic Growth Fund ......... 37
Schedules of Investments
Evergreen Aggressive Growth Fund ........ 40
Evergreen Fund .......................... 41
Evergreen Micro Cap Fund ................ 46
Evergreen Omega Fund .................... 48
Evergreen Small Company Growth Fund ..... 50
Evergreen Strategic Growth Fund ......... 53
Statements of Assets and Liabilities ....... 55
Statements of Operations ................... 56
Statements of Changes in Net Assets ........ 57
Combined Notes to Financial
Statements ................................ 60
Additional Information ..................... 70
</TABLE>
- --------------------------------------------------------------------------------
Evergreen Funds
Evergreen Funds is one of the nation's fastest growing investment companies
with more than $47 billion in assets under management.
With over 80 mutual funds to choose among and acclaimed service and operations
capabilities, investors enjoy a broader range of quality investment products
and services designed to meet their needs.
The Evergreen Funds employ intensive, research-driven investment strategies
executed by over 90 research analysts and portfolio managers. The fund company
remains dedicated to meeting the needs of investors and their advisors in a
global economy. Look to the Evergreen Funds to provide a distinctive level of
service and excellence in investment management.
This semiannual report must be preceded or accompanied by a prospectus of an
Evergreen fund contained herein. The prospectus contains more complete
information, including fees and expenses, and should be read carefully before
investing or sending money.
<TABLE>
<S> <C>
Mutual Funds: ARE NOT FDIC INSURED May lose value o Are not bank guaranteed
</TABLE>
Evergreen Distributor, Inc.
EvergreenSM is a Service Mark of Evergreen Investment Services, Inc. Copyright
1998.
<PAGE>
Letter to Shareholders
May 1998
Dear Shareholders:
The Evergreen Domestic Growth Funds enjoyed an
exceptional six-month period ending on March
(picture of William M. Ennis) 31, 1998, each delivering healthy returns,
consistent with its specific strategy. Each of
these six funds has been designed for a
William M. Ennis distinct investor need and risk
Managing Director tolerance in pursuing a primary objective of
capital growth.
Strong Markets
Over the six months, the Funds and the financial markets weathered some
significant short-term volatility, including the onset of a currency and
financial crisis in Asia that contributed to a significant stock market
correction in October 1997, near the start of the six-month period. Over the
full six months, however, each of the growth funds overcame short-term worries
to achieve healthy performance.
It is important to keep in mind that not all parts of the domestic stock market
move at a consistent pace with each other. For this six-month period, large
capitalization stocks were the market leaders. For example, the Standard &
Poor's 500 Index, as a measure of large company stocks, had a return of 17.22%,
while the S&P Midcap 400 Index had a return of 11.94% and the Russell 2000
Index, a frequently used measure of small cap stock performance, returned
6.37%. Over the longer term, medium-sized company stocks have tended to
outperform large company stocks, while small company stocks have tended to
outperform mid-sized company stocks. While small company stocks tend to
outperform the mid- and large-company stocks, they do carry additional risk and
price volatility.
Evergreen Funds
Evergreen Domestic Growth Funds offer investors the opportunity to participate
in all parts of the domestic equity markets in a variety of complementary
strategies.
At Evergreen Funds, we are committed to providing a strong array of funds with
complementary objectives and strategies to help investors and their financial
advisors assemble personal portfolios that make sense for their needs and risk
tolerances. We recommend shareholders periodically review their portfolios with
professional investment advisors to make sure their allocations continue to be
in line with their financial plans.
We can assist by providing the information you need about Evergreen Funds. If
you have any questions about the funds in this report or other Evergreen Funds,
we encourage you to consult your financial advisor or call us at 800-343-2898.
Sincerely,
/s/ William M. Ennis
William M. Ennis
Managing Director
Evergreen Funds
1
<PAGE>
EVERGREEN
Aggressive Growth Fund
Fund at a Glance as of March 31, 1998
Having the patience and discipline to stay with the best prospective earnings
growth companies, despite market fashions that have sometimes gone against
them, has been crucial to achieving strong long-term
performance.
Portfolio
Management
--------------
[PHOTO]
Harold J. Ireland, Jr.
Tenure: April 1983
-------------------------
CURRENT INVESTMENT STYLE
[GRAPH]
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
<TABLE>
<CAPTION>
Class A Class B Class C Class Y
<S> <C> <C> <C> <C>
Inception Date 4/15/83 7/7/95 8/3/95 7/11/95
Average Annual Returns
6 months with sales
charge (2.31%) (2.68%) 1.31% n/a
6 months w/o sales charge 2.56% 2.24% 2.29% 2.68%
One year with sales
charge 24.46% 25.22% 29.31% n/a
One year w/o sales charge 30.66% 30.22% 30.31% 30.96%
3 years 19.73% - - -
5 years 12.92% - - -
10 years 17.42% - - -
Since Inception 13.74% 16.64% 16.34% 18.53%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
6-month capital gain
distributions per share $ 0.85 $ 0.85 $ 0.85 $ 0.85
</TABLE>
*Adjusted for maximum sales charge.
- ------------------------------------------------------------------------------
LONG TERM GROWTH
3/88 3/90 3/92 3/94 3/96 3/98
Class A Shares 9,525 12,519 21,273 28,511 39,148 49,827
NASDAQ 10,000 11,831 16,899 21,356 32,081 54,069
Russell 2000 10,000 11,923 15,434 19,678 26,791 39,989
CPI 10,000 11,047 11,957 12,635 13,350 13,923
[GRAPH]
Comparison of a $10,000 investment in Evergreen Aggressive Growth Fund, Class A
shares, versus a similar investment in the Russell 2000, the NASDAQ Industrials,
and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index and the NASDAQ Industrials
Index are unmanaged indices. These indices do not include transaction costs
associated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through March 31, 1998.
2
<PAGE>
EVERGREEN
Aggressive Growth Fund
Portfolio Manager Interview
How did the Fund perform during the
past six months and over the past year?
The Fund's Class A shares had a total return of 2.6% and 30.7%, for the
six months and twelve months ended March 31, 1998, respectively. This
compared to the 7.2% and 38.9% total return for the 260-fund Lipper
Capital Appreciation Funds group average. These returns are
unadjusted for any sales charges.
Portfolio Characteristics
Total Net Assets $233,863,734
Number of Holdings 54
Beta 1.14
P/E Ratio 33.8x
Expected 5 yr. Earnings Growth 27%(1)
What was the economic environment like
for the past six months?
The economy was stronger than expected with less-than-expected inflation
during this period. This was generally supportive of a positive stock
market. However, stocks and certain industries in particular, like the
energy industry, were dampened by concerns about deflationary forces from
Asian currency and economic woes. Uncertainty about the degree and timing
of those deflationary forces from Asia hurt stocks and many industries,
including Technology and Energy, from October through January. These same
factors had positive effects on the Retail issues in the Fund, which faced
the prospect of lower costs for imported products.
What helped the portfolio performance during the fiscal period ending
March 31, 1998?
Our heavy weighting of 18.2% in the Retail (Specialty)
sector was very helpful to performance for this period.
(1) Source: BASELINE and First Call.
Office Depot, Central Garden & Pet, Bed, Bath & Beyond, Home Depot, and
Staples showed very strong earnings and price performance for the Fund.
Ethan Allen Interiors and Family Dollar Stores were added to the portfolio
during the past three months and have also contributed positively.
Our over-weighting in the Software and Technology sector at 20.8% was also
very positive for the portfolio. Citrix Systems, Parametric Technology,
Cisco Systems, Microsoft, BMC Software, and Network Associates contributed
strong earnings and price performance to the
portfolio.
Top 5 Industries
Software/Technology 20.8%
Retail (Specialty) 18.2%
Oil/Gas - Drilling 14.0%
Healthcare 12.4%
Oil/Gas - Equipment & Services 11.3%
What hindered portfolio performance
during this period?
Our large positions in the Oil/Gas Drilling and Oil/Gas Equipment &
Services industries had a dramatic negative effect on our six-month
performance. The fifteen stocks held in this energy support sector
declined 17.6% on a dollar-weighted basis for the six months, accounting
for nearly all of the portfolio's under-performance for the period. The
biggest effect on the portfolio to date has been the negative psychology
toward energy stocks. Much warmer weather than normal this winter in both
Europe and North America severely impacted the price of crude oil. Crude
oil dropped from a peak of $23 per barrel to a trough of $13 per barrel
during this period. This affected the psychology, but not the reported
earnings of this group.
3
<PAGE>
EVERGREEN
Aggressive Growth Fund
Portfolio Manager Interview
Why do you continue to hold such a large
position in the energy sector?
Our job is to invest aggressively for the best growth over the long-term.
We have found an extraordinary number of companies in the energy sector
that are selling at a discounted price earnings ratio, and in our opinion
have the potential to provide exceptional earnings growth on a sustainable
basis into the future. The consensus average expected five-year earnings
growth rate for the 15 companies is 29%(2).
How does the valuation of the Fund's portfolio compare to that of the
general market?
The price of growth for the Fund's mainly mid-cap portfolio is approaching
one quarter that of the large company S&P 500 Index(2). Specifically, the
Fund's portfolio on a dollar-weighted basis has a PE on expected earnings
of 25.7 and expected five year future annual earnings growth of 27%. In
comparison, the S&P 500 (large companies) has an expected PE multiple of
23.0 on 1998 earnings and expected five year annual earnings growth of
only 7%. In other words, while the PE's are similar, the Fund's expected
growth rate is almost four times that of the S&P 500's.
Top 10 Holdings
(as a percentage of net assets)
Cisco Systems, Inc. 5.8%
Microsoft Corporation 5.0%
BMC Software, Inc. 3.8%
Home Depot, Inc. 3.3%
Medtronic, Inc. 3.3%
Transocean Offshore, Inc. 3.3%
Petroleum Geo-Services, ADR 3.0%
Office Depot, Inc. 2.9%
Sterling Commerce, Inc. 2.5%
Paychex, Inc. 2.5%
(2) Source: BASELINE and First Call.
What are the most recent additions to
the portfolio?
The mid-cap area is where we are currently finding the most attractive
candidates for the portfolio. Among these recent additions are: SunAmerica
in the Financial Sector; Analysts International, a small-cap, Citrix
Systems and EMC, a large-cap, in Software/Technology; Action Performance,
a small cap, Family Dollar Stores and Ethan Allen Interiors in Retail
(Specialty); and Oakwood Homes in Building.
Why have you not changed your approach with changing fashions in the
market?
In managing this Fund since its inception in 1983, we have found that the
most important thing we have done is stick to our stock selection
disciplines. On a ten-year, cumulative basis, the Fund has outperformed its
Lipper Capital Appreciation Fund Group average (423.12% versus 328.27%).
Having the patience and discipline to stay with the best prospective
earnings growth companies, despite market fashions that have sometimes gone
against them, has been crucial to achieving strong long- term performance.
What is your outlook for the period
ahead?
If inflation and interest rates continue to moderate as has been the
trend, the implications are very positive for the stock market in general
and for aggressive growth stock investing in particular. Higher future
earnings have greater present value in a lower interest rate environment.
Reported and expected earnings for the S&P 500 stocks have been slowing
dramatically during the past six months. In contrast, the earnings growth
expectations for mid-sized companies have been increasing. These are good
reasons to expect future outperformance for small- and mid-sized
companies. We believe that the conditions for investing are the most
favorable we have seen in a long time.
4
<PAGE>
EVERGREEN
Evergreen Fund
Fund at a Glance as of March 31, 1998
We focus on undervalued and underappreciated entrepreneurial situations,
characterized by strong business franchises or leadership products.
Portfolio
Management
----------------------------------------
[PHOTO]
Stephen A. Lieber
Tenure: October 1971
-------------------------------------------------------
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
[GRAPHIC OF STYLE BOX]
The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 10/15/71
Average Annual Returns
6 months with sales charge 7.01% 6.98% 10.91% n/a
6 months w/o sales charge 12.35% 11.98% 11.91% 12.54%
One year with sales charge 36.57% 37.34% 41.30% n/a
One year w/o sales charge 43.38% 42.34% 42.30% 43.84%
3 years 25.13% 25.67% 26.27% 27.57%
5 years - - - 19.62%
10 years - - - 14.87%
Since Inception 27.42% 27.94% 28.44% 17.12%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
6-month income dividends
per share $ 0.10 - - $ 0.14
6-month capital gain
distributions per share $ 0.50 $ 0.50 $ 0.50 $ 0.50
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[GRAPH]
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
Class A Shares 9,525 9,913 11,128 10,424 10,805 11,572 16,659 21,948
NASDAQ 10,000 10,883 13,932 14,740 16,456 16,456 22,735 24,844
Russell 2000 10,000 10,451 12,571 13,499 14,222 14,222 18,942 20,149
CPI 10,000 10,113 10,234 10,389 10,541 10,541 10,758 10.835
Comparison of a $10,000 investment in Evergreen Fund, Class A shares, versus a
similar investment in the Russell 2000, the NASDAQ Industrials, and the
Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The Russell 2000 Index and the NASDAQ Industrials Index are
unmanaged indices. These indices do not include transaction costs associated
with buying and selling securities nor any management fees. The Consumer Price
Index, a measure of inflation, is through March 31, 1998.
5
<PAGE>
EVERGREEN
Evergreen Fund
Portfolio Manager Interview
How did the Fund perform during the
six months?
The Evergreen Fund had very strong performance. For the six months ended
March 31, 1998, the Fund's original Class Y shares had a total return of
12.54%. During the same six months, the Fund's Class A shares had a total
return of 12.35%, while the Class B and C shares had total returns of
11.98% and 11.91%, respectively. These returns are unadjusted for any
applicable sales charges. For the twelve months ended on March 31, 1998,
the Class Y shares had a return of 43.84%.
These returns were achieved following the consistent long-term strategies
which provided a 6,461.3% return for the Fund's original Class Y shares
since inception on October 15, 1971, equal to 17.1% per annum
compounded.
Portfolio Characteristics
Total Net Assets $2,155,250,723
Number of Holdings 339
Beta 1.12
P/E Ratio 18.8x
How do you describe the Evergreen Fund in relation to performance during
the past year?
One of the highlights of the Evergreen Fund's year has been the extent to
which long-held investments in small companies have grown into sizable
investments in large companies. Evergreen is predominantly, in terms of
number of issues held, a small company fund, with 186 companies with
market capitalizations under $1 billion, and another 50 with market
capitalizations between $1 billion and $2 billion. In contrast, the top
ten companies in the portfolio have market capitalizations in excess of $3
billion. Most of those companies entered the portfolio as small companies
which have either grown, or in several cases, been acquired and (in a few)
have even had the acquiring companies acquired until we now own shares in
very large companies. So long as the initial dynamics and exceptional
opportunities appear present, the Fund has continued to hold such issues
notwithstanding the transition of the companies into large capitalization
issues. Our guiding principal for holding any company is that it must have
evidence of entrepreneurial policies and performance. A review of the 30
new commitments made for the portfolio thus far in this fiscal year will
show that more than 90% of our new holdings are smaller companies intended
to benefit from the entrepreneurial opportunity.
What is the strategic focus of the
Evergreen Fund?
We focus on undervalued and underappreciated entrepreneurial situations,
characterized by strong business franchises or leadership products. Our
goals for capital appreciation are usually long-term, intended to benefit
by the significant achievement of well-conceived and executed long-term
business policies. We look for the inflection points which mark the
prospective acceleration of business growth, as often as possible buying
the acceleration of that growth before it becomes evident and
fully-priced. Such selection is provided by careful research, supported by
detailed industry knowledge, and the macro-perspective of our research
group.
Our search for undervalued growth opportunities is intended to both help
reduce risk and achieve well-above average gains. One example of such
gains is the acquisition of the companies in which we invest by other
companies. Since the Fund's inception in 1971, 351 of its holdings have
been acquired by, or have merged into other companies. The Fund's average
gains on such transactions have been 72.6%.
In fiscal 1998, the trend toward mergers and acquisitions in corporate
America continues at a strong pace, and is benefiting the Fund. Thus far
in the fiscal year, 32 of the
6
<PAGE>
EVERGREEN
Evergreen Fund
Portfolio Manager Interview
Fund's holdings have received offers or have been acquired for an average
gain of 167.3%. In the first three months of calendar 1998 alone, there
were 17 such acquisitions among companies held in the Fund's portfolio,
providing an average gain of 272.8% on the com
pleted acquisitions.
Top 10 Holdings
(as a percentage of net assets)
Clear Channel Communications, Inc. 3.9%
Merck & Co., Inc. 3.0%
First Empire State Corp. 2.9%
BankBoston Corp. 2.7%
Intel Corp. 2.2%
NationsBank Corp. 2.1%
Federal National Mortgage Association 1.8%
MGIC Investment Corp. 1.5%
Cendant Corp. 1.3%
Johnson & Johnson 1.3%
What are some examples of long-term holdings which have performed well in
the current fiscal year, and illustrate the Evergreen Fund's strategy of
investing in entrepreneurial, small companies?
The Fund's largest holding at the end of the six-month period was Clear
Channel Communications, Inc. We first purchased the stock in 1986 at $0.98
per share, when the company was a small capitalization issue. The stock
ended the quarter at $98 per share, with our original $846,833 investment
now worth $84.0 million. Another Evergreen top ten holding is BankBoston
Corp. This commitment was originally made as a purchase of shares in
Baybanks, Inc., a quality suburban bank in the Boston area, at $6 per
share. Baybanks, Inc. prospered, and was acquired by BankBoston Corp. The
original shares in Baybanks are now worth $110.25 per share. HBO & Co. is
a third example. We believed in 1992 and 1993 that the health care
industry structure in this country had to be changed. We found this little
company that was powerful in its technological resources, and its ability
to provide data processing services to the health care industry. We
thought HBO would grow and participate in the growth of managed care in
the United States. It has gone from $1.63 per share to $60.38 per share.
Again, a small cap company became a big cap company.
Where was the investment performance leadership in the Fund during the six
months?
The leadership came from a highly varied group of companies and
industries. The top performing stock was Analytical Surveys, Inc., a
provider of global positioning satellite mapping equipment and services,
with a return of 127.2% in the six months. Its performance was followed by
Delta & Pine Land Co. (+115.4%), a leading producer of agricultural seeds;
by Lennar Corp. (+97.5%), a fast growing residential homebuilder in
southern and western states; by SkyWest, Inc. (+96.3%), a regional airline;
and by Obie Media Corp. (+87.6%), a provider of outdoor advertising
displays and facilities.
Top 5 Industries
Banks 15.8%
Healthcare Products & Services 10.3%
Finance & Insurance 9.7%
Information Services & Technology 7.7%
Publishing, Broadcasting & Entertainment 6.1%
The strongest industry group among the Fund's holdings during the six
months was the financial industry. Banks benefited from strong earnings,
widespread merger and acquisition activity, and an upward revaluation
relative to the general market. With the Fund's holdings of 57 banks and
thrifts, this provided significant strength, as well as the opportunity to
benefit by a number of merger and acquisition transactions, initiated and
consummated. Other financial sectors were also significant, especially the
investment brokerage business where the Fund enjoyed strong performance
from such issues as
7
<PAGE>
EVERGREEN
Evergreen Fund
Portfolio Manager Interview
Edwards (A.G.), Inc. and Legg Mason, Inc. The Fund's significant holdings
in MGIC Investment Corp. was an important contributor, as were several
other housing-related companies, including the title insurer, First
American Financial Corp. Homebuilding companies provided significant
gains, including: D.R. Horton, Inc., Toll Brothers, Inc., and U.S. Home
Corp. While issues of companies in technology businesses were often under
pressure during the second part of the first half year, many made
continuous, significant contributions to the Fund's performance, including
Coherent Communications Systems Corp., Orbital Sciences Corp., and
Analytical Surveys, Inc. These holdings are illustrative of leading edge
technological opportunities which can be selectively held in a large
diversified portfolio.
What is your current strategy?
The remarkable dynamics of the American economy, the variety, brilliance
and diligence of entrepreneurial leadership continues to amaze us with the
number of excellent investment opportunities. However, our policy is
highly selective with regard to valuation, as well as to analysis of
competitive conditions for companies and their chances for long-term
success. Therefore, through this current fiscal year, as in the preceding
fiscal year, we have followed a policy of maintaining a fairly sizable
cash position (14.9% at the end of the fiscal first half) with the goal of
buying at times of undervaluation. The highly volatile markets in this
period have provided several occasions where we were able to aggressively
buy excellent stocks which we had previously selected when there were
general selling waves. Additionally, at times of hesitation about economic
or external conditions, and sometimes internal corporate situations,
buying opportunities have been provided on a very attractive basis, as
compared with the general level of the market. This was particularly
evident in the fall of 1997, and early in 1998, when there were great
apprehensions about the impact of the Asian financial crisis on many
American companies. As investors either hesitated to commit to these
companies, or fearfully disposed of the shares, we were able to make
highly advantageous purchases for the Evergreen Fund. We plan to continue
to maintain a fairly sizable liquidity as long as the market remains
highly volatile, with the goal of committing funds as special
opportunities occur.
What are your expectations for the
balance of fiscal 1998?
We expect that the American economy will continue to show strong growth,
but not so much acceleration as to rekindle inflation. A cautious posture
by the Federal Reserve will serve as a warning to many economic
participants not to provide excessive credit or to engage in overly
optimistic capital spending programs. Continuing competitive pressures
from abroad, especially the Far East, together with some likely reduction
in our exports, may well moderate the economy. All of these factors should
not hinder the development of outstanding entrepreneurial businesses. We
look forward to continuing to reinvigorate the Fund's portfolio and
seeking to achieve significant returns.
8
<PAGE>
EVERGREEN
Micro Cap Fund
Fund at a Glance as of March 31, 1998
The Fund benefited from an emphasis on careful stock selection, which is
paramount to successful small capitalization investing.
Portfolio
Management
----------------------------------------
[PHOTO]
Stephen A. Lieber
Tenure: January 1996
[PHOTO]
Edwin D. Miska
Tenure: January 1996
-------------------------------------------------------
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
[GRAPHIC OF STYLE BOX]
The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
Class A Class B Class C Class Y
Inception Date 1/3/95 1/3/95 1/3/95 6/1/83
Average Annual Returns
6 months with sales charge 3.86% 3.64% 7.63% n/a
6 months w/o sales charge 9.04% 8.64% 8.63% 9.18%
One year with sales charge 49.52% 50.84% 54.86% n/a
One year w/o sales charge 56.97% 55.84% 55.86% 57.38%
3 years 20.41% 20.80% 21.51% 22.66%
5 years - - - 13.00%
10 years - - - 13.87%
Since Inception 20.20% 20.52% 21.15% 15.35%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
6-month capital gain
distributions per share $ 1.39 $ 1.39 $ 1.39 $ 1.39
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[GRAPH]
1/95 3/95 9/95 3/96 9/96 3/97 9/97 3/98
Class A Shares 9,525 10,672 12,375 13,484 14,611 15,309 19,537 20,149
NASDAQ 10,000 10,883 13,932 14,740 16,456 16,426 22,735 24,844
Russell 2000 10,000 10,461 12,571 13,499 14,222 14,188 18,942 20,149
CPI 10,000 10,113 10.234 10,389 10,541 10,688 10,768 10,835
Comparison of a $10,000 investment in Evergreen Micro Cap Fund, Class A shares,
versus a similar investment in the Russell 2000 Index, the NASDAQ Industrials
Index, and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index and the NASDAQ Industrials
Index are unmanaged indices. These indices do not include transaction costs
associated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through March 31, 1998.
9
<PAGE>
EVERGREEN
Micro Cap Fund
Portfolio Manager Interview
How did the Fund perform during the
six months?
The Fund had very good performance in pursuit of its goal of capital
growth from investments in small company stocks. The Fund's original Class
Y shares had a total return of 9.18% for the six months ending March 31,
1998. During the same period, Class A shares had a return of 9.04%, and
Class B and C shares had returns of 8.64% and 8.63% for the same period.
These returns are unadjusted for any applicable sales charges.
From the 12-month period ending March 31, the Fund's Class Y shares had a
total return of 57.38%. The Fund clearly outperformed industry benchmarks
for both the six- and 12-month periods. As an example, the Russell 2000
Index, a commonly used benchmark for small company stock performance, had a
return of 6.37% for six months and 42.02% for 12 months.
Portfolio Characteristics
Total Net Assets $69,082,695
Number of Holdings 118
Beta 1.03
P/E Ratio 18.2x
What contributed to this strong
performance?
The Fund benefited from an emphasis on careful stock selection, which is
paramount to successful small capitalization investing. We use a strong
quantitative, fundamental and valuation review, coupled with a discipline
to quickly sell stocks of companies that are beginning to disappoint us.
While a focus on industry and sector weightings remains secondary in
importance, the Fund continued to emphasize select areas that we believe
will benefit from ongoing economic trends, including industry
consolidation. As a result of this emphasis, four of the Fund's holdings
received acquisition proposals during the period.
What was the investment environment
like, and how did this affect strategy?
The Fund's holdings showed strength during a difficult period for small
capitalization stocks. Our emphasis on strong earnings and revenue trends
and the search for undervalued stocks helped in an environment that, in
general, favored a relatively narrow band of highly liquid, larger
capitalization stocks, especially those found in market indexes. Despite
this market bias, 25 of the Fund's holdings appreciated by more than 20%
during the six months.
Top 10 Holdings
(as a percentage of net assets)
Alcide Corp. 3.1%
First Years, Inc. 2.4%
Badger Meter, Inc. 2.3%
Play by Play Toys & Novelties, Inc. 2.2%
Del Laboratories, Inc. 2.1%
SBS Technologies, Inc. 1.7%
General Employment Enterprises, Inc. 1.6%
BT Financial Corp. 1.6%
Washington Trust Bancorp, Inc. 1.6%
West Coast Bancorp, Inc. (Ore.) 1.5%
What characterized the top-performing
stocks in the portfolio for the six months?
Nine portfolio companies had better than 50% performance during the
period. These nine companies were from a diverse group of industries and
sectors, but shared common characteristics: they were highly profitable,
successful enterprises, with leading or niche positions in their
industries, and they were purchased at attractive valuations. They also
each possessed a current operating or demographic catalyst that made
investment both timely and compelling.
10
<PAGE>
EVERGREEN
Micro Cap Fund
Portfolio Manager Interview
The best-performing company was Analytical Surveys, Inc., which gained
129.3% during the six-month period and 393.6% for the 12-month period
ending March 31, 1998. This company's earnings leapt as it won a record
number of new contracts during a period of continued strength in the
digital mapping business. General Magnaplate Corp., a manufacturer of
specialty coatings used in metal preservation and household appliances,
rose by 102.6% in the six months, propelled largely by the company's
winning of a multi-year contract to supply a super glide coating product
for Black & Decker irons. Bowlin Outdoor Advertising & Travel Centers,
Inc., also performed well, returning 82.0% for the six months. This
company has been actively expanding market share in the outdoor
advertising industry in the Southwestern U.S.
Washington Trust Bancorp, a small regional bank holding company in western
Rhode Island, had a 64.6% return for the period, while Northern States
Financial Corp., a small bank holding company in the northern Chicago
suburbs, rose 63.6%. Sterilization specialist Sterigenics Corp., a leading
company providing irradiation services to the medical, packaging and spice
industries, had a return of 57.2%. Chase Corp., a Massachusetts firm
involved in the manufacture of wire coatings and tape products, rose by
56.4% during the period. Other strong performers were Equinox Corp., a
technology company providing input-output devices to the networking
industry, which had a 54.1% return, and CNB Financial Corp., a New York
State bank holding com pany, with a 50.6% performance.
Top 5 Industries
Industrial Specialty Products & Services 15.3%
Banks 11.6%
Information Services & Technology 11.5%
Healthcare Products & Services 10.2%
Consumer Products & Services 7.7%
Did any industries or sectors stand out
in performance?
Banks, as a group, were up 34.6% and thrift institutions rose 14.6% during
the six months. Good earnings for financial institutions and continued
consolidation among banks marked the period. Pinnacle Financial Services,
Inc., a Fund holding, had a 37.0% return as it received a takeover offer
from CNB Bancshares. Retailing and wholesaling companies returned 36.6%
for the Fund, while chemical and agricultural product companies had a
21.9% return and business equipment and service companies had a return of
21.0%.
What other companies were helped by
consolidation?
MTL, Inc., a provider of stainless steel tank trucking services, was up
40.1% during the six months as it received a takeover offer from the
investment group Apollo Management. Laser Industries, Inc., a manufacturer
of laser-based hair removal systems, rose 59.1% on the news of a merger
offer from ECS Medical Systems. The investment in Union Corp., sold
subsequent to a takeover offer from Outsourcing Solutions, Inc., realized
45.8% from our original purchase price in February 1996.
Since the Fund's inception in June 1983, 94 companies in the portfolio
have been either merged or acquired. The average gain to the Fund was
62.5%.
What areas lagged in performance?
The Fund attempts to weed out underperforming companies at the first sign
of a deteriorating trend, so this minimizes disappointments. Electrical
equipment and services companies and industrial specialty products were
the two worst performing industries, with negative returns of 17.1% and
3.3% respectively. Their market performance was largely tied to concerns
about the impact of the Asian crisis on their industries. Oil and energy
stocks also underperformed, with an average loss
11
<PAGE>
EVERGREEN
Micro Cap Fund
Portfolio Manager Interview
of 33.0%, as the price of crude oil fell during the six months. We believe
these short-term disappointments may provide a window for the Fund to
invest in sound companies at undervalued opportunities.
What is your outlook?
The Fund will continue to position itself to outperform in any economic
environment by investing in micro cap companies that have proven their
ability to excel over a period of time. We will pay careful attention to
undervalued opportunities and well-managed companies with attractive
franchises that could be acquisition candidates. We believe as the current
economic cycle slows and internal profit becomes harder to achieve, larger
companies will continue to look for acquisition and takeover candidates as
a way to improve their competitive positions. The micro-cap sector offers
a compelling opportunity for continued strong performance, and we believe
the Fund is well-positioned to take advantage of this opportunity.
Funds that invest in stocks of small companies, also called small-cap
stocks, involve certain risks and, therefore, may not be appropriate for
all investors. Although they may offer the potential for greater long-term
returns, they also may experience greater price volatility due to their
limited focus on a particular industry, market, product, or service, or
because they invest in smaller, less established companies.
12
<PAGE>
EVERGREEN
Omega Fund
Fund at a Glance as of March 31, 1998
Our strategy is to focus on a core group of companies that have consistent
records of earnings growth.
Portfolio
Management
----------------------------------------
[PHOTO]
Maureen Cullinane, CFA
Tenure: April 1989
-------------------------------------------------------
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
[GRAPHIC OF STYLE BOX]
The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
Class A Class B Class C Class Y
Inception Date 4/29/68 8/2/93 8/2/93 1/13/97
Average Annual Returns
6 months with sales charge 10.85% 10.94% 14.96% n/a
6 months w/o sales charge 16.37% 15.94% 15.96% 16.47%
One year with sales charge 42.82% 43.69% 47.64% n/a
One year w/o sales charge 49.94% 48.69% 48.64% 49.76%
3 years 24.69% 24.95% 25.58% -
5 years 17.00% - - -
10 years 17.67% - - -
Since Inception 13.58% 17.38% 17.65% 30.50%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
6-month capital gain
distributions per share $ 2.13 $ 2.13 $ 2.13 $ 2.13
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[GRAPH]
3/88 3/90 3/92 3/94 3/96 3/98
Class A Shares 10,710 16,458 22,111 25,007 33,244 50,893
S&P 500 10,000 16,122 20,629 24,192 31,957 56,672
CPI 10,000 11,588 12,325 12,996 13,350 13,923
Comparison of a $10,000 investment in Evergreen Omega Fund, Class A shares,
versus a similar investment in the S & P 500 Index and the Consumer Price Index
(CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The S & P 500 Index is an unmanaged index and does not
include transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
March 31, 1998.
13
<PAGE>
EVERGREEN
Omega Fund
Portfolio Manager Interview
How did the fund perform for the six-
month period ended March 31, 1998?
For the six-month period ended March 31, 1998, the Fund's Class A shares
returned 16.37% and the Standard & Poor's 500 Stock Index (S&P 500) rose
17.22%. For the twelve-month period ended March 31, 1998, the total return
on Class A shares was 49.94%, and the return on the S&P 500 was 48.00%.
These returns are unadjusted for any applicable sales charges.
Portfolio Characteristics
Total Net Assets $320,565,064
Number of Holdings 63
Beta 0.95
P/E Ratio 29.2x
What was the investment environment
like during the period?
The investment environment was positive for stocks. Economic growth
continued at a steady pace. Despite full employment and a tight labor
market, wages remained relatively stable and inflation and interest rates
were relatively low. It was a good time to be a stock investor. While
stocks experienced a brief downturn in October in reaction to a financial
crisis in the ASEAN (Association of Southeast Asian Nations) countries,1
stock prices rose significantly during the period.
Did the financial crisis in the ASEAN
countries have an impact on the Fund?
The problems in the ASEAN countries had little impact on the Fund. Our
strategy is to focus on a core group of companies that have consistent
records of earnings growth. Many of these companies are larger-capitalized
multinationals that depend on markets all over the world for their profits.
(1) Includes Brunei, Indonesia, Laos, Malaysia, Philippines, Singapore,
Thailand, Vietnam and Burma.
Top 5 Industries
(as a percentage of net assets)
Information Services & Technology 11.9%
Pharmaceuticals 11.5%
Banks 11.1%
Finance & Insurance 8.9%
Publishing, Broadcasting & Entertainment 7.6%
Pharmaceutical companies have been a theme in the portfolio for more than
a year. Why were these companies attractive?
At 11.5% of assets on March 31, 1998, pharmaceutical companies were the
second largest portion of the portfolio. Pfizer was the top holding in the
Fund, and Warner Lambert was among the top 10 holdings. Both of these
companies are doing well because they have introduced major new drugs in
the past year and more drugs are likely to be approved in the next year.
Over the past few years, Pfizer has made significant investments in
research and development; these investments will contribute to earnings
growth over the next few years. The company recently launched Viagra, the
new male impotence drug, and we expect Pfizer will receive FDA approval in
the near future for other drugs in five therapeutic areas: infectious
diseases, cardiovascular, central nervous system, diabetes, and women's
health. We believe the company will dominate the pharmaceutical industry.
Warner Lambert's cholesterol-lowering drug, Lipitor, has been very
successful. The company has gained share against its competitors and now
controls about 35% of the cholesterol-lowering sector of the market.
Within the drug industry, we believe Warner Lambert should produce one of
the best growth rates in earnings over the next two years.
14
<PAGE>
EVERGREEN
Omega Fund
Portfolio Manager Interview
Top 10 Holdings
(as a percentage of net assets)
Pfizer, Inc. 4.9%
General Electric Co. 3.4%
Warner-Lambert Co. 3.2%
Cendant Corp. 3.0%
EMC Corp. 2.5%
Tyco International Ltd. 2.2%
Furniture Brands International, Inc. 2.2%
Microsoft Corp. 2.2%
CBS Corp. 2.1%
Fleet Financial Group, Inc. 2.0%
Where did you find new opportunities?
We found new opportunities in broadcasting. At CBS, for example, revenues
and profits improved under new management and with a new focus on radio
and television broadcasting operations.
We also invested in Viacom, which dominates the cable television industry
with its MTV, Nickelodeon and Showtime networks. One division, Blockbuster
Video (a video rental company) has been a major earnings disappointment and
held back the stock's gains. Management's efforts are paying off in this
area, however. Sales have rebounded and investors are now focused on the
many positives at Viacom.
Did you eliminate stocks from the
portfolio?
We eliminated oil service stocks from the portfolio. Oil company stocks
made strong gains over the two to three years that we owned them. During
the six-month period, however, oil prices declined triggering concerns
that drilling activity and exploration and production would also decline.
While we haven't seen cutbacks in existing drilling programs, we believe
oil companies will be reluctant to commit to higher levels of drilling
activity in the near future. One of the stocks we sold was ENSCO
International, a company that had been among the Fund's top 10 holdings
for more than a year.
What is your outlook?
We are cautiously optimistic about the next six to twelve months. There
appears to be nothing on the horizon that should derail the market or the
economy. We expect economic growth to continue to be relatively strong and
interest rates and inflation to remain at relatively low levels. The stock
market made strong gains in the first quarter of 1998 and valuations on
stocks are relatively high. While there have been times when stocks have
been highly valued for sustainable periods, they don't remain that way
indefinitely. A market correction usually occurs. We believe the Fund has
invested in good companies with strong franchises, excellent managements
and the ability to sustain or increase earnings growth. We remain positive
on the long-term outlook of the market.
15
<PAGE>
EVERGREEN
Small Company Growth Fund
Fund at a Glance as of March 31, 1998
We maintained the strategy that we've had in place for about two years:
reducing the volatility of the portfolio and emphasizing higher quality
companies.
Portfolio
Management
----------------------------------------
[PHOTO]
J. Gary Craven
Tenure: November 1996
-------------------------------------------------------
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
[GRAPHIC OF STYLE BOX]
The Equity Style Box placement is based on a
fund's price- to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
Class A Class B Class C Class Y
Inception Date 1/20/98 9/11/35 1/26/98 1/26/98
Average Annual Returns
6 months with sales charge - (3.00%) - -
6 months w/o sales charge - 1.64% - -
One year with sales charge - 34.45% - -
One year w/o sales charge - 39.45% - -
3 years - 16.49% - -
5 years - 16.31% - -
10 years - 17.17% - -
Since Inception 7.66% 10.36% 12.20% 13.45%
Maximum Sales Charge 4.75% 5.00% 1.00% n/a
Front End CDSC CDSC
6-month capital gain
distributions per share - $ 0.78 - -
* Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[GRAPH]
3/88 3/90 3/92 3/94 3/96 3/98
Class B Shares 9,525 12,519 21,273 28,511 39,148 48,774
NASDAQ 10,000 11,831 16,899 21,256 32,081 54,069
Russell 2000 10,000 11,923 15,434 19,678 26,791 39,989
CPI 10,000 11,047 11,957 12,635 13,350 13,923
Comparison of a $10,000 investment in Evergreen Small Company Growth Fund,
Class B shares, versus a similar investment in the Russell 2000 Index, the
NASDAQ Industrials Index, and the Consumer Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than original cost. The Russell 2000 Index and the NASDAQ Industrials
Index are unmanaged indices. These indices do not include transaction costs
associated with buying and selling securities nor any management fees. The
Consumer Price Index, a measure of inflation, is through March 31, 1998.
16
<PAGE>
EVERGREEN
Small Company Growth Fund
Portfolio Manager Interview
How did the fund perform in the six-
month period ended March 31, 1998?
For the six-month period ended March 31, 1998, Class B shares produced a
total return of 1.64%. The Russell 2000 Index rose 6.37% for the same
period. For the twelve-month period ended March 31, 1998, the total return
on Class B shares was 39.45% and the return for the Russell 2000 Index was
42.02%. These returns are unadjusted for any sales charges.
Portfolio Characteristics
Total Net Assets $1,448,262,102
Number of Holdings 222
Beta 1.17
P/E Ratio 30.6x
What was the economic environment like
during the period?
The domestic economy was very healthy. Economic growth was strong, and
inflation and interest rates remained relatively low. In addition, there
was good disposable income, consumer confidence was high, and corporate
earnings were strong. Stocks were generally on an upward course. Their
climb was interrupted in October, however, when several Asian economies
collapsed.
How did the U.S. market react to the
Asian crisis?
At first there was massive selling with increased volatility until the end
of 1997. Once investors got a better sense that the Asian markets account
for a relatively small part of U.S. corporate profits, they began focusing
on the more positive characteristics of the U.S. economy and the upward
potential for U.S. stocks. For the first three months of 1998, U.S. stock
prices rose significantly.
Did you make any strategic changes to
the portfolio?
We maintained the strategy that we've had in place for about two years.
During that time, one of our goals has been to reduce the volatility of
the portfolio and to emphasize higher quality companies that we believe
have the potential for more sustainable long-term earnings growth. At the
end of the six-month period, the portfolio had a more domestic bias. It
was composed primarily of companies that rely less on foreign markets for
their profits.
Top 10 Holdings
(as a percentage of net assets)
Roper Industries, Inc. 2.1%
Astoria Financial Corp. 1.8%
Health Management Associates, Inc. 1.7%
Newpark Resources, Inc. 1.6%
Comdisco, Inc. 1.5%
TCF Financial Corp. 1.5%
Safeguard Scientifics, Inc. 1.3%
Parametric Technology Corp. 1.2%
Devry, Inc. 1.2%
Suiza Foods Corp. 1.1%
Where did you find new opportunities?
We found new opportunities in telecommunications companies. This is the
biggest change we made over the period. Telecommunications businesses are
benefiting from deregulation, the advent of increased fiber optics
networks, and accelerating demand for all types of communications - wire,
wireless, voice and data. Two telecommunications companies that we added
to the portfolio are Intermedia and ICG Communications. We also built up
exposure to international long-distance telephone companies such as
Telegroup, Star Communications, and Pacific Gateway Exchange.
Consumer products was another new area of investment. We favored
vitamin-related companies such as
17
<PAGE>
EVERGREEN
Small Company Growth Fund
Portfolio Manager Interview
Nature's Bounty and Weider Nutrition. These companies are benefiting from
a demographic trend. The aging population has increased interest in health
products that are perceived to be natural.
Top 5 Industries
(as a percentage of net assets)
Information Services & Technology 17.8%
Healthcare Products & Services 9.2%
Electrical Equipment & Services 8.1%
Banks 7.8%
Finance & Insurance 4.5%
Technology companies have been an important part of the portfolio. Did you
make changes in this area?
At 25.9% of assets on March 31, 1998, technology stocks continued to be
the largest portion of the portfolio. Technology stocks include a broad
range of businesses - software, hardware, telecommunications, and
electronics companies. The Asian crisis affected the technology companies
in the portfolio that produce in Asia and that have Asia as their end
market, so we reduced the Fund's exposure to technology stocks. In some
cases, however, the prices of the stocks we sold declined so steeply they
became buying opportunities. We bought some of them back at substantially
lower prices and they were solid contributors to performance. Even though
the percentage of assets in the technology portion of the portfolio
remained relatively constant, we changed our emphasis in this sector. We
decreased the Fund's exposure to hardware and semiconductor-related
companies in favor of technology service companies. These are companies
that implement new technologies for other businesses. Two such companies
in this area are FileNet and Documentum.
What changes did you make to the
energy portion of the portfolio?
We substantially reduced the number of energy and oil service stocks in
the portfolio. A decline in worldwide demand and overproduction by some
oil-producing countries triggered a downturn in oil prices and profits to
energy companies. When it appeared that oil stocks were oversold, that is,
that the markets had over-reacted to the decline in energy prices, we
began buying energy stocks. However, we repositioned the energy portion of
the portfolio to a new area of energy service - offshore boat building
companies.
Insurance companies were an area of emphasis. What was attractive about
these companies?
We added insurance companies and insurance-related companies, such as
insurance brokers, to the portfolio. We believe over the next several
years, selected insurance companies have the potential to perform as well
as some of the banks in which we have invested. Insurance companies
continue to benefit from the increased productivity that comes from the
use of technology. By using high technology products, companies run more
efficiently, and this should result in stronger earnings growth. We are
beginning to see mergers of all types of financial companies, and we
believe this may be the beginning of a trend.
What is your outlook?
During the first quarter of 1998, the stock market produced double-digit
returns. We believe it is unlikely, when looking at earnings forecasts,
that these high returns could continue without some pullback. We believe
there could be one or more short-term downturns in the market during the
year. Nevertheless, we think the underlying trends for the Fund and the
stock market are healthy. Earnings projections for the companies we hold
in the portfolio are strong. And the overall environment for the stock
market, which includes relatively strong economic growth, and relatively
low interest rates and inflation, still provides a very positive backdrop
for small-company stocks.
Funds that invest in stocks of small companies, also called small-cap
stocks, involve certain risks and, therefore, may not be appropriate for
all investors. Although they may offer the potential for greater long-term
returns, they also may experience greater price volatility due to their
limited focus on a particular industry, market, product, or service, or
because they invest in smaller, less established companies.
18
<PAGE>
EVERGREEN
Strategic Growth Fund
Fund at a Glance as of March 31, 1998
Our strategy has been to retain a nucleus of stocks that have consistent
earnings growth over the long term.
Portfolio
Management
----------------------------------------
[PHOTO]
Maureen Cullinane, CFA
Tenure: April 1995
-------------------------------------------------------
CURRENT INVESTMENT STYLE
Morningstar's Style Box is based on a
portfolio date as of 3/31/98.
[GRAPHIC OF STYLE BOX]
The Equity Style Box placement is based on a
fund's price-to-earnings and price-to-book
ratio relative to the S&P 500, as well as
the size of the companies in which it
invests, or median market capitalization.
Source: 1998 Morningstar, Inc.
- --------------------------------------------------------------------------------
PERFORMANCE AND RETURNS*
Class A Class B Class C
Inception Date 1/20/98 9/11/35 1/22/98
Average Annual Returns
6 months with sales charge - 8.51% -
6 months w/o sales charge - 13.46% -
One year with sales charge - 42.94% -
One year w/o sales charge - 47.94% -
3 years - 26.87% -
5 years - 18.59% -
10 years - 16.13% -
Since Inception 9.98% 11.70% 12.73%
Maximum Sales Charge 4.75% 5.00% 1.00%
Front End CDSC CDSC
6-month capital gain
distributions per share - $ 1.33 -
*Adjusted for maximum sales charge.
- --------------------------------------------------------------------------------
LONG TERM GROWTH
[GRAPH]
3/88 3/90 3/92 3/94 3/96 3/98
Class B Shares 10,000 12,748 16,903 20,916 26,928 44,605
S&P 500 10,000 16,091 17,903 20,933 31,957 56,672
CPI 10,000 11,047 11,957 12,635 13,350 13,923
Comparison of a $10,000 investment in Evergreen Strategic Growth Fund, Class B
shares, versus a similar investment in the S & P 500 Index and the Consumer
Price Index (CPI).
Past performance is no guarantee of future results. The performance of each
class may vary based on differences in loads and fees paid by the shareholders
investing in each class. The investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. The S & P 500 Index is an unmanaged index and does not
include transaction costs associated with buying and selling securities nor any
management fees. The Consumer Price Index, a measure of inflation, is through
March 31, 1998.
19
<PAGE>
EVERGREEN
Strategic Growth Fund
Portfolio Manager Interview
How did the fund perform for the six-
month period ended March 31, 1998?
For the six-month period ended March 31, 1998, Class B shares produced a
13.46% total return. In comparison, the Standard & Poor's 500 Index (S&P
500) rose 17.22%. For the twelve-month period ended March 31, 1998, Class B
shares gained 47.94% and the S&P Index rose 48.00%. These returns are
unadjusted for any sales charges.
Portfolio Characteristics
Total Net Assets $982,121,418
Number of Holdings 70
Beta 0.97
P/E Ratio 29.1x
What was the investment environment
like during the period?
The investment environment exceeded virtually everyone's expectations.
After three years of solid growth, the economy continued on an upward
course and interest rates and inflation remained in check. Added to these
solid economic fundamentals were large dollar inflows into the stock
market from individual investors. While stocks experienced a temporary
setback in reaction to the financial crisis in the ASEAN* countries
(Association of Southeast Asian Nations) in October, they made significant
gains over the period.
Did the ASEAN crisis affect the Fund?
The crisis had virtually no impact on the Fund's performance. However,
because we were concerned that all emerging markets would be affected by
the problems in the emerging markets in Asia, we sold holdings in Brazil
and Mexico. The Fund's combined position in both of these markets was
approximately 5% of assets.
*Includes Brunei, Indonesia, Laos, Malaysia, Philippines, Singapore,
Thailand, Vietnam and Burma.
How did you manage the Fund during
the period?
Our strategy has been to retain a nucleus of stocks that have demonstrated
consistent earnings growth over the long term. Many of the stocks in which
we invested are multinational companies that conduct business all over the
world. Therefore, a crisis in one part of the world, such as in the ASEAN
countries, could be offset by stronger growth elsewhere. At the end of the
period, some of the well-known companies in the portfolio were General
Electric, CBS, Microsoft, Exxon, Coca Cola, Pfizer and Disney.
Approximately two-thirds of the Fund's assets were invested in
large-company stocks. The rest of the assets were in midsized and small-
company stocks.
Top 5 Industries
(as a percentage of net assets)
Healthcare /Pharmaceuticals 18.9%
Information Services & Technology 11.4%
Banks 9.7%
Oil/Energy 8.3%
Publishing, Broadcasting & Entertainment 7.6%
What were some of the strongest
contributors to performance?
Pharmaceutical companies were strong contributors. On March 31, 1998,
Pfizer was the Fund's largest holding at 5.0% of assets. Warner-Lambert
Company was the Fund's third largest position at 2.9% of assets. Pfizer's
significant investment in research and development should begin to
contribute to earnings growth. The company recently launched Viagra, the
new male impotence drug, and we expect Pfizer will receive FDA approval
over the next
20
<PAGE>
EVERGREEN
Strategic Growth Fund
Portfolio Manager Interview
few years for other drugs in five therapeutic areas: infectious diseases,
cardiovascular, central nervous systems, diabetes and women's health.
Warner Lambert continues to benefit from the sale of Lipitor, a
cholesterol-lowering drug and now controls approximately 35% of that
market. Relative to other drug companies, we believe Warner Lambert should
produce one of the best growth rates in earnings over the next two years.
Top 10 Holdings
(as a percentage of net assets)
Pfizer, Inc. 5.0%
General Electric 3.9%
Warner-Lambert Co. 2.9%
Cendant Corp. 2.7%
CBS Corp. 2.2%
Microsoft Corp. 2.2%
EMC Corp. 2.2%
Fleet Financial Group, Inc. 2.0%
Disney (Walt) Co. 2.0%
Penzoil Co. 2.0%
Media companies (publishing, broadcasting and entertainment firms) are a
new addition to the Fund's Top 5 industry allocations. Why were these
companies attractive?
Within the media industry, we focused on broadcasting companies. In a
stronger economy, many companies increase their advertising budgets in
order to differentiate their products. Because radio and TV broadcasters
can target the mass market very efficiently, they capture much of the
higher spending on advertising. CBS, which was "spun out" from
Westinghouse, is a prime beneficiary. New management and more intense
focus on radio and television broadcasting operations have contributed to
improved revenues and profits.
We also invested in Viacom - a dominant company in cable television.
Viacom owns the Showtime, MTV and Nickelodeon networks and has an interest
in Paramount Studios, which produced Titanic. A turnaround at the
Blockbuster Video division of Viacom has resulted in a much improved
balance sheet and stronger cash flows.
Were there any disappointments?
As a group, food and beverage stocks, which accounted for 3.6% of assets,
lagged the general market and other economic sectors. Food and beverage
stocks rose approximately 15% during the period. While that performance is
good, it pales in comparison to pharmaceutical stocks that gained 31%,
broadcasting stocks that advanced 35%, or amusement stocks that rose 23%.
It appeared that investors were less interested in the food and beverage
area and preferred stocks in industries that produced more rapid earnings
growth. This often happens when the stock market and the economy are very
strong.
What is your outlook?
Our analysis indicates that over the long term the economy should continue
to grow at a moderate rate and interest rates and inflation should remain
at relatively low levels. We also believe that inflows into the market
should be strong, as baby boomers continue to invest for retirement. For
more than three years, the stock market has produced superior gains, and
we believe it is unrealistic to think that such exceptional returns could
continue without some pullback. We believe the Fund has invested in good
companies, with strong franchises, excellent managements and the ability
to sustain or increase earnings growth. We remain positive on the
long-term outlook of the market. Because no one can predict the direction
of the market, we encourage you to stick with your long-term goals,
diversify your investments among different types of assets, and take a
long-term view in analyzing your investment returns.
21
<PAGE>
EVERGREEN
Aggressive Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998 -----------------------------------------------
(Unaudited) 1997# 1996 1995*(a)
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 23.48 $ 21.04 $ 17.37 $ 13.85
=========== ========= ========= ==========
Income (loss) from investment
operations
Net investment loss ( 0.12) ( 0.21) ( 0.15) ( 0.16)
Net realized and unrealized gain (loss) on
investments 0.67 2.65 4.46 3.68
----------- --------- --------- ----------
Total from investment operations 0.55 2.44 4.31 3.52
----------- --------- --------- ----------
Less distributions
From net realized gain on investments ( 0.85) 0 ( 0.64) 0
----------- --------- --------- ----------
Total distributions ( 0.85) 0 ( 0.64) 0
----------- --------- --------- ----------
Net asset value end of period $ 23.18 $ 23.48 $ 21.04 $ 17.37
=========== ========= ========= ==========
Total return + 2.56% 11.60% 25.62% 25.42%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.27%++ 1.26% 1.22% 1.47%++
Total expenses, excluding indirectly paid
expenses 1.27%++ 1.25% N/A N/A
Net investment loss ( 1.11%)++ ( 1.05%) ( 0.86%) ( 1.12%)++
Portfolio turnover rate 28% 56% 33% 31%
Average commission rate paid per share $ 0.0598 $ 0.0531 $ 0.0582 N/A
Net assets end of period (thousands) $ 157,749 $ 173,982 $ 96,608 $ 70,858
<CAPTION>
Year Ended October 31,
----------------------------
1994#(a) 1993#(a)
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 14.44 $ 11.76
========== ==========
Income (loss) from investment
operations
Net investment loss ( 0.13) ( 0.12)
Net realized and unrealized gain (loss) on
investments ( 0.22) 3.06
---------- ----------
Total from investment operations ( 0.35) 2.94
---------- ----------
Less distributions
From net realized gain on investments ( 0.24) ( 0.26)
---------- ----------
Total distributions ( 0.24) ( 0.26)
---------- ----------
Net asset value end of period $ 13.85 $ 14.44
========== ==========
Total return + ( 2.42%) 25.31%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.25% 1.31%
Total expenses, excluding indirectly paid
expenses N/A N/A
Net investment loss ( 0.92%) ( 0.92%)
Portfolio turnover rate 59% 48%
Average commission rate paid per share N/A N/A
Net assets end of period (thousands) $ 64,635 $ 58,053
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
-------------------------------------------------------------------------
1992#(a) 1991#(a) 1990#(a) 1989#(a) 1988**#(a)
<S> <C> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 12.22 $ 7.37 $ 11.06 $ 7.62 $ 7.07
========== ========= ========== ========= ==========
Income (loss) from investment operations
Net investment loss ( 0.10) ( 0.08) ( 0.04) ( 0.11) ( 0.21)
Net realized and unrealized gain (loss) on investments 1.84 5.59 ( 2.02) 3.55 0.76
----------- --------- ---------- --------- ----------
Total from investment operations 1.74 5.51 ( 2.06) 3.44 0.55
----------- --------- ---------- --------- ----------
Less distributions
From net realized gain on investments ( 2.20) ( 0.66) ( 1.63) 0 0
----------- --------- ---------- --------- ----------
Total distributions (2.20) ( 0.66) ( 1.63) 0 0
----------- --------- ---------- --------- ----------
Net asset value end of period $ 11.76 $ 12.22 $ 7.37 $ 11.06 $ 7.62
=========== ========= ========== ========= ==========
Total return + 17.43% 79.80% ( 20.45%) 45.14% 7.78%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.44% 1.59% 1.86% 1.78% 2.02%++
Net investment loss ( 0.93%) ( 0.71%) ( 0.49%) ( 1.19%) ( 1.36%)++
Portfolio turnover rate 46% 108% 100% 120% 45%
Net assets end of period (thousands) $ 29,302 $ 23,509 $ 14,325 $ 21,241 $ 19,900
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the eleven months ended September 30, 1995. The Fund changed its fiscal
year end from October 31 to September 30, effective September 30, 1995.
** For the ten months ended October 31, 1988. The Fund changed its fiscal year
end from December 31 to October 31, effective October 31, 1988.
(a) Effective June 30, 1995, Evergreen Aggressive Growth Fund, a new series of
Evergreen Trust, acquired substantially all of the net assets of ABT
Emerging Growth Fund. ABT Emerging Growth Fund, which had a fiscal year that
ended on October 31 was the accounting survivor in the combination.
Accordingly, the information above includes the results of operations of ABT
Emerging Growth Fund prior to June 30, 1995.
See Combined Notes to Financial Statements.
22
<PAGE>
EVERGREEN
Aggressive Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# --------------------------------------------------
(Unaudited) 1997# 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 23.18 $ 20.89 $ 17.35 $ 15.82
============ ========== ========== ==========
Income (loss) from investment operations
Net investment loss ( 0.20) ( 0.37) ( 0.16) ( 0.03)
Net realized and unrealized gain on investments 0.67 2.66 4.34 1.56
------------ ---------- ---------- ----------
Total from investment operations 0.47 2.29 4.18 1.53
------------ ---------- ---------- ----------
Less distributions
From net realized gain on investments ( 0.85) 0 ( 0.64) 0
------------ ---------- ---------- ----------
Total distributions ( 0.85) 0 ( 0.64) 0
------------ ---------- ---------- ----------
Net asset value end of period $ 22.80 $ 23.18 $ 20.89 $ 17.35
============ ========== ========== ==========
Total return + 2.24% 10.96% 24.88% 9.67%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.04%++ 2.02% 1.98% 2.09%++
Total expenses, excluding indirectly paid expenses 2.04%++ 2.01% N/A N/A
Net investment loss ( 1.87%)++ ( 1.80%) ( 1.60%) ( 1.71%)++
Portfolio turnover rate 28% 56% 33% 31%
Average commission rate paid per share $ 0.0598 $ 0.0531 $ 0.0582 N/A
Net assets end of period (thousands) $ 40,305 $ 41,167 $ 21,644 $ 2,858
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# --------------------------------------------------
(Unaudited) 1997# 1996 1995**
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of period $ 23.16 $ 20.88 $ 17.31 $ 16.42
============ ========== ========== ==========
Income (loss) from investment operations
Net investment loss ( 0.20) ( 0.36) ( 0.15) ( 0.01)
Net realized and unrealized gain on investments 0.68 2.64 4.36 0.90
------------ ---------- ---------- ----------
Total from investment operations 0.48 2.28 4.21 0.89
------------ ---------- ---------- ----------
Less distributions
From net realized gain on investments ( 0.85) 0 ( 0.64) 0
------------ ---------- ---------- ----------
Total distributions ( 0.85) 0 ( 0.64) 0
------------ ---------- ---------- ----------
Net asset value end of period $ 22.79 $ 23.16 $ 20.88 $ 17.31
============ ========== ========== ==========
Total return + 2.29% 10.92% 25.11% 5.42%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.04%++ 2.02% 1.96% 2.09%++
Total expenses, excluding indirectly paid expenses 2.04%++ 2.01% N/A N/A
Net investment loss ( 1.87%)++ ( 1.80%) ( 1.57%) ( 1.51%)++
Portfolio turnover rate 28% 56% 33% 31%
Average commission rate paid per share $ 0.0598 $ 0.0531 $ 0.0582 N/A
Net assets end of period (thousands) $ 3,767 $ 3,992 $ 991 $ 416
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from July 7, 1995 (commencement of class operations) to
September 30, 1995.
** For the period from August 3, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
23
<PAGE>
EVERGREEN
Aggressive Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# ------------------------------------------------
(Unaudited) 1997# 1996 1995*
<S> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 23.57 $ 21.09 $ 17.38 $ 15.79
=========== ========== ========== ==========
Income (loss) from investment operations
Net investment loss ( 0.09) ( 0.17) ( 0.06) ( 0.01)
Net realized and unrealized gain on investments 0.67 2.65 4.41 1.60
----------- ---------- ---------- ----------
Total from investment operations 0.58 2.48 4.35 1.59
----------- ---------- ---------- ----------
Less distributions
From net realized gain on investments ( 0.85) 0 ( 0.64) 0
----------- ---------- ---------- ----------
Total distributions ( 0.85) 0 ( 0.64) 0
----------- ---------- ---------- ----------
Net asset value end of period $ 23.30 $ 23.57 $ 21.09 $ 17.38
=========== ========== ========== ==========
Total return 2.68% 11.76% 25.84% 10.07%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.01%+ 1.01% 0.97% 1.08%+
Total expenses, excluding indirectly paid expenses 1.01%+ 1.00% N/A N/A
Net investment loss ( 0.86%)+ ( 0.78%) ( 0.60%) ( 0.71%)+
Portfolio turnover rate 28% 56% 33% 31%
Average commission rate paid per share $ 0.0598 $ 0.0531 $ 0.0582 N/A
Net assets end of period (thousands) $ 32,043 $ 44,384 $ 25,918 $ 1,889
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Annualized.
* For the period from July 11, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
24
<PAGE>
EVERGREEN
Evergreen Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# ------------------------------------------------
(Unaudited) 1997# 1996 1995*
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 22.96 $ 17.64 $ 15.55 $ 11.97
=========== ============ ============ ==========
Income from investment operations
Net investment income 0.03 0.11 0.12 0.01
Net realized and unrealized gain on investments 2.73 5.71 2.61 3.57
----------- ------------ ------------ ----------
Total from investment operations 2.76 5.82 2.73 3.58
----------- ------------ ------------ ----------
Less distributions
From net investment income ( 0.10) ( 0.09) ( 0.06) 0
From net realized gain on investments ( 0.50) ( 0.41) ( 0.58) 0
----------- ------------ ------------ ----------
Total distributions ( 0.60) ( 0.50) ( 0.64) 0
----------- ------------ ------------ ----------
Net asset value end of period $ 25.12 $ 22.96 $ 17.64 $ 15.55
=========== ============ ============ ==========
Total return + 12.35% 33.72% 18.07% 29.91%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.44%++ 1.40% 1.45% 1.70%++
Total expenses, excluding indirectly paid expenses 1.44%++ 1.40% N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A N/A 1.75%++
Net investment income 0.23%++ 0.58% 0.63% 0.13%++
Portfolio turnover rate 4% 12% 15% 19%
Average commission rate paid per share $ 0.0571 $ 0.0577 $ 0.0603 N/A
Net assets end of period (millions) $ 219 $ 161 $ 87 $ 29
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# -----------------------------------------------
(Unaudited) 1997# 1996 1995*
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 22.69 $ 17.49 $ 15.48 $ 11.97
============ ========== ========== ==========
Income (loss) from investment operations
Net investment loss ( 0.05) ( 0.03) ( 0.03) ( 0.02)
Net realized and unrealized gain on investments 2.71 5.64 2.64 3.53
------------ ---------- ---------- ----------
Total from investment operations 2.66 5.61 2.61 3.51
------------ ---------- ---------- ----------
Less distributions
From net investment income 0 0 ( 0.02) 0
From net realized gain on investments ( 0.50) ( 0.41) ( 0.58) 0
------------ ---------- ---------- ----------
Total distributions ( 0.50) ( 0.41) ( 0.60) 0
------------ ---------- ---------- ----------
Net asset value end of period $ 24.85 $ 22.69 $ 17.49 $ 15.48
============ ========== ========== ==========
Total return + 11.98% 32.69% 17.29% 29.32%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.19%++ 2.15% 2.18% 2.32%++
Total expenses, excluding indirectly paid expenses 2.19%++ 2.15% N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A N/A 2.34%++
Net investment loss ( 0.52%)++ ( 0.16%) ( 0.10%) ( 0.48%)++
Portfolio turnover rate 4% 12% 15% 19%
Average commission rate paid per share $ 0.0571 $ 0.0577 $ 0.0603 N/A
Net assets end of period (millions) $ 664 $ 503 $ 254 $ 74
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
25
<PAGE>
EVERGREEN
Evergreen Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Year Ended September 30,
March 31, 1998# --------------------------------------------------
(Unaudited) 1997# 1996 1995*
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of period $ 22.66 $ 17.47 $ 15.48 $ 11.97
============ ========== ========== ==========
Income (loss) from investment operations
Net investment income (loss) ( 0.03) ( 0.04) 0 ( 0.01)
Net realized and unrealized gain on investments 2.67 5.64 2.61 3.52
------------ ---------- ---------- ----------
Total from investment operations 2.64 5.60 2.61 3.51
------------ ---------- ---------- ----------
Less distributions
From net investment income 0 0 ( 0.04) 0
From net realized gain on investments ( 0.50) ( 0.41) ( 0.58) 0
------------ ---------- ---------- ----------
Total distributions ( 0.50) ( 0.41) ( 0.62) 0
------------ ---------- ---------- ----------
Net asset value end of period $ 24.80 $ 22.66 $ 17.47 $ 15.48
============ ========== ========== ==========
Total return + 11.91% 32.67% 17.29% 29.32%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.19%++ 2.16% 2.14% 2.12%++
Total expenses, excluding indirectly paid expenses 2.19%++ 2.16% N/A N/A
Total expenses, excluding fee waivers & expense
reimbursements N/A N/A 2.38% 5.31%++
Net investment loss ( 0.51%)++ ( 0.18%) ( 0.07%) ( 0.31%)++
Portfolio turnover rate 4% 12% 15% 19%
Average commission rate paid per share $ 0.0571 $ 0.0577 $ 0.0603 N/A
Net assets end of period (millions) $ 13 $ 9 $ 6 $ 2
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
26
<PAGE>
EVERGREEN
Evergreen Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998#
(Unaudited)
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 23.07
==========
Income from investment operations
Net investment income 0.05
Net realized and unrealized gain on
investments 2.76
----------
Total from investment operations 2.81
----------
Less distributions
From net investment income ( 0.14)
From net realized gain on investments ( 0.50)
-----------
Total distributions ( 0.64)
-----------
Net asset value end of period $ 25.24
===========
Total return 12.54%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.18%+
Total expenses, excluding indirectly paid
expenses 1.18%+
Interest expense N/A
Net investment income 0.48%
Portfolio turnover rate 4%
Average commission rate paid per share $ 0.0571
Net assets end of period (millions) $ 1,258
<CAPTION>
Year Ended September 30,
-------------------------------------------------------------------------
1997# 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 17.71 $ 15.59 $ 14.62 $ 14.46 $ 13.10
============ ============ ========= ========= =========
Income from investment operations
Net investment income 0.16 0.24 0.10 0.07 0.09
Net realized and unrealized gain on
investments 5.73 2.55 3.10 0.79 1.96
------------ ------------ --------- --------- ---------
Total from investment operations 5.89 2.79 3.20 0.86 2.05
------------ ------------ --------- --------- ---------
Less distributions
From net investment income ( 0.12) ( 0.09) ( 0.07) ( 0.09) ( 0.07)
From net realized gain on investments ( 0.41) ( 0.58) ( 2.16) ( 0.61) ( 0.62)
------------ ------------ ---------- ---------- ----------
Total distributions ( 0.53) ( 0.67) ( 2.23) ( 0.70) ( 0.69)
------------ ------------ ---------- ---------- ----------
Net asset value end of period $ 23.07 $ 17.71 $ 15.59 $ 14.62 $ 14.46
============ ============ ========== ========== ==========
Total return 34.08% 18.43% 26.79% 6.16% 15.83%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.15% 1.15% 1.16% 1.13% 1.11%
Total expenses, excluding indirectly paid
expenses 1.15% N/A N/A N/A N/A
Interest expense N/A N/A 0.06% 0.09% 0.01%
Net investment income 0.80% 0.93% 0.53% 0.40% 0.60%
Portfolio turnover rate 12% 15% 19% 19% 21%
Average commission rate paid per share $ 0.0577 $ 0.0603 N/A N/A N/A
Net assets end of period (millions) $ 1,104 $ 841 $ 612 $ 526 $ 657
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------
1992 1991 1990 1989 1988*
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 13.32 $ 9.66 $ 14.01 $ 12.47 $ 15.12
========= ======== ========= ========= =========
Income (loss) from investment operations
Net investment income 0.09 0.17 0.24 0.32 0.21
Net realized and unrealized gain (loss) on investments 0.55 3.93 ( 3.62) 1.99 ( 1.05)
--------- -------- --------- --------- ---------
Total from investment operations 0.64 4.10 ( 3.38) 2.31 ( 0.84)
--------- -------- --------- --------- ---------
Less distributions
From net investment income ( 0.17) ( 0.18) ( 0.36) ( 0.21) ( 0.25)
From net realized gain on investments ( 0.69) ( 0.26) ( 0.61) ( 0.56) ( 1.56)
---------- --------- --------- ---------- ---------
Total distributions ( 0.86) ( 0.44) ( 0.97) ( 0.77) ( 1.81)
---------- --------- --------- ---------- ---------
Net asset value end of period $ 13.10 $ 13.32 $ 9.66 $ 14.01 $ 12.47
========== ========= ========= ========== =========
Total return 5.19% 43.74% ( 25.38%) 19.99% ( 1.87%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.13% 1.15% 1.15% 1.11% 1.03%
Net investment income 0.56% 1.45% 1.83% 2.46% 1.70%
Portfolio turnover rate 32% 35% 39% 40% 42%
Net assets end of period (millions) $ 772 $ 755 $ 525 $ 867 $ 751
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Annualized.
* Net of expense limitation in fiscal year 1988.
See Combined Notes to Financial Statements.
27
<PAGE>
EVERGREEN
Micro Cap Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998#
(Unaudited)
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 26.68
=============
Income (loss) from investment operations
Net investment loss ( 0.15)
Net realized and unrealized gain (loss) on investments 2.47
-------------
Total from investment operations 2.32
-------------
Less distributions
From net realized gain on investments ( 1.39)
-------------
Total distributions ( 1.39)
-------------
Net asset value end of period $ 27.61
=============
Total return + 9.04%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.79%++
Interest expense 0.06%++
Total expenses, excluding indirectly paid expenses 1.78%++
Total expenses, excluding fee waivers & expense reimbursements N/A
Net investment loss ( 1.14%)++
Portfolio turnover rate 24%
Average commission rate paid per share $ 0.0523
Net assets end of period (thousands) $ 5,922
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1997# 1996 1995*
<S> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 17.31 $ 18.41 $ 15.76
========== ========== ===========
Income (loss) from investment operations
Net investment loss ( 0.15) ( 0.10) ( 0.10)
Net realized and unrealized gain (loss) on investments 9.52 ( 0.44) 2.75
---------- ---------- -----------
Total from investment operations 9.37 ( 0.54) 2.65
---------- ---------- -----------
Less distributions
From net realized gain on investments 0 ( 0.56) 0
---------- ---------- -----------
Total distributions 0 ( 0.56) 0
---------- ---------- -----------
Net asset value end of period $ 26.68 $ 17.31 $ 18.41
========== ========== ===========
Total return + 54.13% ( 2.90%) 16.81%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.79% 1.73% 1.51%++
Interest expense 0.02% 0.02% N/A
Total expenses, excluding indirectly paid expenses 1.78% N/A N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 3.08% 4.33%++
Net investment loss ( 0.73%) ( 0.52%) ( 1.03%)++
Portfolio turnover rate 59% 160% 84%
Average commission rate paid per share $ 0.0543 $ 0.0465 N/A
Net assets end of period (thousands) $ 2,438 $ 903 $ 1,089
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998#
(Unaudited)
<S> <C>
CLASS B SHARES
Net asset value beginning of period $ 26.14
=============
Income (loss) from investment operations
Net investment loss ( 0.24)
Net realized and unrealized gain (loss) on investments 2.41
-------------
Total from investment operations 2.17
-------------
Less distributions
From net realized gain on investments ( 1.39)
-------------
Total distributions ( 1.39)
-------------
Net asset value end of period $ 26.92
=============
Total return + 8.64%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.54%++
Interest expense 0.06%++
Total expenses, excluding indirectly paid expenses 2.53%++
Total expenses, excluding fee waivers & expense reimbursements N/A
Net investment loss ( 1.89%)++
Portfolio turnover rate 24%
Average commission rate paid per share $ 0.0523
Net assets end of period (thousands) $ 4,719
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1997# 1996 1995*
<S> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 17.07 $ 18.30 $ 15.76
========== ========== ===========
Income (loss) from investment operations
Net investment loss ( 0.28) ( 0.25) ( 0.20)
Net realized and unrealized gain (loss) on investments 9.35 ( 0.42) 2.74
---------- ---------- -----------
Total from investment operations 9.07 ( 0.67) 2.54
---------- ---------- -----------
Less distributions
From net realized gain on investments 0 ( 0.56) 0
---------- ---------- -----------
Total distributions 0 ( 0.56) 0
---------- ---------- -----------
Net asset value end of period $ 26.14 $ 17.07 $ 18.30
========== ========== ===========
Total return + 53.13% ( 3.64%) 16.12%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.59% 2.47% 2.26%++
Interest expense 0.02% 0.02% N/A
Total expenses, excluding indirectly paid expenses 2.58% N/A N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 3.26% 3.66%++
Net investment loss ( 1.44%) ( 1.28%) ( 1.77%)++
Portfolio turnover rate 59% 160% 84%
Average commission rate paid per share $ 0.0543 $ 0.0465 N/A
Net assets end of period (thousands) $ 1,713 $ 1,461 $ 2,020
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
28
<PAGE>
EVERGREEN
Micro Cap Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998#
(Unaudited)
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 26.16
=============
Income (loss) from investment operations
Net investment loss ( 0.25)
Net realized and unrealized gain (loss) on investments 2.42
-------------
Total from investment operations 2.17
-------------
Less distributions
From net realized gain on investments ( 1.39)
-------------
Total distributions ( 1.39)
-------------
Net asset value end of period $ 26.94
=============
Total return + 8.63%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.54%++
Interest expense 0.06%++
Total expenses, excluding indirectly paid expenses 2.53%++
Total expenses, excluding fee waivers & expense reimbursements N/A
Net investment loss ( 1.93%)++
Portfolio turnover rate 24%
Average commission rate paid per share $ 0.0523
Net assets end of period (thousands) $ 3,721
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1997# 1996 1995*
<S> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of period $ 17.09 $ 18.31 $ 15.76
========== ========== ===========
Income (loss) from investment operations
Net investment loss ( 0.25) ( 0.35) ( 0.20)
Net realized and unrealized gain (loss) on investments 9.32 ( 0.31) 2.75
---------- ---------- -----------
Total from investment operations 9.07 ( 0.66) 2.55
---------- ---------- -----------
Less distributions
From net realized gain on investments 0 ( 0.56) 0
---------- ---------- -----------
Total distributions 0 ( 0.56) 0
---------- ---------- -----------
Net asset value end of period $ 26.16 $ 17.09 $ 18.31
========== ========== ===========
Total return + 53.07% ( 3.58%) 16.18%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.56% 2.44% 2.25%++
Interest expense 0.02% 0.02% N/A
Total expenses, excluding indirectly paid expenses 2.55% N/A N/A
Total expenses, excluding fee waivers & expense reimbursements N/A 32.28% 41.34%++
Net investment loss ( 1.50%) ( 1.35%) ( 1.76%)++
Portfolio turnover rate 59% 160% 84%
Average commission rate paid per share $ 0.0543 $ 0.0465 N/A
Net assets end of period (thousands) $ 261 $ 27 $ 62
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 3, 1995 (commencement of class operations) to
September 30, 1995.
See Combined Notes to Financial Statements.
29
<PAGE>
EVERGREEN
Micro Cap Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended September 30,
Six Months Ended ----------------------------------------------------------
March 31, 1998#
(Unaudited) 1997# 1996 1995 1994*
<S> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 26.83 $ 17.35 $ 18.42 $ 21.74 $ 21.20
=========== ========= ========= ========= ==========
Income (loss) from investment
operations
Net investment loss ( 0.11) ( 0.09) ( 0.08) ( 0.23) ( 0.05)
Net realized and unrealized gain (loss) on
investments 2.48 9.57 ( 0.43) 0.59 0.59
----------- --------- --------- --------- ----------
Total from investment operations 2.37 9.48 ( 0.51) 0.36 0.54
----------- --------- --------- --------- ----------
Less distributions
From net investment income 0 0 0 0 0
From net realized gain on investments ( 1.39) 0 ( 0.56) ( 3.68) 0
----------- --------- --------- --------- ----------
Total distributions ( 1.39) 0 ( 0.56) ( 3.68) 0
----------- --------- --------- --------- ----------
Net asset value end of period $ 27.81 $ 26.83 $ 17.35 $ 18.42 $ 21.74
=========== ========= ========= ========= ==========
Total return 9.18% 54.64% ( 2.73%) 4.76% 2.55%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.54%+ 1.59% 1.55% 1.36% 1.37%+
Interest expense 0.06%+ 0.02% 0.02% N/A N/A
Total expenses, excluding indirectly paid
expenses 1.53%+ 1.58% N/A N/A N/A
Total expenses, excluding fee waivers &
expense reimbursements N/A N/A 1.60% N/A N/A
Net investment loss ( 0.80%)+ ( 0.45%) ( 0.38%) ( 0.87%) ( 0.70%)+
Portfolio turnover rate 24% 59% 160% 84% 36%
Average commission rate paid per share $ 0.0523 $ 0.0543 $ 0.0465 N/A N/A
Net assets end of period (thousands) $ 54,721 $ 50,732 $ 39,622 $ 64,721 $ 99,340
<CAPTION>
Year Ended
May 31, 1994
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 20.87
==========
Income (loss) from investment
operations
Net investment loss ( 0.07)
Net realized and unrealized gain (loss) on
investments 1.67
----------
Total from investment operations 1.60
----------
Less distributions
From net investment income 0
From net realized gain on investments ( 1.27)
----------
Total distributions ( 1.27)
----------
Net asset value end of period $ 21.20
==========
Total return 7.64%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.26%
Interest expense N/A
Total expenses, excluding indirectly paid
expenses N/A
Total expenses, excluding fee waivers &
expense reimbursements N/A
Net investment loss ( 0.33%)
Portfolio turnover rate 89%
Average commission rate paid per share N/A
Net assets end of period (thousands) $ 96,357
</TABLE>
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------------------------------------------------------------
1993 1992 1991 1990 1989# 1988
<S> <C> <C> <C> <C> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 21.02 $ 18.81 $ 17.69 $ 21.02 $ 16.82 $ 18.55
========= ========= ========= ========= ========= =========
Income from investment operations
Net investment income (loss) ( 0.03) 0.02 0.56 0.45 0.16 0
Net realized and unrealized gain (loss) on
investments 1.57 3.33 1.67 0.25 4.37 ( 0.78)
--------- --------- --------- --------- --------- ---------
Total from investment operations 1.54 3.35 2.23 0.70 4.53 ( 0.78)
--------- --------- --------- --------- --------- ---------
Less distributions
From net investment income 0 ( 0.14) ( 0.53) ( 0.36) ( 0.05) 0
From net realized gain on investments ( 1.69) ( 1.00) ( 0.58) ( 3.67) ( 0.28) ( 0.95)
--------- ---------- ---------- ---------- ---------- ---------
Total distributions ( 1.69) ( 1.14) ( 1.11) ( 4.03) ( 0.33) ( 0.95)
--------- ---------- ---------- ---------- ---------- ---------
Net asset value end of period $ 20.87 $ 21.02 $ 18.81 $ 17.69 $ 21.02 $ 16.82
========= ========== ========== ========== ========== =========
Total return 7.47% 18.33% 14.42% 4.20% 27.35% ( 4.01%)
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.24% 1.25% 1.32% 1.33% 1.30% 1.47%
Net investment income (loss) ( 0.07%) 0.22% 3.32% 2.25% 0.86% 0.01%
Portfolio turnover rate 29% 55% 59% 46% 45% 47%
Net assets end of period (thousands) $ 80,605 $ 62,172 $ 45,687 $ 37,838 $ 37,292 $ 23,007
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
* For the four months ended September 30, 1994. The Fund changed its fiscal
year end from May 31 to September 30, effective September 30, 1994.
+ Annualized.
See Combined Notes to Financial Statements.
30
<PAGE>
EVERGREEN
Omega Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998# Nine Months Ended
(Unaudited) September 30, 1997#*
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 22.69 $ 19.52
=========== ==========
Income (loss) from investment
operations
Net investment income (loss) ( 0.04) ( 0.03)
Net realized and unrealized gain (loss) on
investments 3.44 4.05
----------- ------------
Total from investment operations 3.40 4.02
----------- ------------
Less distributions
From net realized gain on investments ( 2.13) ( 0.85)
----------- ------------
Total distributions ( 2.13) ( 0.85)
----------- ------------
Net asset value end of period $ 23.96 $ 22.69
=========== ============
Total return + 16.37% 21.45%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.31%++ 1.32%++
Total expenses, excluding indirectly
paid expenses 1.31%++ 1.31%++
Net investment income (loss) ( 0.39%)++ ( 0.20%)++
Portfolio turnover rate 108% 76%
Average commission rate paid per
share $ 0.0587 $ 0.0580
Net assets end of period (thousands) $ 179,362 $ 162,847
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 19.56 $ 15.54 $ 17.11 $ 15.84
========== ======== ========= =========
Income (loss) from investment
operations
Net investment income (loss) ( 0.06) 0 0.04 ( 0.07)
Net realized and unrealized gain (loss) on
investments 2.15 5.58 ( 1.00) 3.07
---------- -------- --------- ---------
Total from investment operations 2.09 5.58 ( 0.96) 3.00
---------- -------- --------- ---------
Less distributions
From net realized gain on investments ( 2.13) ( 1.56) ( 0.61) ( 1.73)
---------- -------- --------- ---------
Total distributions ( 2.13) ( 1.56) ( 0.61) ( 1.73)
---------- -------- --------- ---------
Net asset value end of period $ 19.52 $ 19.56 $ 15.54 $ 17.11
========== ======== ========= =========
Total return + 11.31% 36.94% ( 5.66%) 19.33%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.33% 1.38% 1.41% 1.51%
Total expenses, excluding indirectly
paid expenses 1.32% 1.37% N/A N/A
Net investment income (loss) ( 0.29%) 0.00% 0.27% ( 0.48%)
Portfolio turnover rate 173% 159% 137% 162%
Average commission rate paid per
share $ 0.0621 N/A N/A N/A
Net assets end of period (thousands) $ 154,825 $135,079 $ 99,569 $ 90,404
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1992# 1991
<S> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 17.68 $ 13.37
========== ==========
Income (loss) from investment operations
Net investment income (loss) 0 ( 0.04)
Net realized and unrealized gain (loss) on investments 0.39 6.92
---------- ----------
Total from investment operations 0.39 6.88
---------- ----------
Less distributions
From net investment income 0 ( 0.02)
In excess of net investment income 0 ( 0.05)
From net realized gain on investments ( 2.23) ( 2.50)
---------- ----------
Total distributions ( 2.23) ( 2.57)
---------- ----------
Net asset value end of period $ 15.84 $ 17.68
========== ==========
Total return + 4.00% 54.49%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.52% 1.57%
Net investment income (loss) ( 0.01%) ( 0.31%)
Portfolio turnover rate 176% 115%
Net assets end of period (thousands) $ 73,144 $ 58,671
<CAPTION>
Year Ended December 31,
----------------------------------------------
1990 1989 1988
<S> <C> <C> <C>
CLASS A SHARES
Net asset value beginning of period $ 16.03 $ 13.66 $ 12.08
========== ========= ===========
Income (loss) from investment operations
Net investment income (loss) 0.11 0.17 0.30 (a)
Net realized and unrealized gain (loss) on investments ( 0.39) 4.30 1.40
---------- --------- -----------
Total from investment operations ( 0.28) 4.47 1.70
---------- --------- -----------
Less distributions
From net investment income ( 0.25) ( 0.20) ( 0.12)
In excess of net investment income ( 0.04) 0 0
From net realized gain on investments ( 2.09) ( 1.90) 0
---------- ---------- -----------
Total distributions ( 2.38) ( 2.10) ( 0.12)
---------- ---------- -----------
Net asset value end of period $ 13.37 $ 16.03 $ 13.66
========== ========== ===========
Total return + ( 2.38%) 33.05% 14.05%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.73% 1.84% 1.78%
Net investment income (loss) 0.70% 1.03% 2.22%
Portfolio turnover rate 108% 77% 84%
Net assets end of period (thousands) $ 38,531 $ 39,682 $ 33,951
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* The Fund changed its fiscal year end from December 31 to September 30,
effective September 30, 1997.
(a) Includes a $0.17 per share relating to a special non-recurring
distribution from Inco Limited.
See Combined Notes to Financial Statements.
31
<PAGE>
EVERGREEN
Omega Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998# Nine Months Ended
(Unaudited) September 30, 1997#**
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of
period $ 21.71 $ 18.83
=========== ==========
Income (loss) from investment
operations
Net investment loss ( 0.12) ( 0.15)
Net realized and unrealized gain
(loss) on investments 3.26 3.88
----------- ------------
Total from investment operations 3.14 3.73
----------- ------------
Less distributions
From net realized gain on
investments ( 2.13) ( 0.85)
----------- ------------
Total distributions ( 2.13) ( 0.85)
----------- ------------
Net asset value end of period $ 22.72 $ 21.71
=========== ============
Total return + 15.94% 20.68%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.12%++ 2.18%++
Total expenses, excluding
indirectly paid expenses 2.12%++ 2.17%++
Net investment loss ( 1.20%)++ ( 1.06%)++
Portfolio turnover rate 108% 76%
Average commission rate paid
per share $ 0.0587 $ 0.0580
Net assets end of period
(thousands) $ 124,631 $ 110,349
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1996 1995 1994 1993*
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of
period $ 19.10 $ 15.34 $ 17.06 $ 17.29
========= ========= ========= ===========
Income (loss) from investment
operations
Net investment loss ( 0.17) ( 0.09) ( 0.06) ( 0.05)
Net realized and unrealized gain
(loss) on investments 2.03 5.41 ( 1.60) 1.55
--------- --------- --------- -----------
Total from investment operations 1.86 5.32 ( 1.66) 1.50
--------- --------- --------- -----------
Less distributions
From net realized gain on
investments ( 2.13) ( 1.56) ( 0.06) ( 1.73)
--------- --------- --------- -----------
Total distributions ( 2.13) ( 1.56) ( 0.06) ( 1.73)
--------- --------- --------- -----------
Net asset value end of period $ 18.83 $ 19.10 $ 15.34 $ 17.06
========= ========= ========= ===========
Total return + 10.31% 35.70% ( 6.57%) 9.02%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.20% 2.29% 2.30% 2.57%++
Total expenses, excluding
indirectly paid expenses 2.18% 2.27% N/A N/A
Net investment loss ( 1.15%) ( 0.94%) ( 0.58%) ( 1.73%)++
Portfolio turnover rate 173% 159% 137% 162%
Average commission rate paid
per share $ 0.0621 N/A N/A N/A
Net assets end of period
(thousands) $ 89,921 $ 71,636 $ 32,266 $ 7,423
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998# Nine Months Ended
(Unaudited) September 30, 1997#**
<S> <C> <C>
CLASS C SHARES
Net asset value beginning of
period $ 21.74 $ 18.86
=========== ==========
Income (loss) from investment
operations
Net investment loss ( 0.13) ( 0.15)
Net realized and unrealized gain
(loss) on investments 3.29 3.88
----------- ------------
Total from investment operations 3.16 3.73
----------- ------------
Less distributions
From net realized gain on
investments ( 2.13) ( 0.85)
----------- ------------
Total distributions ( 2.13) ( 0.85)
----------- ------------
Net asset value end of period $ 22.77 $ 21.74
=========== ============
Total return + 15.96% 20.65%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.12%++ 2.18%++
Total expenses, excluding
indirectly paid expenses 2.12%++ 2.17%++
Net investment loss ( 1.20%)++ ( 1.05%)++
Portfolio turnover rate 108% 76%
Average commission rate paid
per share $ 0.0587 $ 0.0580
Net assets end of period
(thousands) $ 16,566 $ 16,067
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993*
<S> <C> <C> <C> <C>
CLASS C SHARES
Net asset value beginning of
period $ 19.13 $ 15.37 $ 17.09 $ 17.29
========= ========= ========= ===========
Income (loss) from investment
operations
Net investment loss ( 0.18) ( 0.13) ( 0.07) ( 0.06)
Net realized and unrealized gain
(loss) on investments 2.04 5.45 ( 1.04) 1.59
--------- --------- --------- -----------
Total from investment operations 1.86 5.32 ( 1.11) 1.53
--------- --------- --------- -----------
Less distributions
From net realized gain on
investments ( 2.13) ( 1.56) ( 0.61) ( 1.73)
--------- --------- --------- -----------
Total distributions ( 2.13) ( 1.56) ( 0.61) ( 1.73)
--------- --------- --------- -----------
Net asset value end of period $ 18.86 $ 19.13 $ 15.37 $ 17.09
========= ========= ========= ===========
Total return + 10.29% 35.62% ( 6.56%) 9.20%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.21% 2.30% 2.30% 2.48%++
Total expenses, excluding
indirectly paid expenses N/A N/A N/A N/A
Net investment loss ( 1.17%) ( 0.91%) ( 0.63%) ( 1.64%)++
Portfolio turnover rate 173% 159% 137% 162%
Average commission rate paid
per share $ 0.0621 N/A N/A N/A
Net assets end of period
(thousands) $ 17,628 $ 13,963 $ 9,900 $ 3,620
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from August 2, 1993 (commencement of class operations) to
December 31, 1993.
** The Fund changed its fiscal year end from December 31 to September 30,
effective September 30, 1997.
See Combined Notes to Financial Statements.
32
<PAGE>
EVERGREEN
Omega Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1998# Period Ended
(Unaudited) September 30, 1997#*
<S> <C> <C>
CLASS Y SHARES
Net asset value beginning of period $ 22.68 $ 19.98
========= ==========
Income (loss) from investment operations
Net investment loss ( 0.02) ( 0.01)
Net realized and unrealized gain on investments 3.44 3.56
---------- -----------
Total from investment operations 3.42 3.55
---------- -----------
Less distributions
From net realized gain on investments ( 2.13) ( 0.85)
---------- -----------
Total distributions ( 2.13) ( 0.85)
---------- -----------
Net asset value end of period $ 23.97 $ 22.68
========== ===========
Total return 16.47% 18.60%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.07%+ 1.24%+
Total expenses, excluding indirectly paid expenses 1.07%+ 1.24%+
Net investment loss ( 0.17%)+ ( 0.21%)+
Portfolio turnover rate 108% 76%
Average commission rate paid per share $ 0.0587 $ 0.0580
Net assets end of period (thousands) $ 6 $ 5
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
* For the period from January 13, 1997 (commencement of class operations) to
September 30, 1997.
+ Annualized.
See Combined Notes to Financial Statements.
33
<PAGE>
EVERGREEN
Small Company Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998#*
(Unaudited)
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 7.75
==========
Income from investment operations
Net investment income 0
Net realized and unrealized gain on investments and foreign currency related transactions 1.01
----------
Total from investment operations 1.01
----------
Net asset value end of period $ 8.76
==========
Total return + 13.03%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.06%++
Total expenses, excluding indirectly paid expenses 1.06%++
Net investment loss ( 0.21%)++
Portfolio turnover rate 41%
Average commission rate paid per share $ 0.0507
Net assets end of period (millions) $ 1,035
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
* For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
See Combined Notes to Financial Statements.
34
<PAGE>
EVERGREEN
Small Company Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months Ended Four-Month
March 31, 1998# Period Ended
(Unaudited) September 30, 1997#*
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 9.44 $ 8.44
=========== =========
Income (loss) from investment
operations
Net investment loss ( 0.06) ( 0.04)
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions 0.15 1.74
----------- -----------
Total from investment operations 0.09 1.70
----------- -----------
Less distributions
From net realized gain on investments
and foreign currency related
transactions ( 0.78) ( 0.70)
----------- -----------
Total distributions ( 0.78) ( 0.70)
----------- -----------
Net asset value end of period $ 8.75 $ 9.44
=========== ===========
Total return + 1.64% 21.43%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.19%++ 1.77%++
Total expenses, excluding indirectly
paid expenses 1.19%++ 1.77%++
Net investment loss ( 0.81%)++ ( 1.43%)++
Portfolio turnover rate 41% 28%
Average commission rate paid per
share $ 0.0507 $ 0.0525
Net assets end of period (millions) $ 407 $ 1,546
<CAPTION>
Year Ended May 31,
----------------------------------------------------
1997 1996 1995 1994
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 10.35 $ 8.62 $ 7.64 $ 7.95
========= ======== ======== ========
Income (loss) from investment
operations
Net investment loss ( 0.11) ( 0.13) ( 0.07) ( 0.12)
Net realized and unrealized gain (loss)
on investments and foreign currency
related transactions ( 0.78) 2.87 1.68 0.63
--------- -------- -------- --------
Total from investment operations ( 0.89) 2.74 1.61 0.51
--------- -------- -------- --------
Less distributions
From net realized gain on investments
and foreign currency related
transactions ( 1.02) ( 1.01) ( 0.63) ( 0.82)
--------- -------- -------- --------
Total distributions ( 1.02) ( 1.01) ( 0.63) ( 0.82)
--------- -------- -------- --------
Net asset value end of period $ 8.44 $ 10.35 $ 8.62 $ 7.64
========= ======== ======== ========
Total return + ( 8.61%) 33.03% 23.58% 6.84%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.75% 1.73% 1.78% 1.73%
Total expenses, excluding indirectly
paid expenses 1.73% 1.72% N/A N/A
Net investment loss ( 1.32%) ( 1.34%) ( 1.10%) ( 1.49%)
Portfolio turnover rate 48% 94% 38% 60%
Average commission rate paid per
share $ 0.0551 $ 0.0563 N/A N/A
Net assets end of period (millions) $ 1,407 $ 2,006 $ 1,460 $ 1,006
</TABLE>
<TABLE>
<CAPTION>
Year Ended May 31,
----------------------------------------------------------------
1993# 1992# 1991# 1990# 1989#
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 7.61 $ 7.17 $ 6.24 $ 5.66 $ 4.48
======== ======== ======== ======== ========
Income (loss) from investment operations
Net investment income (loss) ( 0.12) ( 0.08) ( 0.04) 0 0.02
Net realized and unrealized gain (loss) on investments
and foreign currency related transactions 1.82 0.98 1.17 0.63 1.20
-------- -------- -------- --------- --------
Total from investment operations 1.70 0.90 1.13 0.63 1.22
-------- -------- -------- --------- --------
Less distributions
From net investment income 0 0 0 ( 0.05) ( 0.01)
From net realized gain on investments and foreign
currency related transactions ( 1.36) ( 0.46) ( 0.20) 0 ( 0.03)
-------- -------- -------- --------- ---------
Total distributions ( 1.36) ( 0.46) ( 0.20) ( 0.05) ( 0.04)
-------- -------- -------- --------- ---------
Net asset value end of period $ 7.95 $ 7.61 $ 7.17 $ 6.24 $ 5.66
======== ======== ======== ========= =========
Total return + 28.76% 13.45% 19.42% 11.24% 27.45%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 2.04% 1.47% 1.48% 1.40% 1.27%
Net investment income (loss) ( 1.68%) ( 1.09%) ( 0.68%) 0.02% 0.47%
Portfolio turnover rate 78% 81% 73% 77% 57%
Net assets end of period (millions) $ 966 $ 702 $ 623 $ 538 $ 504
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* The Fund changed its fiscal year end from May 31 to September 30, effective
September 30, 1997.
See Combined Notes to Financial Statements.
35
<PAGE>
EVERGREEN
Small Company Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998#*
(Unaudited)
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 7.73
==========
Income (loss) from investment operations
Net investment loss ( 0.02)
Net realized and unrealized gain on investments and foreign currency related transactions 1.04
----------
Total from investment operations 1.02
----------
Net asset value end of period $ 8.75
==========
Total return + 13.20%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.81%++
Total expenses, excluding indirectly paid expenses 1.81%++
Net investment loss ( 1.13%)++
Portfolio turnover rate 41%
Average commission rate paid per share $ 0.0507
Net assets end of period (millions) $ 6
</TABLE>
<TABLE>
<CAPTION>
Period Ended
March 31, 1998#*
(Unaudited)
<S> <C>
CLASS Y SHARES
Net asset value beginning of period $ 7.73
==========
Income from investment operations
Net investment income 0
Net realized and unrealized gain on investments and foreign currency related transactions 1.04
----------
Total from investment operations 1.04
----------
Net asset value end of period $ 8.77
==========
Total return 13.45%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 0.82%++
Total expenses, excluding indirectly paid expenses 0.82%++
Net investment loss ( 0.15%)++
Portfolio turnover rate 41%
Average commission rate paid per share $ 0.0507
Net assets end of period (millions) $ 1
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* For the period from January 26, 1998 (commencement of class operations) to
March 31, 1998.
See Combined Notes to Financial Statements.
36
<PAGE>
EVERGREEN
Strategic Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998#*
(Unaudited)
<S> <C>
CLASS A SHARES
Net asset value beginning of period $ 9.12
===========
Income from investment operations
Net investment income 0.01
Net realized and unrealized gain on investments and foreign currency related transactions 1.40
-----------
Total from investment operations 1.41
-----------
Net asset value end of period $ 10.53
===========
Total return + 15.46%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.10%++
Total expenses, excluding indirectly paid expenses 1.10%++
Net investment income 0.38%++
Portfolio turnover rate 70%
Average commission rate paid per share $ 0.0020
Net assets end of period (millions) $ 825
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
* For the period from January 20, 1998 (commencement of class operations) to
March 31, 1998.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
See Combined Notes to Financial Statements.
37
<PAGE>
EVERGREEN
Strategic Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Eleven-Month
Six Months Ended Period Ended
March 31, 1998# September 30,
(Unaudited) 1997#*
<S> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 10.61 $8.68
=========== ==========
Income (loss) from investment operations
Net investment income (loss) ( 0.01) 0.01
Net realized and unrealized gain on investments and
foreign currency related transactions 1.24 2.96
----------- ----------
Total from investment operations 1.23 2.97
----------- ----------
Less distributions
From net investment income 0 0
In excess of net investment income 0 0
From net realized gain on investments and foreign
currency related transactions ( 1.33) ( 1.04)
In excess of net realized gain on investments and
foreign currency related transactions 0 0
----------- ----------
Total distributions ( 1.33) ( 1.04)
----------- ----------
Net asset value end of period $ 10.51 $ 10.61
=========== ==========
Total return + 13.46% 37.74%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.17%++ 1.19%++
Total expenses, excluding indirectly paid expenses 1.17%++ 1.18%++
Net investment income (loss) ( 0.14%)++ 0.12%++
Portfolio turnover rate 70% 71%
Average commission rate paid per share $ 0.0020 $ 0.0222
Net assets end of period (millions) $ 157 $ 920
<CAPTION>
Year Ended October 31,
-------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 8.05 $ 7.54 $ 9.00 $ 7.60
======== ======== ======== ========
Income (loss) from investment operations
Net investment income (loss) ( 0.04) ( 0.02) 0 ( 0.06)
Net realized and unrealized gain on investments and
foreign currency related transactions 1.04 1.13 0.23 1.89
-------- -------- -------- --------
Total from investment operations 1.00 1.11 0.23 1.83
-------- -------- -------- --------
Less distributions
From net investment income ( 0.01) 0.00 0 0
In excess of net investment income 0 0 0 ( 0.03)
From net realized gain on investments and foreign
currency related transactions ( 0.36) ( 0.60) ( 1.66) ( 0.40)
In excess of net realized gain on investments and
foreign currency related transactions 0 0 ( 0.03) 0
-------- -------- -------- --------
Total distributions ( 0.37) ( 0.60) ( 1.69) ( 0.43)
-------- -------- -------- --------
Net asset value end of period $ 8.68 $ 8.05 $ 7.54 $ 9.00
======== ======== ======== ========
Total return + 12.95% 15.05% 3.55% 24.97%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.91% 2.01% 1.73% 1.83%
Total expenses, excluding indirectly paid expenses 1.90% 2.00% N/A N/A
Net investment income (loss) ( 0.48%) ( 0.25%) ( 0.17%) ( 0.57%)
Portfolio turnover rate 156% 140% 68% 65%
Average commission rate paid per share $ 0.0042 N/A N/A N/A
Net assets end of period (millions) $ 497 $ 492 $ 417 $ 404
</TABLE>
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------------------------------
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
CLASS B SHARES
Net asset value beginning of period $ 8.18 $ 6.52 $ 7.67 $ 6.53 $ 7.55
======== ======== ======== ======== ========
Income (loss) from investment operations
Net investment income (loss) ( 0.01) 0.08 0.08 0.16 0.18
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions 0.42 2.24 ( 0.80) 1.21 0.19
-------- -------- -------- -------- --------
Total from investment operations 0.41 2.32 ( 0.72) 1.37 0.37
-------- -------- -------- -------- --------
Less distributions
From net investment income ( 0.01) ( 0.16) ( 0.18) ( 0.18) ( 0.14)
In excess of net investment income ( 0.05) 0 0 0 0
From net realized gain on investments and foreign
currency related transactions ( 0.93) ( 0.50) ( 0.25) ( 0.05) ( 1.25)
-------- --------- -------- --------- ---------
Total distributions ( 0.99) ( 0.66) ( 0.43) ( 0.23) ( 1.39)
-------- --------- -------- --------- ---------
Net asset value end of period $ 7.60 $ 8.18 $ 6.52 $ 7.67 $ 6.53
======== ========= ======== ========= =========
Total return + 6.38% 38.77% ( 10.05%) 21.74% 7.73%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.58% 1.52% 1.65% 1.59% 1.69%
Net investment income (loss) ( 0.15%) 0.99% 1.64% 2.06% 2.14%
Portfolio turnover rate 62% 86% 30% 40% 89%
Net assets end of period (millions) $ 322 $ 339 $ 234 $ 330 $ 328
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
* The Fund changed its fiscal year end from October 31 to September 30,
effective September 30, 1997.
See Combined Notes to Financial Statements.
38
<PAGE>
EVERGREEN
Strategic Growth Fund
Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Period Ended
March 31, 1998#*
(Unaudited)
<S> <C>
CLASS C SHARES
Net asset value beginning of period $ 9.25
============
Income (loss) from investment operations
Net investment loss ( 0.02)
Net realized and unrealized gain on investments and foreign currency related transactions 1.29
------------
Total from investment operations 1.27
------------
Net asset value end of period $ 10.52
============
Total return + 13.73%
Ratios/supplemental data
Ratios to average net assets:
Total expenses 1.90%++
Total expenses, excluding indirectly paid expenses 1.90%++
Net investment loss ( 0.37%)++
Portfolio turnover rate 70%
Average commission rate paid per share $ 0.0020
Net assets end of period (thousands) $ 133
</TABLE>
# Net investment income is based on average shares outstanding during the
period.
* For the period from January 22, 1998 (commencement of class operations) to
March 31, 1998.
+ Initial sales charge or contingent deferred sales charge is not reflected.
++ Annualized.
See Combined Notes to Financial Statements.
39
<PAGE>
EVERGREEN
Aggressive Growth Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
COMMON STOCKS - 99.0%
Building - 1.2%
80,000 Oakwood Homes Corp. ............ $ 2,930,000
------------
Business Services - 9.2%
100,000 * APAC TeleServices, Inc. ........ 1,293,750
75,000 * Fiserv, Inc. ................... 4,753,125
100,000 Paychex, Inc. .................. 5,768,750
50,000 * Saville Systems Plc, ADR ....... 2,562,500
100,000 * Sitel Corporation .............. 1,275,000
125,000 * Sterling Commerce, Inc. ........ 5,796,875
------------
21,450,000
------------
Communication Systems &
Services - 7.7%
200,000 * Cisco Systems, Inc. ............ 13,675,000
100,000 * WorldCom, Inc. ................. 4,306,250
------------
17,981,250
------------
Consumer/Diversified - 1.4%
125,000 * Republic Industries, Inc. ...... 3,226,563
------------
Educational Services - 0.8%
40,000 * Sylvan Learning Systems, Inc. .. 1,885,000
------------
Financial - 2.0%
100,000 SunAmerica, Inc. ............... 4,787,500
------------
Healthcare - 12.4%
50,000 HBO & Company .................. 3,018,750
150,000 * Health Management Associates, Inc. 4,293,750
60,000 * HEALTHSOUTH Corporation ........ 1,683,750
70,000 * Medicis Pharmaceutical Corporation 3,053,750
108,750 * MedQuest, Inc. ................. 4,003,359
150,000 Medtronic, Inc. ................ 7,781,250
135,000 * Renal Care Group, Inc. ......... 5,130,000
85+ * Surgical Laser Technologies .... 0
------------
28,964,609
------------
Oil/Gas-Drilling - 14.0%
70,000 * Cliffs Drilling Company ........ 2,891,875
80,000 Diamond Offshore Drilling, Inc. 3,630,000
116,000 ENSCO International, Inc. ...... 3,219,000
115,000 * Global Marine, Inc. ............ 2,846,250
140,000 Marine Drilling Companies, Inc. 3,027,500
140,000 * Noble Drilling Corporation ..... 4,278,750
180,000 * Patterson Energy, Inc. ......... 2,070,000
100,000 * R & B Falcon Corporation ....... 2,962,500
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
COMMON STOCKS - continued
Oil/Gas-Drilling - continued
150,000 Transocean Offshore, Inc. ...... $ 7,715,625
------------
32,641,500
------------
Oil/Gas-Equipment & Services -
11.3%
120,000 * EVI, Inc. ...................... 5,557,500
256,000 * Global Industries Ltd. ......... 5,216,000
63,000 * Halliburton Company ............ 3,161,812
120,000 * Petroleum Geo-Services, ADR .... 7,125,000
48,000 Schlumberger Ltd. .............. 3,636,000
31,000 * SEACOR SMIT, Inc. .............. 1,803,813
------------
26,500,125
------------
Retail (Specialty) - 18.2%
115,000 * Action Performance Companies, Inc. 4,046,563
75,000 * Bed Bath & Beyond, Inc. ........ 3,464,063
120,000 * Central Garden & Pet Company ... 4,687,500
85,000 * Ethan Allen Interiors, Inc. .... 5,078,750
80,000 Family Dollar Stores, Inc. ..... 3,040,000
60,000 * Fastenal Company ............... 2,602,500
115,000 Home Depot, Inc. ............... 7,755,312
215,000 * Office Depot, Inc. ............. 6,691,875
806+ * Sound Advice, Inc.
Warrants, Expiring 6/14/99 ..... 0
225,000 * Staples, Inc. .................. 5,217,187
------------
42,583,750
------------
Software/Technology - 20.8%
125,000 * American Power Conversion Corp. 3,585,938
110,000 Analysts International Corporation 3,217,500
106,000 * BMC Software, Inc. ............. 8,884,125
49,500 * Citrix Systems, Inc. ........... 2,682,281
125,000 * EMC Corp. ...................... 4,726,563
52,500 * Etec Systems, Inc. ............. 3,097,500
130,000 Microsoft Corporation .......... 11,635,000
86,250 * Networks Associates, Inc. ...... 5,714,062
150,000 * Parametric Technology Corporation 4,996,875
------------
48,539,844
------------
Total Investments -
(cost $137,403,145) .. 99.0% 231,490,141
Other Assets and
Liabilities - net .... 1.0 2,373,593
----- ------------
Net Assets ............ 100.0% $233,863,734
===== ============
</TABLE>
* Non-income producing securities.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Fund's Board of Trustees.
Summary of Abbreviations:
ADR American Depository Receipts
See Combined Notes to Financial Statements.
40
<PAGE>
EVERGREEN
Evergreen Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 82.1%
Aerospace & Defense - 0.2%
85,000 Orbital Sciences Corp. .............. $ 3,814,375
-----------
Automotive Equipment &
Manufacturing - 0.2%
92,900 * Lear Corp. .......................... 5,237,238
-----------
Banks - 15.8%
435,624 1st Source Corp. .................... 15,845,823
90,450 Amcore Financial, Inc. .............. 2,442,150
100,000 * American Bancshares, Inc. ........... 1,200,000
116,650 AmSouth Bancorp ..................... 6,889,641
1,500 Anchor Financial Corp. .............. 61,875
121,555 Arrow Financial Corp. ............... 3,798,594
121,495 Banc One Corp. ...................... 7,684,559
45,000 Bank of Commerce .................... 787,500
532,240 BankBoston Corp. .................... 58,679,460
242,437 BSB Bancorp, Inc. ................... 7,515,547
85,000 Cape Cod Bank & Trust Co. ........... 3,740,000
44,500 CCB Financial Corp. ................. 4,920,031
35,000 * Century Bancshares, Inc. ............ 385,000
140,018 Chittenden Corp. .................... 5,233,173
45,000 * Columbia Banking Systems, Inc. ...... 1,434,375
77,000 Comerica, Inc. ...................... 8,147,562
65,000 Compass Bancshares, Inc. ............ 3,266,250
5,000 CoreStates Financial Corp. ++ ....... 448,750
99,380 Cornerstone Bank ** ................. 2,037,290
70,000 Corus Bankshares, Inc. .............. 3,071,250
70,000 Crestar Financial Corp. ............. 4,138,750
14,800 Cullen/Frost Bankers, Inc. .......... 874,125
127,000 First Empire State Corp. ............ 63,484,125
62,500 First State Bancorp ................. 1,593,750
30,013 FNB Corp. ........................... 1,163,004
54,903 Glacier Bancorp, Inc. ............... 1,537,284
105,000 Gold Banc Corp., Inc. ............... 2,657,813
889,540 Hibernia Corp. Cl. A ................ 18,291,166
36,300 Hudson Chartered Bancorp, Inc. ...... 857,588
37,500 Independent Bancshares, Inc. ........ 646,875
5,942 ING Groep NV, ADR ................... 338,323
17,000 Letchworth Independent Bancshares
Corp. ............................... 973,250
67,779 Magna Group, Inc. ................... 3,935,418
22,000 Merchants Bancorp, Inc. ............. 717,750
169,143 National City Corp. ................. 12,400,296
613,510 NationsBank Corp. ................... 44,747,886
100,000 North Fork Bancorp, Inc. ............ 3,862,500
179,846 Old Kent Financial Corp. ............ 6,901,590
49,900 ONBANCorp, Inc. ..................... 3,455,575
33,593 One Valley Bancorp of West Virginia,
Inc. ................................ 1,270,235
90,000 Reliance Acceptance Group, Inc. ..... 22,500
66,000 Sandwich Bancorp, Inc. .............. 4,174,500
50,000 Seacoast Banking Corp. of Florida Cl. A 1,850,000
136,512 State Financial Services Corp. Cl. A 3,515,184
73,975 Summit Bancorp ...................... 3,703,373
410,000 * Surety Capital Corp. ** ............. 2,357,500
107,145 * United Security Bancorp ............. 2,330,404
39,285 Univest Corp. of Pennsylvania ....... 2,730,307
10,000 USBancorp, Inc. ..................... 771,250
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Banks - continued
43,350 Wachovia Corp. ...................... $ 3,676,622
17,000 Webster Financial Corp. ............. 1,181,500
53,137 West Coast Bancorp, Inc. (Ore.) ..... 1,348,351
45,560 Western Bancorp. .................... 1,981,860
-----------
341,079,484
-----------
Building, Construction &
Furnishings - 4.8%
70,000 * Burcon Properties Ltd. .............. 750,962
30,000 * Castle & Cooke, Inc. ................ 504,375
171,250 Cavalier Homes, Inc. ................ 1,958,672
288,100 * Champion Enterprises, Inc. .......... 7,688,669
421,625 Clayton Homes, Inc. ................. 8,537,906
105,000 * Crossmann Communities, Inc. ......... 3,117,188
242,360 D.R. Horton, Inc. ................... 5,150,150
80,000 * Furniture Brands International, Inc. 2,575,000
70,800 Juno Lighting, Inc. ................. 1,495,650
70,000 * Knoll, Inc. ......................... 2,699,375
106,800 La-Z-Boy Chair Co. .................. 5,333,325
281,740 Lennar Corp. ........................ 9,702,421
131,000 Lowe's Companies, Inc. .............. 9,194,562
159,700 * M/I Schottenstein Homes, Inc. ....... 3,493,438
61,900 Medusa Corp. ........................ 3,783,637
60,000 Miller (Herman), Inc. ............... 2,011,875
73,500 * Monaco Coach Corp. .................. 2,884,875
22,600 * Palm Harbor Homes, Inc. ............. 833,375
78,000 * Royal Group Technologies Ltd. ....... 2,554,500
100,000 * Southern Energy Homes, Inc. ......... 1,212,500
40,600 * Stanley Furniture Co., Inc. ......... 1,618,925
90,000 * Sundance Homes, Inc. ................ 202,500
119,400 TJ International, Inc. .............. 3,820,800
558,600 * Toll Brothers, Inc. ................. 15,710,625
158,500 * US Home Corp. ....................... 7,261,281
-----------
104,096,586
-----------
Business Equipment & Services -
1.0%
297,130 First Data Corp. .................... 9,656,725
84,800 * Gradco Systems, Inc. ................ 604,200
160,000 * In Focus Systems, Inc. .............. 1,440,000
100,000 * Macromedia, Inc. .................... 1,487,500
57,000 * Metromail Corp. ..................... 1,973,625
164,700 * Zebra Technologies Corp. ............ 6,340,950
-----------
21,503,000
-----------
Chemical & Agricultural Products -
1.7%
62,221 Delta & Pine Land Co. ............... 3,235,492
150,000 H.B. Fuller Co. ..................... 8,981,250
40,000 Nalco Chemical Co. .................. 1,622,500
16,500 OM Group, Inc. ...................... 695,062
359,568 Schulman (A.), Inc. ................. 9,079,092
335,000 Sigma-Aldrich Corp. ................. 12,478,750
18,900 Tredegar Industries, Inc. ........... 1,369,069
-----------
37,461,215
-----------
</TABLE>
41
<PAGE>
EVERGREEN
Evergreen Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Communication Systems &
Services - 1.9%
329,250 * Andrew Corp. ....................... $ 6,523,265
165,000 * Cisco Systems, Inc. ................ 11,281,875
50,000 * Coherent Communications System
Corp. .............................. 2,306,250
232,000 * Coherent, Inc. ..................... 5,611,500
50,000 * DSP Group, Inc. .................... 956,250
120,000 * Inter-Tel, Inc. .................... 3,232,500
185,000 * Powertel, Inc. ..................... 3,994,844
60,000 * Tellabs, Inc. ...................... 4,027,500
155,000 * Vertex Communications Corp. ........ 3,952,500
-----------
41,886,484
-----------
Consumer Products & Services -
3.9%
140,000 Aaron Rents, Inc. Cl. B ............ 3,403,750
732,298 * Cendant Corp. ...................... 29,017,308
105,000 Commonwealth Industries, Inc. ...... 1,830,937
151,300 Crown Crafts, Inc. ................. 3,167,844
20,000 * Deckers Outdoor Corp. .............. 145,000
341,700 * Gaylord Container Corp. Cl. A ...... 2,541,394
53,000 Gucci Group ........................ 2,517,500
182,300 Heilig-Meyers Co. .................. 2,563,594
201,030 K2, Inc. ........................... 4,485,482
326,815 Lancaster Colony Corp. ............. 13,869,212
140,000 * LoJack Corp. ....................... 2,012,500
155,000 * Nautica Enterprises, Inc. .......... 4,766,250
54,400 Nike, Inc. Cl. B ................... 2,407,200
70,000 Noble Affiliates, Inc. ............. 2,913,750
75,000 * North Face, Inc. ................... 1,818,750
45,000 * Recovery Engineering, Inc. ......... 1,327,500
53,800 Toro Co. ........................... 2,061,212
79,000 Valspar Corp. ...................... 3,100,750
-----------
83,949,933
-----------
Electrical Equipment & Services -
2.8%
90,000 * ADFlex Solutions, Inc. ............. 1,541,250
285,400 * Atmel Corp. ........................ 4,298,837
388,933 Baldor Electric Co. ................ 10,476,883
82,500 * Brooks Automation, Inc. ............ 1,299,375
75,000 * Electro Scientific Industries, Inc. 2,896,875
163,900 Fair Issac & Co., Inc. ............. 6,187,225
27,000 * Franklin Electric Co., Inc. ........ 1,849,500
130,400 * Hadco Corp. ........................ 5,167,100
364,150 Harman International Industries, Inc. 16,022,600
63,000 Jabil Circuit, Inc. ................ 2,098,687
266,697 * Paxar Corp. ........................ 3,783,764
45,000 * Reliability, Inc. .................. 540,000
226,400 * SMART Modular Technologies, Inc. ... 5,164,750
-----------
61,326,846
-----------
Finance & Insurance - 9.7%
23,969 Aegon NV ........................... 2,907,739
71,228 Allmerica Financial Corp. .......... 4,549,688
368,800 Ambac Financial Group, Inc. ........ 21,551,750
111,900 Countrywide Credit Industries, Inc. 5,951,681
108,900 Dain Rauscher Corp. ................ 6,268,556
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Finance & Insurance - continued
330,000 Edwards (A.G.), Inc. ............... $14,437,500
29,100 Enhance Financial Services Group, Inc. 2,020,631
70,000 Executive Risk, Inc. ............... 4,987,500
15,700 Farm Family Holdings, Inc. ......... 608,375
507,600 Federal Home Loan Mortgage Corp. ... 24,079,275
618,000 Federal National Mortgage Association. 39,088,500
37,700 Fidelity National Financial, Inc. .. 1,385,475
114,000 First American Financial Corp. ..... 7,296,000
50,000 * First Enterprise Financial Group ... 6,250
85,000 * FPIC Insurance Group, Inc. ......... 2,741,250
50,000 * Itla Capital Corp. ................. 1,062,500
113,100 John Nuveen Co. Cl. A .............. 4,142,287
6,000 Landamerica Financial Group, Inc. .. 271,500
27,333 Legg Mason, Inc. ................... 1,621,189
83,000 * Life USA Holdings, Inc. ............ 1,270,938
91,515 MBIA, Inc. ......................... 7,092,412
75,000 * Mego Mortgage Corp. ................ 154,688
507,600 MGIC Investment Corp. .............. 33,342,975
38,200 Mutual Risk Mgmt Ltd. .............. 1,294,025
15,000 Ohio Casualty Corp. ................ 720,000
100,000 Penn-America Group, Inc. ........... 2,181,250
16,600 PennCorp Financial Group, Inc. ..... 479,325
20,000 Price (T.) Rowe & Associates, Inc. . 1,407,500
54,692 Providian Financial Corp. .......... 3,141,372
86,000 ReliaStar Financial Corp. .......... 3,961,375
75,107 Resource Bancshares Mortgage Group,
Inc. ............................... 1,192,324
30,000 State Auto Financial Corp. ......... 1,192,500
52,500 SunAmerica, Inc. ................... 2,513,437
89,250 Trenwick Group, Inc. ............... 3,346,875
14,100 Vesta Insurance Group, Inc. ........ 756,113
-----------
209,024,755
-----------
Food & Beverage Products - 0.1%
16,500 Coca Cola Bottling Co. ............. 952,875
40,000 Wendy's International, Inc. ........ 892,500
-----------
1,845,375
-----------
Healthcare Products & Services -
10.3%
24,000 * Abiomed, Inc. ...................... 363,000
165,000 ADAC Laboratories .................. 3,815,625
75,000 Arbor Drugs, Inc. .................. 1,767,188
60,000 Arrow International, Inc. .......... 2,062,500
40,000 * Arterial Vascular Engineering, Inc. 1,465,000
110,000 Beckman Instruments, Inc. .......... 6,304,375
130,000 Beverly Enterprises Inc. ........... 1,730,625
18,750 * Bio-Rad Laboratories, Inc. Cl. A ... 503,906
190,000 Biomet, Inc. ....................... 5,700,000
98,298 * Boston Scientific Corp. ............ 6,635,115
148,900 * Chad Therapeutics, Inc. ............ 1,135,363
205,300 Columbia / HCA Healthcare Corp. .... 6,620,925
8,025 * Coram Healthcare Corp. Warrants -
$22.125 Expiring 7/11/99+........... 0
51,825 ESC Medical Systems Ltd. ........... 1,820,353
112,800 * Exactech, Inc. ..................... 740,250
40,000 * Express Scripts, Inc. Cl. A ........ 3,391,250
</TABLE>
42
<PAGE>
EVERGREEN
Evergreen Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Healthcare Products & Services -
continued
50,000 First Health Group Corp. ............ $ 2,712,500
67,666 * Foundation Health Systems, Inc. ..... 1,865,044
220,000 HBO & Co. ........................... 13,282,500
70,575 * Health Management Associates, Inc.
Cl. A ............................... 2,020,209
23,600 * HEALTHSOUTH Corp. ................... 662,275
215,000 * Hologic, Inc. ....................... 5,966,250
300,000 * Idexx Laboratories, Inc. ............ 5,400,000
30,000 Invacare Corp. ...................... 780,000
390,000 Johnson & Johnson ................... 28,591,875
13,400 * Lincare Holdings, Inc. .............. 946,375
43,100 * Maxxim Medical, Inc. ................ 1,236,431
235,800 McKesson Corp. ...................... 13,617,450
144,361 * MedPartners, Inc. ................... 1,479,700
500,000 Merck & Co., Inc. ................... 64,187,500
35,000 Meridian Diagnostics, Inc. .......... 446,250
1,446 Pacificare Health Systems, Inc. Cl. A . 107,004
4,545 * Pacificare Health Systems, Inc. Cl. B . 342,011
59,163 Pharmerica Inc. ..................... 880,050
127,500 * St. Jude Medical, Inc. .............. 4,263,281
468,000 Stryker Corp. ....................... 21,937,500
90,000 * Sun Healthcare Group, Inc. .......... 1,676,250
72,950 Tenet Healthcare Corp. .............. 2,648,997
46,500 U.S. Surgical Corp. ................. 1,534,500
45,600 West Co., Inc. ...................... 1,373,700
-----------
222,013,127
-----------
Industrial Specialty Products &
Service - 5.4%
121,000 AptarGroup, Inc. .................... 7,267,562
33,000 BHA Group Holdings, Inc. Cl. A ...... 589,875
40,500 * Chemfab Corp. ....................... 992,250
145,000 * Dionex Corp. ........................ 8,083,750
122,000 Dover Corp. ......................... 4,636,000
191,400 Furon Co. ........................... 4,509,863
43,200 * Global Industrial Technologies, Inc. 712,800
198,000 * Input/Output, Inc. .................. 4,628,250
160,000 Kaydon Corp. ........................ 6,540,000
180,800 Leggett & Platt, Inc. ............... 9,299,900
18,400 Nacco Industries, Inc. Cl. A ........ 2,465,600
66,000 * Osmonics, Inc. ...................... 1,093,125
247,900 Pall Corp. .......................... 5,329,850
140,700 Park Electrochemical Corp. .......... 3,631,819
133,200 Robbins & Myers, Inc. ............... 5,078,250
30,000 * Simula, Inc. ........................ 478,125
241,500 Snap-on, Inc. ....................... 11,018,437
185,000 Spartech Corp. ...................... 4,058,438
20,000 * Special Devices, Inc. ............... 570,000
147,200 Tecumseh Products Co. Cl. A ......... 7,912,000
57,800 Tecumseh Products Co. Cl. B ......... 3,258,475
230,000 Teleflex, Inc. ...................... 9,660,000
20,000 * U.S. Rentals, Inc. .................. 552,500
202,400 * UCAR International, Inc. ............ 6,350,300
50,000 Wescast Industries, Inc. ............ 1,468,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Industrial Specialty Products &
Service - continued
104,000 Woodward Governor Co. ............... $ 2,899,000
90,000 Zero Corp. .......................... 2,542,500
-----------
115,627,419
-----------
Information Services &
Technology - 7.7%
60,000 * Adaptec, Inc. ....................... 1,177,500
150,000 * American Business Information, Inc. . 2,137,500
150,000 American Business Information, Inc.
Cl. A ............................... 1,968,750
54,850 * Analytical Surveys, Inc. ............ 2,811,063
120,000 Autodesk, Inc. ...................... 5,175,000
40,000 Compaq Computer Corp. ............... 1,035,000
75,000 Computer Associates International, Inc. 4,331,250
50,000 * Computer Products, Inc. ............. 1,165,625
52,000 Comverse Technology, Inc. ........... 2,541,500
120,000 * Dialogic Corp. ...................... 5,122,500
101,400 * Dupont Photomasks, Inc. ............. 4,385,550
335,000 * Gateway 2000, Inc. .................. 15,724,062
405,468 Hewlett-Packard Co. ................. 25,696,534
156,250 * IFR Systems, Inc. ................... 3,476,563
598,000 Intel Corp. ......................... 46,681,375
75,000 * KLA-Tencor Corp. .................... 2,868,750
96,000 Micros Systems Inc. ................. 5,772,000
140,995 Molex, Inc. ......................... 3,877,363
33,750 * National Instruments Corp. .......... 1,151,719
380,000 * Parametric Technology Corp. ......... 12,658,750
406,000 * Sun Microsystems, Inc. .............. 16,937,812
-----------
166,696,166
-----------
Leisure & Tourism - 0.1%
75,000 American Skiing Co. ................. 1,256,250
-----------
Oil/Energy - 0.8%
25,000 * Barrett Resources Corp. ............. 873,438
100,000 * COHO Energy, Inc. ................... 781,250
60,000 * Global Marine, Inc. ................. 1,485,000
30,000 KN Energy, Inc. ..................... 1,771,875
50,000 * Noble Drilling Corp. ................ 1,528,125
20,000 Penn Virginia Corp. ................. 582,500
187,600 Precision Drilling Corp. ............ 3,963,050
80,000 Ranger Oil Ltd. ..................... 520,000
60,000 * Stolt Comex Seaway, SA .............. 1,511,250
118,590 Tosco Corp. ......................... 4,180,297
-----------
17,196,785
-----------
Oil Field Services - 0.6%
140,000 Global Industries Ltd. .............. 2,852,500
170,000 * Hvide Marine, Inc. Cl. A ............ 2,996,250
61,500 Lufkin Industries, Inc. ............. 1,998,750
100,000 * Offshore Logistics, Inc. ............ 1,987,500
118,000 R & B Falcon Corp. .................. 3,495,750
-----------
13,330,750
-----------
Paper & Packaging - 0.5%
15,400 Avery Dennison Corp. ................ 821,975
31,815 Kimberly-Clark Corp. ................ 1,594,727
</TABLE>
43
<PAGE>
EVERGREEN
Evergreen Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Paper & Packaging - continued
87,000 St. Joe Corp. ......................... $ 2,925,375
186,662 Wausau Mosinee Paper Corp. ............ 4,304,892
-------------
9,646,969
-------------
Pharmaceuticals - 0.1%
75,000 Dura Pharmaceuticals, Inc. ............ 1,846,875
-------------
Publishing, Broadcasting &
Entertainment - 6.1%
45,000 * American Radio Systems Corp. Cl. A .... 2,854,687
252,000 Belo (A.H.) Corp.
Ser. A ................................ 13,860,000
150,000 Cadmus Communications Corp. ........... 3,562,500
18,180 CBS Corp. ............................. 616,984
30,000 * CellularVision USA, Inc. .............. 150,000
45,000 * Chancellor Media Corp. ................ 2,064,375
857,000 * Clear Channel Communications, Inc. .... 83,986,000
10,000 Gaylord Entertainment Co. ............. 357,500
205,800 * Jacor Communications, Inc. ............ 12,142,200
137,500 * Obie Media Corp. ...................... 1,615,625
190,000 Wiley (John) & Sons, Inc. Cl. A ....... 10,461,875
-------------
131,671,746
-------------
Real Estate - 2.2%
139,460 * Alexander's, Inc. REIT ................ 13,065,659
46,200 Apartment Investment & Management
Co. Cl. A REIT ........................ 1,778,700
28,900 Arden Realty Group, Inc. REIT ......... 823,650
172,500 * Candlewood Hotel Co., Inc. ............ 1,401,562
54,000 Chelsea GCA Realty, Inc. REIT ......... 1,998,000
148,600 Continental Homes Holding Corp. ....... 6,909,900
78,000 Del Webb Corp. ........................ 2,379,000
75,000 * Entertainment Properties Trust REIT ... 1,471,875
19,062 Equity Residential Properties Trust REIT 957,866
10,000 Forest City Enterprises, Inc. ......... 564,375
47,400 * FRP Properties, Inc. .................. 1,540,500
44,000 * Grubb & Ellis Co. ..................... 445,500
50,000 Horizon Group, Inc. REIT .............. 615,625
120,000 * Host Marriott Corp. ................... 2,272,500
20,000 * Irvine Apartment Communities, Inc.
REIT .................................. 630,000
33,000 * John Q. Hammons Hotels, Inc. Cl. A .... 259,875
40,000 LNR Property Corp. .................... 1,070,000
321,661 * Prime Hospitality Corp. ............... 6,272,389
115,000 * Servico, Inc. ......................... 2,429,375
7,625 * Wellsford Real Properties, Inc. 144A .. 110,563
-------------
46,996,914
-------------
Retailing & Wholesale - 3.0%
145,000 Avnet, Inc. ........................... 8,346,562
219,000 * Cole National Corp. Cl. A ............. 8,458,875
120,000 * Costco Companies, Inc. ................ 6,405,000
98,200 Dillards, Inc. ........................ 3,627,262
256,800 Fingerhut Companies, Inc. ............. 6,660,750
100,000 Finish Line, Inc. Cl. A ............... 2,375,000
50,000 * Footstar, Inc. ........................ 1,800,000
80,000 * Home Products International, Inc. ..... 1,290,000
34,800 IMC Global, Inc. ...................... 1,324,575
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
60,800 * Jones Apparel Group, Inc. ............. $ 3,347,800
122,900 Mercantile Stores Co., Inc. ........... 8,257,344
29,500 * Payless Shoesource, Inc. .............. 2,219,875
43,750 Proffitts, Inc. ....................... 1,585,938
268,000 Seaway Food Town, Inc. ** ............. 7,504,000
50,000 SED International Holdings, Inc. ...... 568,750
35,000 St. John Knits, Inc. .................. 1,653,750
-------------
65,425,481
-------------
Telecommunication Services &
Equipment - 0.3%
40,000 ADC Telecommunications Inc. ........... 1,102,500
158,000 * Aspect Telecommunications Corp. ....... 4,236,375
-------------
5,338,875
-------------
Thrift Institutions - 1.2%
295,000 Dime Financial Corp. ** ............... 10,620,000
185,100 First Palm Beach Bancorp, Inc. ........ 7,450,275
73,500 * Hawthorne Financial Corp. ............. 1,451,625
148,500 Maryland Federal Bancorp, Inc. ........ 5,810,063
-------------
25,331,963
-------------
Transportation - 1.7%
125,000 ASA Holdings, Inc. .................... 4,601,562
58,000 Delta Air Lines, Inc. ................. 6,858,500
25,700 GATX Corp. ............................ 2,004,600
217,465 * Heartland Express, Inc. ............... 6,034,654
25,000 Skywest, Inc. ......................... 912,500
423,500 SouthWest Airlines Co. ................ 12,519,719
120,000 U.S. Freightways Corp. ................ 4,320,000
-------------
37,251,535
-------------
Total Common Stocks
(cost $764,681,273).................... 1,770,856,146
-------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C>
SHORT-TERM INVESTMENTS - 14.9%
Commercial Paper - 13.8%
$19,600,000 Allianz Of America Finance Corp.
5.53%, 5/5/98 ................ 19,497,634
1,495,000 Asset Portfolio Funding
5.50%, 4/7/98 ................ 1,493,630
8,450,000 Banc One Funding Corp
5.53%, 4/22/98 ............... 8,422,742
11,000,000 BMW U.S. Capital Corp.
5.51%, 5/13/98 ............... 10,929,288
19,350,000 Daimler-Benz North America Corp.
5.52%, 5/19/98 ............... 19,207,584
2,380,000 Delaware Funding Corp.
5.53%, 5/20/98 ............... 2,362,086
5,530,000 Dominion Semiconductor
5.52%, 5/4/98 ................ 5,502,018
Duke Capital Corp.
7,000,000 5.51%, 4/13/98 .............. 6,987,143
11,750,000 5.52%, 4/13/98 .............. 11,728,380
350,000 Duke University
5.48%, 4/3/98 ................ 349,893
</TABLE>
44
<PAGE>
EVERGREEN
Evergreen Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS - 14.9%
Commercial Paper - 13.8%
$19,000,000 Eiger Capital Corp.
5.52%, 5/8/98 ..................... $ 18,892,207
Fina Oil & Chemical Co.
2,200,000 5.54%, 5/12/98 ................... 2,186,119
15,750,000 5.54%, 5/18/98 ................... 15,636,084
1,075,000 Finova Capital Corp.
5.54%, 5/22/98 .................... 1,066,563
15,000,000 Four Winds Funding Corp.
5.50%, 4/14/98 .................... 14,970,208
4,750,000 Great Lakes Chemical Corp.
5.52%, 4/8/98 ..................... 4,744,902
27,650,000 Market Street Funding Corp.
5.52%, 4/17/98 .................... 27,582,165
3,650,000 Massachusetts College of Pharmacy
and Allied Health Services
5.58%, 5/11/98 .................... 3,627,370
3,880,000 Park Avenue Recreation Corp.
5.53%, 5/21/98 .................... 3,850,199
26,100,000 Pfizer, Inc.
5.50%, 4/30/98 .................... 25,984,363
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS - continued
Commercial Paper - continued
$27,150,000 Republic Industries Funding Corp.
5.52%, 4/24/98 .................... $ 27,054,251
25,000,000 Safeco Corp.
5.50%, 4/20/98 .................... 24,927,431
12,850,000 Southland Corp. 5.53%, 5/6/98 ..... 12,780,913
20,625,000 Trident Capital Finance, Inc.
5.54%, 4/30/98 .................... 20,532,955
7,250,000 Wood Street Funding Corp. 5.50%,
4/9/98 ............................ 7,241,139
--------------
297,557,267
--------------
U.S. Government Agency
Obligations - 1.1%
23,175,000 Federal Home Loan Mortgage Corp.
5.44%, 4/3/98 ..................... 23,167,996
--------------
Total Short-Term Investments
(cost $320,725,263)................ 320,725,263
--------------
Total Investments -
(cost $1,085,406,536)..... 97.0% 2,091,581,409
Other Assets and
Liabilities - net ........ 3.0 63,669,314
----- --------------
Net Assets ............... 100.0% $2,155,250,723
===== ==============
</TABLE>
Summary of Portfolio Abbreviations:
ADR American Depository Receipt
NV Naamloze Veunootschap (Dutch Corporation)
REIT Real Estate Investment Trust
SA Sociedad Anonyme (Spanish Corporation)
* Non-income producing securities.
** Investment in non-controlled affiliate holding over 5% of outstanding voting
shares. At March 31, 1998, the Fund held investments in the following
securities:
<TABLE>
<S> <C> <C> <C> <C>
Dividends
Security Name Shares Cost Value Earned
- ------------------------ ----- ----- ------ ------
Cornerstone Bank 99,380 $1,089,310 $ 2,037,290 $ 18,900
Dime Financial Corp. 295,000 3,573,760 10,620,000 67,850
Seaway Food Town, Inc. 268,000 1,563,474 7,504,000 32,160
Surety Capital Corp. 410,000 1,559,388 2,357,500 -
</TABLE>
+ No market quotation available. Valued at fair value as determined in good
faith under procedures established by the Fund's Board of Trustees.
++ At March 31, 1998 the Fund owned 5,000 shares of common stock of CoreStates
Financial Corp., at a cost of $364,090. During the six month period ended
March 31, 1998, the Fund earned $5,000 in dividend income from this
investment. These shares were purchased prior to the acquisition of
CoreStates Financial Corp. by First Union.
144A Securities that may be resold to "qualified institutional buyers" under
Rule 144A of the Securities Act of 1933. These securities have been
determined to be liquid under guidelines established by the Fund's Board of
Trustees.
See Combined Notes to Financial Statements.
45
<PAGE>
EVERGREEN
Micro Cap Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 99.0%
Aerospace &
Defense - 0.4%
9,900 * Ducommun, Inc. ...... $ 289,575
----------
Automotive Equipment &
Manufacturing - 0.7%
45,000 * Noble International
Ltd.................. 472,500
----------
Banks - 11.6%
19,360 BT Financial Corp.... 1,079,320
10,000 CNB Financial Corp... 370,000
2,500 First Keystone
Financial, Inc....... 45,625
20,000 First Oak Brook
Bancshares,
Inc. Cl. A .......... 1,000,000
2,850 First West Virginia
Bancorp, Inc......... 80,156
26,997 Independent Bank
Corp................. 1,052,883
2,900 Northern States
Financial Corp....... 464,000
5,000 Peoples Bancorp, Inc. 241,250
12,500 Pinnacle Financial
Services, Inc........ 621,094
20,000 Second Bancorp, Inc.. 641,250
15,000 * Six Rivers National
Bank................. 288,750
31,725 Washington Trust
Bancorp, Inc......... 1,070,719
41,875 West Coast Bancorp,
Inc. (Ore.).......... 1,062,578
----------
8,017,625
----------
Building, Construction
& Furnishings - 4.4%
23,750 Cavalier Homes, Inc. 271,641
15,000 * Crossmann Communities,
Inc.................. 445,313
32,000 * Mity Lite, Inc. ..... 624,000
45,000 * Modtech, Inc. ....... 925,312
20,000 * Stanley Furniture Co.,
Inc.................. 797,500
----------
3,063,766
----------
Business Equipment &
Services - 4.5%
50,000 * Equitrac Corp. ...... 1,012,500
94,750 General Employment
Enterprises, Inc..... 1,113,313
20,000 * Personnel Managment,
Inc.................. 280,000
37,300 * TEAM America Corp.... 515,206
32,000 * Uniflex, Inc......... 192,000
==========
3,113,019
==========
Chemical & Agricultural
Products - 3.1%
44,000 Balchem Corp. ....... 748,000
42,600 Chase Corp. ......... 788,100
51,318 Hawkins Chemical,
Inc.................. 577,328
----------
2,113,428
----------
Consumer Products &
Services - 7.7%
22,000 Bush Industries, Inc.
Cl. A................ 624,250
35,000 Cooker Restaurant
Corp................. 352,187
47,000 First Years, Inc..... 1,650,875
55,000 * Fountain Power Boat
Industries, Inc...... 577,500
110,000 * Gotham Apparel Corp.**+ 5,500
15,000 * Meadowcraft, Inc..... 219,375
80,000 * Play By Play Toys &
Novelties, Inc....... 1,510,000
31,600 Stephan Co. ......... 398,950
----------
5,338,637
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Electrical Equipment &
Services - 5.4%
50,000 * Ault, Inc. .......... $ 393,750
63,270 * Del Global Technologies
Corp................. 719,696
20,000 * Graham Corp. ........ 326,250
8,400 L.S. Starrett, Co.
Cl. A................ 326,550
52,000 * OSI Systems, Inc. ... 604,500
60,000 * Powell Industries,
Inc.................. 641,250
20,000 * Reliability, Inc..... 240,000
21,000 Todd-AO Corp. Cl. A . 221,813
20,000 * Vicon Industries, Inc. 232,500
----------
3,706,309
----------
Finance &
Insurance - 3.1%
70,500 * ACE Cash Express,
Inc.................. 1,026,657
21,600 * CorVel Corp. ........ 858,600
----------
11,804 * Grand Premier
Financial, Inc....... 223,538
----------
2,108,795
----------
Food & Beverage
Products - 1.0%
43,333 Worthington Foods,
Inc.................. 720,411
----------
Healthcare Products &
Services - 10.2%
40,000 * Alcide Corp.......... 2,160,000
120,500 * Biosource
International, Inc... 775,719
44,888 Del Laboratories, Inc. 1,436,416
25,000 * Empi, Inc. .......... 404,687
25,000 Kewaunee Scientific
Corp................. 287,500
62,100 Meridian Diagnostics,
Inc.................. 791,775
60,000 * Mesa Laboratories, Inc. 348,750
70,300 * Neogen Corp. .......... 812,844
==========
7,017,691
==========
Industrial Specialty
Products & Services - 15.3%
27,500 * AG Services of America,
Inc.................. 493,281
25,000 * American Eco Corp.... 242,188
19,900 American Precision
Industries, Inc...... 376,856
44,100 Badger Meter, Inc.... 1,582,087
23,050 * Benthos, Inc......... 322,700
20,000 * Chemfab Corp......... 490,000
20,000 * Fibermark, Inc....... 466,250
40,000 * General Bearing Corp. 515,000
14,000 General Magnaplate
Corp................. 106,750
30,000 * Genlyte Group, Inc... 577,500
35,000 Gorman Rupp Co....... 682,500
60,000 * Hitox Corp. of
America.............. 108,750
40,000 * Meade Instruments
Corp................. 387,500
53,250 Met-Pro Corp. ....... 828,703
22,500 Modern Controls, Inc. 202,500
71,000 RPC, Inc. ........... 869,750
17,500 * Special Devices, Inc. 498,750
26,500 * Steel of West Virginia,
Inc.................. 274,938
25,000 * Sterignics
International, Inc... 550,000
46,350 World Fuel Services
Corp................. 1,019,700
----------
10,595,703
----------
</TABLE>
46
<PAGE>
EVERGREEN
Micro Cap Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
COMMON STOCKS - continued
Information Services &
Technology - 11.5%
25,000 *Advanced Communications Systems,
Inc. ............................ $ 289,063
72,500 *American Science & Engineering,
Inc.............................. 987,812
15,000 *Analytical Surveys, Inc. ........ 768,750
12,500 *Comarco, Inc. ................... 269,531
29,600 *Diversified Corporate Resources,
Inc.............................. 414,400
23,000 *Equinox Systems, Inc. ........... 491,625
33,750 IFR Systems, Inc. ............... 750,937
27,000 *Norstan, Inc. ................... 668,250
37,750 *Optelecom, Inc. ................. 268,969
25,000 *Percon Acquisition, Inc. ........ 277,344
40,000 *SBS Technologies, Inc. .......... 1,150,000
51,000 *Viagrafix Corp. ................. 771,375
80,000 *WPI Group, Inc. ................. 660,000
10,000 *Zygo Corp. ...................... 145,000
-----------
7,913,056
-----------
Machinery-Diversified - 0.6%
50,000 *Plasma Therm, Inc. .............. 378,125
-----------
Manufacturing-Distributing - 1.1%
40,000 *Koala Corp. ..................... 720,000
21,600 *Top Air Manufacturing, Inc. ..... 55,350
-----------
775,350
-----------
Oil/Energy - 0.7%
20,000 *Mitcham Industries, Inc. ........ 250,000
14,500 *Prima Energy Corp. .............. 261,000
-----------
511,000
-----------
Oil Field Services - 3.5%
48,500 *Dawson Geophysical Co. .......... 769,937
42,600 *Eagle Geophysical, Inc. ......... 686,925
80,000 *Omni Energy Services Corp. ...... 950,000
-----------
2,406,862
-----------
Publishing, Broadcasting &
Entertainment - 0.2%
10,400 *Clark (Dick) Productions, Inc. .. 139,100
-----------
Real Estate - 0.4%
20,000 *Execustay Corp. ................. 255,000
-----------
Retailing & Wholesale - 4.5%
59,000 *Bowlin Outdoor Advertising &
Travel Centers, Inc. ............ 516,250
60,000 Craftmade International Inc. .... 885,000
27,000 *Kenneth Cole Productions, Inc.
Cl. A............................ 543,375
34,500 Lacrosse Footwear, Inc. ......... 405,375
35,000 *Rocky Shoes & Boots, Inc. ....... 562,187
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
COMMON STOCKS - continued
Retailing & Wholesale - continued
20,000 *Shoe Pavilion, Inc. ............. $ 198,750
-----------
3,110,937
-----------
Telecommunication Services &
Equipment - 0.9%
40,000 *Cognitronics Corp. .............. 652,500
-----------
Textile & Apparel - 1.2%
30,000 Culp, Inc. ...................... 615,000
20,000 Decorator Industries, Inc. ...... 210,000
-----------
825,000
-----------
Thrift Institutions - 4.4%
30,000 Horizon Financial Corp. ......... 562,500
14,600 Iroquois Bancorp, Inc. .......... 365,000
30,710 Parkvale Financial Corp. ........ 959,687
25,000 *WSFS Financial Corp. ............ 537,500
25,000 York Financial Corp. ............ 643,750
-----------
3,068,437
-----------
Transportation - 1.3%
23,000 *MTL, Inc. ....................... 885,500
-----------
Utilities-Electric - 0.1%
1,591 Eselco, Inc. .................... 64,237
-----------
Utilities-Telephone - 1.2%
22,800 Hickory Tech Corp. .............. 843,600
-----------
Total Common Stocks
(cost $49,929,588) .............. 68,386,163
-----------
Principal
Amount
SHORT-TERM INVESTMENTS - 0.6%
Government Agency Notes &
Bonds - 0.6%
Federal Home Loan Mortgage
Corp.
$ 25,000 5.41%, 4/3/98 .................. 24,992
310,000 5.46%, 4/20/98 ................. 309,107
120,000 5.50%, 4/20/98 ................. 119,652
-----------
453,751
-----------
Total Short-Term Investments
(cost $453,751) ................. 453,751
-----------
Total Investments -
(cost $50,383,339) ..... 99.6% 68,839,914
Other Assets and
Liabilities - net ...... 0.4 242,781
----- -----------
Net Assets ............. 100.0% $69,082,695
===== ===========
</TABLE>
* Non-income producing securities.
** Investment in non-controlled affiliate-holding over 5% of outstanding voting
securities. This investment was acquired by the Fund at a cost of $665,880.
During the six months ended March 31, 1998, the Fund recognized no dividend
income from this security.
+ No market quotation available. Valued at fair value as determined in good
faith under procedures establised by the Fund's Board of Trustees.
See Combined Notes to Financial Statements.
47
<PAGE>
EVERGREEN
Omega Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 98.0%
Automotive Equipment &
Manufacturing - 1.8
90,000 Ford Motor Co. ...... $5,833,125
----------
Banks - 11.1
40,000 Astoria Financial
Corp................. 2,472,500
54,700 BankBoston Corp. .... 6,030,675
100,000 First American Corp.. 4,887,500
75,000 Fleet Financial Group,
Inc.................. 6,379,687
101,200 * Golden St. Bancorp,
Inc.................. 3,864,575
100,000 North Fork Bancorp,
Inc.................. 3,862,500
155,000 TCF Financial Corp... 5,260,313
83,800 Westamerica Bancorp.. 2,799,444
----------
35,557,194
----------
Building, Construction
& Furnishings - 2.2%
217,900 * Furniture Brands..... 7,013,656
----------
International, Inc.
Business Equipment &
Services - 1.4%
80,000 Paychex, Inc......... 4,612,500
----------
Chemical & Agricultural
Products - 1.6%
100,000 Monsanto Co.......... 5,200,000
----------
Communication Systems &
Services - 3.4
77,500 * Cisco Systems, Inc... 5,301,484
200,000 * Loral Space &
Communications....... 5,587,500
----------
10,888,984
----------
Consumer Products &
Services - 3.9%
85,000 * Action Performance
Companies, Inc....... 2,982,969
240,333 * Cendant Corp. ....... 9,523,206
----------
12,506,175
----------
Diversified
Companies - 3.8%
90,000 Trinity Industries, 4,938,750
Inc.
130,000 Tyco International Ltd. 7,101,250
----------
12,040,000
----------
Electrical Equipment &
Services - 3.4%
125,000 General Electric Co. 10,773,438
----------
Finance &
Insurance - 8.9%
40,000 American International 5,037,500
Group, Inc.
43,500 CMAC Investment Corp. 2,903,625
140,000 Greenpoint Financial
Corp. ............... 5,031,250
45,000 PMI Group, Inc. ..... 3,633,750
47,700 SLM Holding Corp. ... 2,080,912
102,499 Travelers Group, Inc. 6,149,940
85,000 Travelers Property
Casualty Corp.Cl. A . 3,740,000
----------
28,576,977
----------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Food & Beverage
Products - 4.4%
95,000 * International Home
Foods, Inc. ......... $3,158,750
90,000 Pepsico, Inc. ....... 3,841,875
65,000 * Philip Morris
Companies, Inc. ..... 2,709,688
70,000 Suiza Foods Corp. ... 4,305,000
----------
14,015,313
----------
Healthcare Products &
Services - 7.1%
49,250 Cardinal Health,
Inc.................. 4,343,234
80,000 HBO & Co. ........... 4,827,500
187,500 * Health Management
Associates, Inc...... 5,367,187
200,000 * HEALTHSOUTH Corp. ... 5,612,500
64,100 * Omnicare, Inc. ...... 2,539,963
----------
22,690,384
----------
Information Services &
Technology - 11.9%
146,666 * Analog Devices, Inc.. 4,876,645
209,600 * EMC Corp. ........... 7,925,500
50,000 Gateway 2000, Inc. .. 2,346,875
40,000 Intel Corp. ......... 3,121,250
35,000 International Business
Machines Corp. ...... 3,635,625
78,000 * Microsoft Corp. ..... 6,978,562
120,000 * Parametric Technology
Corp................. 3,993,750
100,000 * PeopleSoft, Inc. .... 5,265,625
----------
38,143,832
----------
Leisure &
Tourism - 3.0%
55,000 Disney (Walt) Co..... 5,871,250
65,000 * Premier Parks, Inc... 3,770,000
----------
9,641,250
----------
Oil/Energy - 4.9%
50,000 Anadarko Petroleum
Corp................. 3,450,000
70,000 Burlington Resources,
Inc.................. 3,355,625
95,000 Pennzoil Co. ........ 6,139,375
75,000 Unocal Corp. ........ 2,901,563
----------
15,846,563
----------
Pharmaceuticals - 11.5%
65,000 American Home Products
Corp................. 6,199,375
157,200 Pfizer, Inc. ........ 15,670,875
60,000 Schering-Plough Corp. 4,901,250
60,000 Warner-Lambert Co.... 10,218,750
----------
36,990,250
----------
Publishing,
Broadcasting &
Entertainment - 7.6%
200,000 CBS Corp. ........... 6,787,500
50,000 Central Newspapers,
Inc.................. 3,553,125
90,000 Dow Jones & Co.,
Inc.................. 4,764,375
110,000 * Viacom, Inc. Cl. B... 5,912,500
100,000 * World Color Press,
Inc.................. 3,475,000
----------
24,492,500
----------
</TABLE>
48
<PAGE>
EVERGREEN
Omega Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Retailing & Wholesale - 6.1%
82,813 Dollar General Corp. ........... $ 3,203,809
65,000 Ethan Allen Interiors, Inc. .... 3,883,750
100,000 General Nutrition Companies, Inc. 3,968,750
232,500 Staples, Inc. .................. 5,376,562
52,200 Williams Sonoma, Inc. .......... 3,021,075
------------
19,453,946
------------
Total Common Stocks
(cost $236,989,692) ............ 314,276,087
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 2.9%
$ 9,138,000 Keystone Joint Repurchase
Agreement, investment in
repurchase agreements in a joint
trading account, purchased 3/31/98,
5.67%, maturing 4/1/98, maturity
value $9,139,439.
(cost $9,138,000) (a) ................... $ 9,138,000
------------
Total Investments -
(cost $246,127,692) .......... 100.9% 323,414,087
Other Assets and
Liabilities - net ............ ( 0.9) (2,849,023)
----- ------------
Net Assets ................... 100.0% $320,565,064
===== ============
</TABLE>
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
March 31, 1998.
See Combined Notes to Financial Statements.
49
<PAGE>
EVERGREEN
Small Company Growth Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 94.5%
Advertising & Related
Services - 0.5%
250,000 ADVO, Inc. ........... $ 6,906,250
-----------
Automotive Equipment &
Manufacturing - 0.8%
256,860 Tower Automotive,
Inc................. 11,558,700
-----------
Banks - 7.8%
414,862 * Astoria Financial
Corp................ 25,643,657
318,240 Bostonfed Bancorp,
Inc................. 7,319,520
30,200 Dime Community Bancorp,
Inc................. 736,125
196,334 * Hubco, Inc. .......... 7,515,911
171,370 * Long Island Bancorp,
Inc................. 10,828,442
385,080 * North Fork Bancorp,
Inc................. 14,873,715
5,000 Prime Bancshares,
Inc................. 127,500
148,196 Queens County Bancorp,
Inc................. 6,539,148
718,536 * Sovereign Bancorp,
Inc................. 13,068,373
621,960 * TCF Financial Corp.. 21,107,767
154,938 * Westamerica Bancorp. 5,175,898
-----------
112,936,056
-----------
Building, Construction &
Furnishings - 2.8%
126,500 Cable Design
Technologies Corp... 3,810,812
145,000 Essex International,
Inc................. 5,727,500
165,500 General Cable Corp.. 7,509,562
141,491 Oakwood Homes Corp.. 5,182,108
150,000 Texas Industries,
Inc................. 8,671,875
119,420 Toll Brothers, Inc.. 3,358,688
253,200 Wackenhut Corrections
Corp................ 6,345,825
-----------
40,606,370
-----------
Business Equipment &
Services - 4.1%
197,956 Billing Information
Concepts Corp....... 5,128,298
175,855 BISYS Group, Inc.
(a)................. 6,182,402
504,670 * Comdisco, Inc....... 22,016,229
90,521 * G & K Services, Inc.
Cl. A............... 3,943,321
279,000 GTS Duratek, Inc.... 3,470,062
28,200 International Telecomm
Systems, Inc........ 735,844
111,996 * Norrell Corp. ........ 2,526,910
104,000 Outsource International,
Inc................. 2,509,000
7,000 Rental Service Corp. 162,750
150,000 Superior Consultant,
Inc................. 5,428,125
256,317 Vincam Group, Inc... 7,385,133
-----------
59,488,074
-----------
Chemical & Agricultural
Products - 0.6%
220,940 * OM Group, Inc. ..... 9,307,098
-----------
Consumer Products &
Services - 4.0%
343,517 * Action Performance
Companies, Inc...... 12,055,300
381,800 Coleman Co., Inc.... 11,764,212
396,869 Equity Corp.
International....... 9,500,052
342,100 Helen of Troy Ltd... 6,318,159
95,600 Oneida Ltd.......... 2,915,800
200,000 Oregon Steel Mills,
Inc................. 4,400,000
101,700 Rock Of Ages Corp.
Cl. A............... 1,798,819
124,000 * Russ Berrie & Co.,
Inc................. 3,758,750
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Consumer Products &
Services - continued
51,900 Universal Corp...... $ 2,286,844
200,000 * Weider Nutrition
International, Inc.
Cl. A .............. 3,100,000
-----------
57,897,936
-----------
Education - 1.5%
250,000 Computer Learning
Centers, Inc........ 4,195,312
1,500 CorporateFamily
Solutions, Inc...... 39,469
512,484 Devry, Inc. .......... 17,520,547
-----------
21,755,328
-----------
Electrical Equipment &
Services - 8.1%
215,200 Applied Power, Inc.
Cl. A............... 8,285,200
261,200 Asyst Technologies,
Inc................. 6,015,763
662,600 Cypress Semiconductor
Corp................ 6,708,825
611,080 DII Group, Inc...... 13,176,412
230,000 Integrated Device
Technology.......... 3,241,563
42,800 Jabil Circuit, Inc.. 1,425,775
75,500 Lattice Semiconductor
Corp................ 3,883,531
147,000 Lexmark International
Group, Inc. Cl. A .. 6,633,375
15,000 * Linear Technology
Corp................ 1,034,531
30,000 Mattson Technology,
Inc................. 187,500
300,778 Maxim Integrated
Products, Inc....... 10,959,598
200,000 Microchip Technology,
Inc................. 4,212,500
344,186 Natural Microsystems
Corp................ 13,649,126
322,400 Ortel Corp. ........ 4,291,950
200,000 Parlex Corp. ....... 3,575,000
436,200 Pri Automation, Inc. 11,422,988
25,200 QLogic Corp. ....... 904,050
100,000 Radisys Corp. ...... 2,503,125
392,514 Sipex Corp. ........ 13,002,026
50,000 Vitesse Semiconductor
Corp................ 2,357,813
-----------
117,470,651
-----------
Finance &
Insurance - 4.5%
292,500 Allied Group, Inc... 9,433,125
150,000 Arthur J. Gallagher &
Co.................. 6,496,875
100,000 Berkley W R Corp.... 4,762,500
50,000 Blanch E W Holdings,
Inc................. 1,918,750
11,900 * CMAC Investment
Corp................ 794,325
108,500 Delphi Financial Group,
Inc................. 5,777,625
218,922 First Alliance Co... 3,413,815
221,180 Firstplus Financial
Group, Inc. ........ 9,289,560
186,023 * HCC Insurance Holdings,
Inc................. 4,278,529
267,000 Highlands Insurance
Group, Inc. ........ 7,175,625
62,800 Horace Mann Educators
Corp................ 2,205,850
150,000 Leucadia National
Corp................ 5,906,250
58,200 * Penn-America Group,
Inc................. 1,265,850
50,000 Reinsurance Group
America, Inc........ 2,500,000
-----------
10,000 State Auto Financial
Corp................ 395,000
-----------
65,613,679
-----------
Food & Beverage
Products - 1.3%
259,000 Suiza Foods Corp.... 15,928,500
171,866 Worthington Foods,
Inc................. 2,868,010
-----------
18,796,510
-----------
</TABLE>
50
<PAGE>
EVERGREEN
Small Company Growth Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Healthcare Products &
Services - 9.2%
20,500 Chirex, Inc. ....... $ 387,578
7,501 Concentra Managed
Care, Inc........... 230,890
296,000 Cyberonics, Inc. ... 9,416,500
437,444 * Cytyc Corp. ........ 10,826,739
150,000 Genesis Health
Ventures, Inc....... 4,218,750
335,700 Graham Field Health
Products, Inc....... 2,685,600
860,839 Health Management
Associates, Inc.
Cl. A .............. 24,641,516
277,585 Idexx Laboratories,
Inc................. 5,005,205
300,000 Mariner Health Group,
Inc................. 5,100,000
50,000 Megabios Corp. ..... 450,000
101,000 Norland Medical
Systems, Inc........ 369,281
516,000 Novacare, Inc. ..... 7,675,500
363,000 * Oxford Health Plans,
Inc................. 5,410,969
218,684 Parexel International
Corp................ 6,806,540
135,620 Pediatrix Medical
Group, Inc.......... 6,306,330
242,320 Perclose, Inc. ..... 6,830,395
19,000 Renal Care Group,
Inc................. 720,219
111,100 Respironics, Inc.... 3,218,428
376,180 Thermo Cardiosystems,
Inc................. 10,180,371
389,351 Total Renal Care
Holdings, Inc....... 12,970,255
235,800 Vivus, Inc. ........ 2,785,388
215,300 Wesley Jessen
Visioncare, Inc..... 7,172,181
-----------
133,408,635
===========
Industrial Specialty
Products & Services - 4.2%
259,260 BMC Industries,
Inc................. 5,039,366
200,400 Cognex Corp. ....... 4,296,075
1 Docucorp International
Inc................. 5
500,000 Halter Marine Group,
Inc................. 7,937,500
195,000 * Kaydon Corp. ....... 7,970,625
1,000,000 Roper Industries,
Inc................. 29,687,500
157,737 * United States Filter
Corp................ 5,540,512
25,000 White Capital
Industries Corp..... 568,750
-----------
61,040,333
===========
Information Services &
Technology - 17.8%
151,640 Analog Devices,
Inc................. 5,042,030
243,600 Avid Technology,
Inc................. 9,987,600
200,000 Axent Technologies,
Inc................. 6,087,500
183,095 BMC Software, Inc... 15,351,371
315,380 Cambridge Technology
Partners............ 15,621,166
35,500 CMG Information
Services Inc........ 2,054,563
243,000 Cognicase, Inc...... 4,480,313
238,900 * Discreet Logic,
Inc................. 3,904,522
180,900 Documentum, Inc..... 9,774,253
380,000 Eletronics for
Imaging, Inc........ 9,891,875
89,400 FileNet Corp. ...... 4,363,838
386,000 Geoworks ........... 2,895,000
214,100 JDA Software Group,
Inc................. 11,360,681
5,200 Lycos, Inc. ........ 230,425
416,000 Mapics, Inc. ....... 7,345,000
200,000 Maximus, Inc. ...... 5,987,500
40,600 Metacreations Corp.. 294,984
132,054 National Data Corp.. 5,488,494
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Information Services & Technology -
continued
50,290 * Networks Associates,
Inc................. $ 3,334,856
292,800 Objective Systems
Integrators, Inc.... 4,007,700
542,480 Parametric Technology
Corp................ 18,054,412
50,000 Platinum Software
Corp................ 1,159,375
539,281 Project Software &
Development, Inc.... 12,875,334
200,000 PSW Technologies,
Inc................. 1,437,500
286,000 QAD, Inc. .......... 4,182,750
146,000 Quadramed Corp. .... 4,863,625
150,000 Radiant Systems,
Inc................. 3,731,250
1,134,800 Rational Software
Corp................ 14,716,937
515,816 Safeguard Scientifics,
Inc................. 19,407,577
338,323 Security Dynamics
Technology.......... 13,892,388
367,279 * Synopsys, Inc. ..... 12,039,865
150,000 Transition Systems,
Inc................. 3,084,375
290,000 Unisys Corp. ....... 5,510,000
252,000 USweb Corp. ........ 5,567,625
150,000 Veritas DGC, Inc.... 7,584,375
51,997 Wind River Systems,
Inc................. 2,073,380
-----------
257,684,439
-----------
Leisure &
Tourism - 2.4%
49,395 Casino America, Inc.
Warrants Expires
5/3/2001............ 494
479,589 Colorado Gaming &
Entertainment
Co. (b) ............ 2,997,431
240,000 Gametech
International, Inc.. 1,687,500
18,000 Pegasus Systems,
Inc................. 462,938
525,000 Regal Cinemas, Inc.. 15,717,187
400,000 Rio Hotel & Casino,
Inc................. 10,375,000
385,900 Sodak Gaming, Inc... 2,749,538
-----------
33,990,088
-----------
Manufacturing-Distributing - 0.8%
200,000 NBTY, Inc. ......... 12,143,750
-----------
Metal Products &
Services - 0.7%
366,300 Maverick Tube Corp.. 6,456,037
116,496 Special Metals Corp. 1,893,060
40,000 Steel Dynamics, Inc. 851,250
30,900 Wolverine Tube, Inc. 1,239,863
-----------
10,440,210
-----------
Oil/Energy - 4.0%
204,500 Basin Exploration,
Inc................. 4,224,203
242,700 Forcenergy, Inc..... 6,431,550
133,000 Newfield Exploration
Co.................. 3,466,313
1,307,656 Newpark Resources,
Inc................. 23,864,722
100,000 Nuevo Energy Co..... 3,581,250
234,000 Ocean Energy, Inc... 5,513,625
300,000 * Santa Fe Energy
Resources, Inc...... 3,300,000
100,000 * Seven Seas Petroleum,
Inc................. 2,593,750
83,586 * St. Mary Land &
Exploration Co...... 3,194,552
100,000 Vintage Petroleum,
Inc................. 2,100,000
-----------
58,269,965
-----------
Oil Field
Services - 2.2%
56,742 Carbo Ceramics, Inc. . 2,198,753
187,400 Core Laboratories NV . 4,579,587
200,300 Friede Goldman
International, Inc. . 5,771,144
</TABLE>
51
<PAGE>
EVERGREEN
Small Company Growth Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Oil Field Services - continued
250,000 * Hvide Marine, Inc. Cl. A ............ $ 4,390,625
500,100 R & B Falcon Corp. .................. 14,815,462
--------------
31,755,571
--------------
Pharmaceuticals - 1.2%
415,500 Dura Pharmaceuticals, Inc. .......... 10,218,703
100,000 Incyte Pharmacuticals, Inc. ......... 4,637,500
435,000 Magainin Pharmaceuticals ............ 2,406,094
--------------
17,262,297
--------------
Publishing, Broadcasting &
Entertainment - 2.0%
56,200 Big Flower Holdings, Inc. ........... 1,707,075
13,200 Cox Radio, Inc. ..................... 640,200
108,700 Hearst-Argyle Television, Inc. ...... 3,858,850
259,000 Jacor Communications, Inc. .......... 15,321,469
130,000 Sinclair Broadcast Group, Inc. Cl. A 7,487,187
--------------
29,014,781
--------------
Real Estate - 0.1%
60,300 Capital Automotive REIT ............. 1,143,815
4,900 *Host Marriott Corp. ................. 92,794
--------------
1,236,609
--------------
Retailing & Wholesale - 3.7%
156,600 *Brylane, Inc. ....................... 8,779,388
363,100 *Central Garden & Pet Co. ............ 14,172,247
1,282,480 Corporate Express, Inc. ............. 12,804,761
138,000 Cutter & Buck, Inc. ................. 3,570,750
121,100 Good Guys, Inc. ..................... 1,271,550
23,000 REX Stores Corp. .................... 339,250
150,000 Shopko Stores, Inc. ................. 4,753,125
70,100 Stage Stores, Inc. .................. 3,607,959
145,400 Tefron Ltd. ......................... 3,544,125
--------------
52,843,155
--------------
Telecommunication Services &
Equipment - 3.8%
199,000 *ACC Corp. ........................... 10,571,875
88,300 Boston Communications Group ......... 860,925
200,000 Global TeleSystems Group, Inc. ...... 9,387,500
250,000 LCC International, Inc. ............. 4,953,125
78,300 Metronet Communications Corp. ....... 1,957,500
100,000 Pacific Gateway Exchange, Inc. ...... 5,706,250
600,000 Pairgain Technologies, Inc. ......... 14,381,250
29,700 Spectrian Corp. ..................... 494,691
101,800 Univision Communications, Inc. Cl. A 3,792,050
160,000 Viatel, Inc. ........................ 2,185,000
--------------
54,290,166
--------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Transportation - 2.1%
112,700 *ASA Holdings, Inc. .................. $ 4,145,247
136,399 Coach USA, Inc. ..................... 5,933,357
62,900 Eagle USA Airfreight, Inc. .......... 1,717,956
200,000 Expeditores International Washington,
Inc. ................................ 8,525,000
340,900 Fritz Companies, Inc. ............... 5,443,747
200,000 Overseas Shipholding Group, Inc. .... 4,275,000
--------------
30,040,307
--------------
Utilities-Telephone - 4.3%
300,000 American Communications Services,
Inc. ................................ 5,446,875
9,000 Associated Group, Inc. Cl. A ........ 344,250
311,000 Associated Group, Inc. Cl. B ........ 11,468,125
50,000 Centennial Cellular Corp. Cl. A ..... 1,314,062
266,000 McLeod USA, Inc., Cl. A ............. 11,205,250
150,000 Primus Telecomm Group, Inc. ......... 4,350,000
39,500 Rural Celluar Corp. Cl. A ........... 681,375
125,000 Star Telecommunications, Inc. ....... 6,937,500
39,600 Superior Telecom, Inc. .............. 1,653,300
258,500 Telegroup, Inc. ..................... 5,226,547
395,000 United States Cellular Corp. ........ 13,405,312
50,000 Vanguard Cellular Systems, Inc. Cl. A 914,063
--------------
62,946,659
--------------
Total Common Stocks
(cost $1,004,017,151)................ 1,368,703,617
--------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
<S> <C> <C> <C>
REPURCHASE AGREEMENTS - 5.1%
$69,423,000 Goldman Sachs Repurchase
Agreement, purchased 3/31/98,
5.95%, maturing 4/1/98, maturity
value $69,434,474
(cost $69,423,000) (c).............. 69,423,000
----------
4,858,000 Keystone Joint Repurc hase
Agreement, investment in repurchase
agreements, in a joint trading
account, purchased 3/31/98, 5.99%,
maturing 4/1/98, maturity value
$4,858,808
(cost $4,858,000) (d)............... 4,858,000
----------
Total Investments -
(cost $1,078,298,151) ..... 99.6% 1,442,984,617
Other Assets and
Liabilities - net ......... 0.4 5,277,485
----- --------------
Net Assets ................ 100.0% $1,448,262,102
===== ==============
</TABLE>
* Non-income producing securities.
(a) At March 31, 1998, the Fund owned 175,855 shares of common stock of The
BISYS Group, Inc. at a cost of $4,437,038. During the six months ended
March 31, 1998 the Fund earned no dividend income from this investment.
These shares were purchased prior to Evergreen Distributors Inc., a wholly
owned subsidiary of The BISYS Group, Inc. becoming the Fund's principal
underwriter and BISYS Fund Services, Inc. becoming the Fund's
sub-administrator.
(b) Investment in non-controlled affiliate holding over 5% of outstanding
shares. At March 31, 1998, the Fund held 479,589 shares of Colorado Gaming
& Entertainment company with a value of $2,997,431 and acquisition cost of
$2,766,251. The Fund has not earned any income from this investment.
(c) At March 31, 1998, the repurchase agreement was fully collateralized by:
$69,423,000 Federal Home Loan Mortgage Corp., 7.00%, 8/1/27, value
including accrued interest - $69,436,314.
(d) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
March 31, 1998.
Summary of Abbreviations:
REIT Real Estate Investment Trust
See Combined Notes to Financial Statements.
52
<PAGE>
EVERGREEN
Strategic Growth Fund
Schedule of Investments
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - 96.6%
Automotive Equipment &
Manufacturing - 1.8%
275,000 Ford Motor Co. ..................... $ 17,823,438
------------
Banks - 9.7%
160,000 Astoria Financial Corp. ............ 9,890,000
156,700 BankBoston Corp. ................... 17,276,175
170,000 * First American Corp. ............... 8,308,750
235,000 Fleet Financial Group, Inc. ........ 19,989,687
303,200 * Golden St. Bancorp, Inc. ........... 11,578,450
220,000 North Fork Bancorp, Inc. ........... 8,497,500
320,000 TCF Financial Corp. ................ 10,860,000
271,300 Westamerica Bancorp ................ 9,063,116
------------
95,463,678
------------
Building, Construction &
Furnishings - 1.2%
375,000 * Furniture Brands International, Inc. . 12,070,313
------------
Business Equipment & Services -
2.2%
150,000 G & K Services, Inc. Cl. A ......... 6,534,375
265,000 Paychex, Inc. ...................... 15,278,906
------------
21,813,281
------------
Chemical & Agricultural Products -
1.5%
280,000 Monsanto Co. ....................... 14,560,000
------------
Communication Systems &
Services - 3.4%
230,000 * Cisco Systems, Inc. ................ 15,733,437
65,000 * Iridium World Communications, Inc.
Cl. A .............................. 4,050,313
500,000 * Loral Space & Communications ....... 13,968,750
------------
33,752,500
------------
Consumer Products & Services -
2.7%
668,681 Cendant Corp. ...................... 26,496,485
------------
Diversified Companies - 1.7%
301,600 Tyco International Ltd. ............ 16,474,900
------------
Electrical Equipment & Services -
3.9%
440,000 General Electric Co. ............... 37,922,500
------------
Finance & Insurance - 7.6%
105,000 American International Group, Inc. . 13,223,437
430,000 Greenpoint Financial Corp. ......... 15,453,125
135,000 PMI Group, Inc. .................... 10,901,250
152,600 SLM Holding Corp. .................. 6,657,175
277,500 Travelers Group, Inc. .............. 16,650,000
255,000 Travelers Property Casualty
Corp. Cl. A ........................ 11,220,000
------------
74,104,987
------------
Food & Beverage Products - 3.6%
215,000 Coca Cola Co. ...................... 16,649,062
250,000 Pepsico, Inc. ...................... 10,671,875
200,000 Philip Morris Companies, Inc. ...... 8,337,500
------------
35,658,437
------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Healthcare Products & Services - 7.1%
141,200 Cardinal Health, Inc. .............. $ 12,452,075
250,000 HBO & Co. .......................... 15,085,937
310,000 * Health Care & Retirement Corp. ..... 13,310,625
280,000 * Health Management Associates, Inc.
Cl. A .............................. 8,015,000
490,000 * HEALTHSOUTH Corp. .................. 13,750,625
173,700 Omnicare, Inc. ..................... 6,882,863
------------
69,497,125
------------
Industrial Specialty Products &
Services - 1.2%
220,000 Trinity Industries, Inc. ........... 12,072,500
------------
Information Services &
Technology - 11.4%
450,000 * Analog Devices, Inc. ............... 14,962,500
130,000 * BMC Software, Inc. ................. 10,899,688
100,000 Electronic Data Systems Corp. ...... 4,587,500
560,600 * EMC Corp. .......................... 21,197,687
150,000 * Gateway 2000, Inc. ................. 7,040,625
125,000 Intel Corp. ........................ 9,753,906
130,000 International Business Machines Corp. 13,503,750
240,000 * Microsoft Corp. .................... 21,472,500
240,000 * Parametric Technology Corp. ........ 7,987,500
------------
111,405,656
------------
Leisure & Tourism - 2.7%
182,500 Disney (Walt) Co. .................. 19,481,875
125,000 * Premier Parks, Inc. ................ 7,250,000
------------
26,731,875
------------
Oil/Energy - 8.3%
200,000 Anadarko Petroleum Corp. ........... 13,800,000
80,000 British Petroleum Plc, ADR ......... 6,885,000
220,000 Burlington Resources, Inc. ......... 10,546,250
215,000 Exxon Corp. ........................ 14,539,375
300,000 Pennzoil Co. ....................... 19,387,500
120,000 Texaco, Inc. ....................... 7,230,000
225,000 Unocal Corp. ....................... 8,704,687
------------
81,092,812
------------
Pharmaceuticals - 11.8%
200,000 American Home Products Corp. ....... 19,075,000
487,800 Pfizer, Inc. ....................... 48,627,562
180,000 Schering-Plough Corp. .............. 14,703,750
236,000 Shire Pharmaceuticals Group Plc. ... 5,029,750
165,000 Warner-Lambert Co. ................. 28,101,563
------------
115,537,625
------------
Publishing, Broadcasting &
Entertainment - 7.6%
650,000 CBS Corp. .......................... 22,059,375
135,000 Central Newspapers, Inc. Cl. A ..... 9,593,438
285,000 Dow Jones & Co., Inc. ................... 15,087,187
350,000 * Viacom, Inc. Cl. B ................. 18,812,500
64,719 Wolters Kluwer NV .................. 9,250,228
------------
74,802,728
------------
</TABLE>
53
<PAGE>
EVERGREEN
Strategic Growth Fund
Schedule of Investments (continued)
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C>
COMMON STOCKS - continued
Retailing & Wholesale - 5.9%
259,375 Dollar General Corp. ........... $ 10,034,570
115,000 Ethan Allen Interiors, Inc. .... 6,871,250
250,000 *General Nutrition Companies, Inc. 9,921,875
697,500 *Staples, Inc. .................. 16,129,688
300,000 Wal-Mart Stores, Inc. .......... 15,243,750
------------
58,201,133
------------
Utilities-Telephone - 1.3%
200,000 AT&T Corp. ..................... 13,125,000
------------
Total Common Stocks
(cost $704,540,922) ............ 948,606,973
------------
PREFERRED STOCKS - 0.0%
Iron & Steel - 0.0%
180,000 Compania Vale do Rio Doce
Navegacao SA ................... 16
------------
Total Preferred Stocks
(cost $0) ...................... 16
------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT - 4.9%
$ 47,854,000 Keystone Joint Repurchase
Agreement, investment in
repurchase agreements, in a joint
trading account, purchased 3/31/98,
5.99%, maturing 4/1/98, maturity
value $47,861,962
(cost-$47,854,000)(a)............ $ 47,854,000
-------------
Total Investments -
(cost $752,394,922) ... 101.5% 996,460,989
Other Assets and
Liabilities - net ..... ( 1.5) (14,339,571)
----- -------------
Net Assets ............ 100.0% $ 982,121,418
===== =============
</TABLE>
Summary of Portfolio Abbreviations:
ADR American Depository Receipts
NV Naamloze Veunootschap (Dutch Corporation)
SA Sociedad Anonyme (Spanish Corporation)
* Non-income producing securities.
(a) The repurchase agreements are fully collateralized by U.S. Government
and/or agency obligations based on market prices plus accrued interest at
March 31, 1998.
See Combined Notes to Financial Statements.
54
<PAGE>
EVERGREEN
Domestic Growth Funds
Statements of Assets and Liabilities
March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Aggressive
Growth Evergreen
Fund Fund
--------------- -------------------
<S> <C> <C>
Assets
Investments at value (identified
cost - $137,403,145,
$1,085,406,536, $50,383,339
$246,127,692, $1,078,298,151 and
$752,394,922, respectively)................ $231,490,141 $ 2,091,581,409
Cash ....................................... 1,015 65,863
Receivable for investments sold ............ 4,659,933 1,917,480
Receivable for Fund shares sold ............ 173,900 70,910,894
Dividends and interest receivable .......... 17,605 856,096
Unamortized organization expenses .......... 12,014 0
Prepaid expenses and other assets .......... 172,020 563,738
- --------------------------------------------- ------------ ---------------
Total assets .............................. 236,526,628 2,165,895,480
- --------------------------------------------- ------------ ---------------
Liabilities
Payable for investments purchased .......... 1,895,000 6,650,393
Payable for Fund shares repurchased ........ 572,330 1,687,001
Advisory fee payable ....................... 119,483 1,577,913
Distribution Plan expenses payable ......... 53,839 527,484
Due to related parties ..................... 5,572 0
Accrued expenses and other liabilities ..... 16,670 201,966
- --------------------------------------------- ------------ ---------------
Total liabilities ......................... 2,662,894 10,644,757
- --------------------------------------------- ------------ ---------------
Net assets .................................. $233,863,734 $ 2,155,250,723
============================================= ============ ===============
Net assets represented by
Paid-in capital ............................ $126,475,191 $ 1,127,748,366
Undistributed net investment income
(accumulated net investment loss) ......... (1,444,884) 567,538
Accumulated net realized gain on
investments and foreign currency
related transactions ...................... 14,746,431 20,759,946
Net unrealized appreciation of
investments and foreign currency
related transactions ...................... 94,086,996 1,006,174,873
- --------------------------------------------- ------------ ---------------
Total net assets .......................... $233,863,734 $ 2,155,250,723
============================================= ============ ===============
Net assets consists of
Class A .................................... $157,748,820 $ 219,050,597
Class B .................................... 40,305,416 664,461,486
Class C .................................... 3,766,890 13,368,612
Class Y .................................... 32,042,608 1,258,370,028
- --------------------------------------------- ------------ ---------------
$233,863,734 $ 2,155,250,723
============ ===============
Shares outstanding
Class A .................................... 6,803,939 8,719,430
Class B .................................... 1,767,420 26,743,936
Class C .................................... 165,290 538,996
Class Y .................................... 1,375,233 49,865,265
- --------------------------------------------- ------------ ---------------
Net asset value per share
Class A .................................... $ 23.18 $ 25.12
============================================= ============ ===============
Class A - Offering price (based on
sales charge of 4.75%) .................... $ 24.34 $ 26.37
============================================= ============ ===============
Class B .................................... $ 22.80 $ 24.85
============================================= ============ ===============
Class C .................................... $ 22.79 $ 24.80
============================================= ============ ===============
Class Y .................................... $ 23.30 $ 25.24
============================================= ============ ===============
<CAPTION>
Micro Small Strategic
Cap Omega Company Growth
Fund Fund Growth Fund Fund
-------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Assets
Investments at value (identified
cost - $137,403,145,
$1,085,406,536, $50,383,339
$246,127,692, $1,078,298,151 and
$752,394,922, respectively)................ $68,839,914 $323,414,087 $1,442,984,617 $996,460,989
Cash ....................................... 2,764 720 231 1,013
Receivable for investments sold ............ 198,656 886,308 22,440,620 333,007
Receivable for Fund shares sold ............ 183,025 1,277,065 3,496,793 319,551
Dividends and interest receivable .......... 24,309 117,510 116,222 641,847
Unamortized organization expenses .......... 0 0 0 0
Prepaid expenses and other assets .......... 53,908 162,126 625,077 218,443
- ---------------------------------------------- ----------- ------------ -------------- ------------
Total assets .............................. 69,302,576 325,857,816 1,469,663,560 997,974,850
- ---------------------------------------------- ----------- ------------ -------------- ------------
Liabilities
Payable for investments purchased .......... 40,324 4,625,375 13,498,618 14,441,274
Payable for Fund shares repurchased ........ 32,580 342,922 6,475,223 569,637
Advisory fee payable ....................... 56,913 194,282 598,807 415,731
Distribution Plan expenses payable ......... 10,479 129,184 469,197 233,851
Due to related parties ..................... 42 0 22,000 12,000
Accrued expenses and other liabilities ..... 79,543 989 337,613 180,939
- ---------------------------------------------- ----------- ------------ -------------- ------------
Total liabilities ......................... 219,881 5,292,752 21,401,458 15,853,432
- ---------------------------------------------- ----------- ------------ -------------- ------------
Net assets .................................. $69,082,695 $320,565,064 $1,448,262,102 $982,121,418
============================================== =========== ============ ============== ============
Net assets represented by
Paid-in capital ............................ $46,291,829 $212,852,976 $ 950,277,740 $652,159,526
Undistributed net investment income
(accumulated net investment loss) ......... (281,639) (1,086,240) (4,553,025) (158,699)
Accumulated net realized gain on
investments and foreign currency
related transactions ...................... 4,615,930 31,511,933 137,850,921 86,054,898
Net unrealized appreciation of
investments and foreign currency
related transactions ...................... 18,456,575 77,286,395 364,686,466 244,065,693
- ---------------------------------------------- ----------- ------------ -------------- ------------
Total net assets .......................... $69,082,695 $320,565,064 $1,448,262,102 $982,121,418
============================================== =========== ============ ============== ============
Net assets consists of
Class A .................................... $ 5,921,809 $179,361,601 $1,034,801,326 $824,652,814
Class B .................................... 4,718,936 124,631,115 407,011,561 157,335,328
Class C .................................... 3,721,119 16,566,218 5,653,585 133,276
Class Y .................................... 54,720,831 6,130 795,630 -
- ---------------------------------------------- ----------- ------------ -------------- ------------
$69,082,695 $320,565,064 $1,448,262,102 $982,121,418
============================================== =========== ============ ============== ============
Shares outstanding
Class A .................................... 214,490 7,486,922 118,095,911 78,345,704
Class B .................................... 175,297 5,486,066 46,522,202 14,966,162
Class C .................................... 138,127 727,547 646,071 12,674
Class Y .................................... 1,967,698 256 90,759 -
- ---------------------------------------------- ----------- ------------ -------------- ------------
Net asset value per share
Class A .................................... $ 27.61 $ 23.96 $ 8.76 $ 10.53
============================================== =========== ============ ============== ============
Class A - Offering price (based on
sales charge of 4.75%) .................... $ 28.99 $ 25.15 $ 9.20 $ 11.06
============================================== =========== ============ ============== ============
Class B .................................... $ 26.92 $ 22.72 $ 8.75 $ 10.51
============================================== =========== ============ ============== ============
Class C .................................... $ 26.94 $ 22.77 $ 8.75 $ 10.52
============================================== =========== ============ ============== ============
Class Y .................................... $ 27.81 $ 23.97 $ 8.77 -
============================================== =========== ============ ============== ============
</TABLE>
See Combined Notes to Financial Statements.
55
<PAGE>
EVERGREEN
Domestic Growth Funds
Statements of Operations
Six Months Ended March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Aggressive Micro
Growth Evergreen Cap
Fund Fund Fund
--------------- ---------------- -------------
<S> <C> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of
$1,509, $648, $0, $0, $0 and $47,834,
respectively) ................................... $ 165,077 $ 6,770,606 $ 204,532
Interest ......................................... 23,728 8,781,061 8,612
- --------------------------------------------------- ------------- ------------ ----------
Total income ...................................... 188,805 15,551,667 213,144
Expenses
Advisory fee ..................................... 713,403 8,340,563 296,776
Distribution Plan expenses ....................... 408,914 3,055,171 27,834
Transfer agent fees .............................. 344,724 1,797,699 41,806
Trustees fees .................................... 15,266 44,631 1,588
Custodian fees ................................... 26,200 266,252 10,354
Administrative service fees ...................... 38,075 0 0
Professional fees ................................ 16,264 45,114 23,049
Printing ......................................... 44,100 499,457 30,953
Registration fees ................................ 4,785 55,796 33,844
Amortization of organization expense ............. 2,548 0 0
Other ............................................ 8,545 15,513 19,856
- --------------------------------------------------- ------------- ------------ ----------
Total expenses .................................. 1,622,824 14,120,196 486,060
Less: Indirectly paid expenses ................... (176) (2,559) (2,935)
- --------------------------------------------------- ------------- ------------ ----------
Net expenses .................................... 1,622,648 14,117,637 483,125
- --------------------------------------------------- ------------- ------------ ----------
Net investment income (loss) ..................... (1,433,843) 1,434,030 (269,981)
- --------------------------------------------------- ------------- ------------ ----------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions
Net realized gain (loss) on:
Investments ..................................... 14,914,609 25,690,208 4,692,805
Foreign currency related transactions ........... 0 0 0
- --------------------------------------------------- ------------- ------------ ----------
Net realized gain on investments and foreign
currency related transactions ................... 14,914,609 25,690,208 4,692,805
- --------------------------------------------------- ------------- ------------ ----------
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions ................... (9,057,990) 204,130,251 1,111,468
- --------------------------------------------------- ------------- ------------ ----------
Net realized and unrealized gain on
investments and foreign currency related
transactions .................................... 5,856,619 229,820,459 5,804,273
- --------------------------------------------------- ------------- ------------ ----------
Net increase in net assets resulting from
operations ...................................... $ 4,422,776 $231,254,489 $5,534,292
=================================================== ============= ============ ==========
<CAPTION>
Small Strategic
Omega Company Growth
Fund Growth Fund Fund
--------------- ----------------- ---------------
<S> <C> <C> <C>
Investment income
Dividends (net of foreign withholding taxes of
$1,509, $648, $0, $0, $0 and $47,834,
respectively) ................................... $ 1,027,982 $ 1,694,510 $ 3,842,430
Interest ......................................... 298,038 1,938,506 1,477,826
- ---------------------------------------------------- ------------ --------------- ------------
Total income ...................................... 1,326,020 3,633,016 5,320,256
Expenses
Advisory fee ..................................... 1,071,249 3,442,352 2,409,615
Distribution Plan expenses ....................... 791,749 2,587,617 1,418,980
Transfer agent fees .............................. 325,376 1,440,061 848,270
Trustees fees .................................... 4,120 26,358 17,412
Custodian fees ................................... 43,818 240,599 178,512
Administrative service fees ...................... 27,517 142,018 88,451
Professional fees ................................ 12,945 51,727 25,973
Printing ......................................... 105,183 131,407 134,729
Registration fees ................................ 19,180 62,664 23,089
Amortization of organization expense ............. 0 0 0
Other ............................................ 9,030 52,311 36,363
- ---------------------------------------------------- ------------ --------------- ------------
Total expenses .................................. 2,410,167 8,177,114 5,181,394
Less: Indirectly paid expenses ................... (796) (7,721) (6,557)
- ---------------------------------------------------- ------------ --------------- ------------
Net expenses .................................... 2,409,371 8,169,393 5,174,837
- ---------------------------------------------------- ------------ --------------- ------------
Net investment income (loss) ..................... (1,083,351) (4,536,377) 145,419
- ---------------------------------------------------- ------------ --------------- ------------
Net realized and unrealized gain (loss) on
investments and foreign currency related
transactions
Net realized gain (loss) on:
Investments ..................................... 41,833,216 158,575,256 118,433,855
Foreign currency related transactions ........... 0 (493) 228,151
- ---------------------------------------------------- ------------ --------------- ------------
Net realized gain on investments and foreign
currency related transactions ................... 41,833,216 158,574,763 118,662,006
- ---------------------------------------------------- ------------ --------------- ------------
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency related transactions ................... 4,055,324 (131,342,345) (605,792)
- ---------------------------------------------------- ------------ --------------- ------------
Net realized and unrealized gain on
investments and foreign currency related
transactions .................................... 45,888,540 27,232,418 118,056,214
- ---------------------------------------------------- ------------ --------------- ------------
Net increase in net assets resulting from
operations ...................................... $ 44,805,189 $ 22,696,041 $118,201,633
==================================================== ============ =============== ============
</TABLE>
See Combined Notes to Financial Statements.
56
<PAGE>
EVERGREEN
Domestic Growth Funds
Statements of Changes in Net Assets
Six Months Ended March 31, 1998 (Unaudited)
<TABLE>
<CAPTION>
Aggressive Micro
Growth Evergreen Cap
Fund Fund Fund
---------------- ------------------- ---------------
<S> <C> <C> <C>
Operations
Net investment income (loss) ............. $ (1,433,843) $ 1,434,030 $ (269,981)
Net realized gain on investments and
foreign currency related
transactions ............................ 14,914,609 25,690,208 4,692,805
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency related
transactions ............................ (9,057,990) 204,130,251 1,111,468
- ------------------------------------------- ------------- ----------------- ------------
Net increase in net assets resulting
from operations ........................ 4,422,776 231,254,489 5,534,292
- ------------------------------------------- ------------- ----------------- ------------
Distributions to shareholders
From net investment income
Class A ................................. 0 (756,350) 0
Class B ................................. 0 0 0
Class Y ................................. 0 (6,894,400) 0
From net realized gain on investments
and foreign currency related
transactions
Class A ................................. (6,090,321) (3,670,523) (142,183)
Class B ................................. (1,515,887) (11,529,535) (114,702)
Class C ................................. (134,112) (199,185) (57,650)
Class Y ................................. (1,606,606) (23,699,502) (2,593,995)
- ------------------------------------------- ------------- ----------------- ------------
Total distributions to shareholders ..... (9,346,926) (46,749,495) (2,908,530)
- ------------------------------------------- ------------- ----------------- ------------
Capital share transactions
Proceeds from shares sold ................ 29,456,167 1,185,754,807 18,839,496
Payment for shares redeemed .............. (62,333,251) (1,033,937,663) (9,651,827)
Net asset value of shares issued in
reinvestment of distributions ........... 8,139,251 40,832,191 2,124,920
Shares issued in acquisition of
Keystone Small Company Growth
Fund II ................................. 0 0 0
- ------------------------------------------- ------------- ----------------- ------------
Net increase (decrease) in net
assets resulting from capital share
transactions ........................... (24,737,833) 192,649,335 11,312,589
- ------------------------------------------- ------------- ----------------- ------------
Total increase (decrease) in net
assets ................................ (29,661,983) 377,154,329 13,938,351
Net assets
Beginning of period ...................... 263,525,717 1,778,096,394 55,144,344
- ------------------------------------------- ------------- ----------------- ------------
End of period ............................ $ 233,863,734 $ 2,155,250,723 $ 69,082,695
=========================================== ============= ================= ============
Undistributed net investment income
(accumulated net investment loss) ........ $ (1,444,884) $ 567,538 $ (281,639)
=========================================== ============= ================= ============
<CAPTION>
Small Strategic
Omega Company Growth
Fund Growth Fund Fund
---------------- ------------------ -----------------
<S> <C> <C> <C>
Operations
Net investment income (loss) ............. $ (1,083,351) $ (4,536,377) $ 145,419
Net realized gain on investments and
foreign currency related
transactions ............................ 41,833,216 158,574,763 118,662,006
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency related
transactions ............................ 4,055,324 (131,342,345) (605,792)
- -------------------------------------------- ------------- -------------- ---------------
Net increase in net assets resulting
from operations ........................ 44,805,189 22,696,041 118,201,633
- -------------------------------------------- ------------- -------------- ---------------
Distributions to shareholders
From net investment income
Class A ................................. 0 0 0
Class B ................................. 0 0 (1,289,169)
Class Y ................................. 0 0 0
From net realized gain on investments
and foreign currency related
transactions
Class A ................................. (14,940,773) 0 0
Class B ................................. (10,805,705) (124,537,167) (113,103,093)
Class C ................................. (1,549,758) 0 0
Class Y ................................. (493) 0 0
- -------------------------------------------- ------------- -------------- ---------------
Total distributions to shareholders ..... (27,296,729) (124,537,167) (114,392,262)
- -------------------------------------------- ------------- -------------- ---------------
Capital share transactions
Proceeds from shares sold ................ 20,153,834 292,899,083 32,907,571
Payment for shares redeemed .............. (31,661,208) (427,194,274) (76,128,595)
Net asset value of shares issued in
reinvestment of distributions ........... 25,295,380 105,065,592 101,552,338
Shares issued in acquisition of
Keystone Small Company Growth
Fund II ................................. 0 33,587,309 0
- -------------------------------------------- ------------- -------------- ---------------
Net increase (decrease) in net
assets resulting from capital share
transactions ........................... 13,788,006 4,357,710 58,331,314
- -------------------------------------------- ------------- -------------- ---------------
Total increase (decrease) in net
assets ................................ 31,296,466 (97,483,416) 62,140,685
Net assets
Beginning of period ...................... 289,268,598 1,545,745,518 919,980,733
- -------------------------------------------- ------------- -------------- ---------------
End of period ............................ $ 320,565,064 $1,448,262,102 $ 982,121,418
============================================ ============= ============== ===============
Undistributed net investment income
(accumulated net investment loss) ........ $ (1,086,240) $ (4,553,025) $ (158,699)
============================================ ============= ============== ===============
</TABLE>
See Combined Notes to Financial Statements.
57
<PAGE>
EVERGREEN
Domestic Growth Funds
Statements of Changes in Net Assets
Year Ended September 30, 1997
<TABLE>
<CAPTION>
Aggressive Micro
Growth Evergreen Cap
Fund Fund Fund
---------------- ------------------- ----------------
<S> <C> <C> <C>
Operations
Net investment income (loss) .......... $ (1,900,304) $ 7,514,387 $ (209,402)
Net realized gain on investments
and foreign currency related
transactions ......................... 12,171,177 36,805,817 3,640,708
Net change in unrealized
appreciation of investments and
foreign currency related
transactions ......................... 16,257,433 388,053,134 16,316,906
- ---------------------------------------- ------------- ----------------- --------------
Net increase in net assets
resulting from operations ........... 26,528,306 432,373,338 19,748,212
- ---------------------------------------- ------------- ----------------- --------------
Distributions to shareholders
From net investment income
Class A .............................. 0 (454,970) 0
Class Y .............................. 0 (5,485,239) 0
From net realized gain on
investments and foreign currency
related transactions
Class A .............................. 0 (2,174,311) 0
Class B .............................. 0 (6,498,011) 0
Class C .............................. 0 (143,970) 0
Class Y .............................. 0 (18,647,833) 0
- ---------------------------------------- ------------- ----------------- --------------
Total distributions to
shareholders ........................ 0 (33,404,334) 0
- ---------------------------------------- ------------- ----------------- --------------
Capital share transactions
Proceeds from shares sold ............. 109,161,502 1,988,694,819 7,828,678
Payment for shares redeemed ........... (99,552,842) (1,825,979,211) (14,445,981)
Net asset value of shares issued in
reinvestment of distributions ........ 0 28,705,464 0
Shares issued in acquisition of
Keystone Mid-Cap Growth Fund
(S-3) ................................ 0 0 0
Shares issued in acquisition of
Keystone America Hartwell
Emerging Growth Fund ................. 82,227,499 0 0
- ---------------------------------------- ------------- ----------------- --------------
Net increase (decrease) in net
assets resulting from capital
share transactions .................. 91,836,159 191,421,072 (6,617,303)
- ---------------------------------------- ------------- ----------------- --------------
Total increase in net assets ........ 118,364,465 590,390,076 13,130,909
Net assets
Beginning of year ..................... 145,161,252 1,187,706,318 42,013,435
- ---------------------------------------- ------------- ----------------- --------------
End of year ........................... $ 263,525,717 $ 1,778,096,394 $ 55,144,344
======================================== ============= ================= ==============
Undistributed net investment income
(accumulated net investment loss) ..... $ (11,041) $ 6,784,258 $ (11,658)
======================================== ============= ================= ==============
<CAPTION>
Small
Omega Company Strategic
Fund*** Growth Fund** Growth Fund*
------------------ ------------------ -----------------
<S> <C> <C> <C>
Operations
Net investment income (loss) .......... $ (1,130,464) $ (7,065,364) $ 655,106
Net realized gain on investments
and foreign currency related
transactions ......................... 17,255,823 110,149,243 80,803,578
Net change in unrealized
appreciation of investments and
foreign currency related
transactions ......................... 35,276,768 184,561,753 105,055,036
- ----------------------------------------- ------------- -------------- ---------------
Net increase in net assets
resulting from operations ........... 51,402,127 287,645,632 186,513,720
- ----------------------------------------- ------------- -------------- ---------------
Distributions to shareholders
From net investment income
Class A .............................. 0 0 0
Class Y .............................. 0 0 0
From net realized gain on
investments and foreign currency
related transactions
Class A .............................. (6,112,342) 0 0
Class B .............................. (4,386,128) (114,171,454) (59,854,176)
Class C .............................. (657,041) 0 0
Class Y .............................. (1) 0 0
- ----------------------------------------- --------------- -------------- ---------------
Total distributions to
shareholders ........................ (11,155,512) (114,171,454) (59,854,176)
- ----------------------------------------- -------------- -------------- ---------------
Capital share transactions
Proceeds from shares sold ............. 43,285,351 243,488,031 120,935,075
Payment for shares redeemed ........... (66,967,170) (369,839,740) (165,997,292)
Net asset value of shares issued in
reinvestment of distributions ........ 10,330,073 91,854,430 53,539,767
Shares issued in acquisition of
Keystone Mid-Cap Growth Fund
(S-3) ................................ 0 0 287,967,178
Shares issued in acquisition of
Keystone America Hartwell
Emerging Growth Fund ................. 0 0 0
- ----------------------------------------- -------------- -------------- ---------------
Net increase (decrease) in net
assets resulting from capital
share transactions .................. (13,351,746) (34,497,279) 296,444,728
- ----------------------------------------- -------------- -------------- ---------------
Total increase in net assets ........ 26,894,869 138,976,899 423,104,272
Net assets
Beginning of year ..................... 262,373,729 1,406,768,619 496,876,461
- ----------------------------------------- -------------- -------------- ---------------
End of year ........................... $289,268,598 $1,545,745,518 $ 919,980,733
========================================= ============== ============== ===============
Undistributed net investment income
(accumulated net investment loss) ..... $ (2,889) $ (16,648) $ 985,051
========================================= ============== ============== ===============
</TABLE>
* For the eleven-month period ended September 30, 1997. Effective September
30, 1997, the Fund changed its fiscal year end from October 31 to September
30.
** For the four-month period ended September 30, 1997. Effective September 30,
1997, the Fund changed its fiscal year end from May 31 to September 30.
*** For the nine-month period ended September 30, 1997. Effective September 30,
1997, the Fund changed its fiscal year end from December 31 to September 30.
See Combined Notes to Financial Statements.
58
<PAGE>
EVERGREEN
Domestic Growth Funds
Statements of Changes in Net Assets
Prior Periods
<TABLE>
<CAPTION>
Omega
Fund***
----------------
<S> <C>
Operations
Net investment loss ................................................................. $ (1,563,271)
Net realized gain on investments and foreign currency related transactions ........... 35,051,903
Net change in unrealized depreciation of investments and foreign currency related
transactions ........................................................................ (8,092,996)
- --------------------------------------------------------------------------------------- -------------
Net increase (decrease) in net assets resulting from operations ..................... 25,395,636
- --------------------------------------------------------------------------------------- -------------
Distributions to shareholders
From net investment income
Class B ............................................................................. 0
From net realized gain on investments and foreign currency related transactions
Class A ............................................................................. (15,011,932)
Class B ............................................................................. (9,027,710)
Class C ............................................................................. (1,879,136)
- --------------------------------------------------------------------------------------- -------------
Total distributions to shareholders ................................................ (25,918,778)
- --------------------------------------------------------------------------------------- -------------
Capital share transactions
Proceeds from shares sold ............................................................ 68,666,813
Payment for shares redeemed .......................................................... (69,108,584)
Net asset value of shares issued in reinvestment of distributions .................... 24,060,522
Shares issued in acquisition of Keystone Hartwell Growth Fund ........................ 18,599,730
- --------------------------------------------------------------------------------------- -------------
Net increase (decrease) in net assets resulting from capital share transactions ..... 42,218,481
- --------------------------------------------------------------------------------------- -------------
Total increase (decrease) in net assets ............................................ 41,695,339
Net assets
Beginning of year .................................................................... 220,678,390
- --------------------------------------------------------------------------------------- -------------
End of year .......................................................................... $ 262,373,729
======================================================================================= =============
Undistributed net investment income (accumulated net investment loss) ................. $ 0
======================================================================================= =============
<CAPTION>
Small
Company Strategic
Growth Fund** Growth Fund*
------------------- -----------------
<S> <C> <C>
Operations
Net investment loss .................................................................. $ (22,139,802) $ (2,412,617)
Net realized gain on investments and foreign currency related transactions ........... 117,982,561 70,337,618
Net change in unrealized depreciation of investments and foreign currency related
transactions ........................................................................ (279,047,661) (7,283,970)
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Net increase (decrease) in net assets resulting from operations ..................... (183,204,902) 60,641,031
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Distributions to shareholders
From net investment income
Class B ............................................................................. 0 (478,981)
From net realized gain on investments and foreign currency related transactions
Class A ............................................................................. 0 0
Class B ............................................................................. (200,508,632) (22,079,862)
Class C ............................................................................. 0 0
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Total distributions to shareholders ................................................. (200,508,632) (22,558,843)
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Capital share transactions
Proceeds from shares sold ............................................................ 1,018,919,437 65,085,209
Payment for shares redeemed .......................................................... (1,402,606,782) (118,085,204)
Net asset value of shares issued in reinvestment of distributions .................... 168,366,921 20,184,450
Shares issued in acquisition of Keystone Hartwell Growth Fund ........................ 0 0
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Net increase (decrease) in net assets resulting from capital share transactions ..... (215,320,424) (32,815,545)
- ---------------------------------------------------------------------------------------- ----------------- ---------------
Total increase (decrease) in net assets ............................................ (599,033,958) 5,266,643
Net assets
Beginning of year ................................................................... 2,005,802,577 491,609,818
- ---------------------------------------------------------------------------------------- ----------------- ---------------
End of year .......................................................................... $ 1,406,768,619 $ 496,876,461
======================================================================================== ================= ===============
Undistributed net investment income (accumulated net investment loss) ................. $ (7,516) $ 85,978
======================================================================================== ================= ===============
</TABLE>
* For the year ended October 31, 1996.
** For the year ended May 31, 1997.
*** For the year ended December 31, 1996.
See Combined Notes to Financial Statements.
59
<PAGE>
Combined Notes to Financial Statements (Unaudited)
1. ORGANIZATION
The Evergreen Domestic Growth Funds consist of Evergreen Aggressive Growth Fund
("Aggressive Growth"), Evergreen Fund ("Evergreen"), Evergreen Micro Cap Fund
("Micro Cap"), Evergreen Omega Fund ("Omega"), Evergreen Small Company Growth
Fund (formerly, Keystone Small Company Growth Fund (S-4)) ("Small Company
Growth") and Evergreen Strategic Growth (formerly, Keystone Strategic Growth
Fund (K-2)) ("Strategic Growth"), each of which is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as diversified,
open-end management investment companies. Each Fund is a series of the
Evergreen Equity Trust, a Delaware business Trust organized on September 18,
1997. Formerly, Aggressive Growth, Evergreen, Omega, Small Company Growth and
Strategic Growth were organized as either a Massachusetts Business Trust or a
series of a Massachusetts Business Trust. Micro Cap was a Maryland Corporation
organized in 1983. Aggressive Growth, Evergreen, Micro Cap, Omega, Small
Company Growth and Strategic Growth are collectively referred to herein as the
"Funds".
The Funds offer Class A, Class B, Class C and Class Y shares. Class A shares
are sold with a maximum front-end sales charge of 4.75%. Class B and Class C
shares are sold without a front-end sales charge, but pay a higher ongoing
distribution fee than Class A. Class B shares are sold subject to a contingent
deferred sales charge that is payable upon redemption and decreases depending
on how long the shares have been held. Class C shares are sold subject to a
contingent deferred sales charge payable on shares redeemed within one year
after the month of purchase. Class B shares purchased after January 1, 1997
will automatically convert to Class A shares after seven years. Class B shares
purchased prior to January 1, 1997 retain their existing conversion rights.
Class Y shares are sold at net asset value and are not subject to contingent
deferred sales charges or distribution fees. Class Y shares are sold only to
investment advisory clients of First Union and its affiliates, certain
institutional investors or Class Y shareholders of record of certain other
funds managed by First Union and its affiliates. Currently, Strategic Growth
does not offer Class Y shares.
2. ACQUISITION INFORMATION
Effective on the close of business on August 14, 1997, Aggressive Growth
acquired the net assets of Keystone America Hartwell Emerging Growth Fund, an
open-end management investment company registered under the 1940 Act in an
exchange of shares. The net assets were exchanged through a non-taxable
exchange for 3,462,126, 287,735, and 87,678 Class A, Class B and Class C
shares, respectively, of Aggressive Growth. The acquired net assets consisted
primarily of portfolio securities with unrealized appreciation of $26,393,360.
The aggregate net assets of Aggressive Growth immediately after the acquisition
were $245,798,619.
On April 25, 1996, Omega acquired the net assets of Keystone Hartwell Growth
Fund, an open-end management investment company registered under the 1940 Act
in an exchange of Class A, Class B and Class C shares. The net assets of
Keystone Hartwell Growth Fund were exchanged through a nontaxable exchange for
910,037, 66,754 and 25,665 Class A, Class B and Class C shares, respectively,
of Omega. The acquired net assets consisted primarily of portfolio securities
with unrealized appreciation of $7,665,038. The aggregate net assets of Omega
immediately after the acquisition were $255,527,188.
Effective at the close of business on January 2, 1998, Small Company Growth
acquired the net assets of Keystone Small Company Growth Fund II, an open-end
management investment company registered under the 1940 Act in an exchange of
shares. The net assets were exchanged through a non-taxable exchange for
825,086, 1,836,073, 504,702 and 63,994 Class A, Class B, Class C and Class Y
shares, respectively, of Small Company Growth. The acquired net assets
consisted primarily of portfolio securities with unrealized appreciation of
$490,029. The aggregate net assets of Small Company Growth immediately after
the acquisition were $1,340,337,418.
3. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect amounts
reported herein. Actual results could differ from these estimates.
A. Valuation of Securities
The Funds value securities traded on a national securities exchange or included
on the NASDAQ National Market System ("NMS") at the last reported sales price
on the exchange where primarily traded. The Funds value securities traded on an
exchange or NMS for which there has been no sale and other securities traded in
the over-the-counter market at the mean between the last reported bid and asked
price. U.S. government obligations held by the Funds are valued at the mean
between the over-the-counter bid and asked prices. Corporate bonds, other
fixed-income securities, and mortgage and other asset-backed securities are
valued at prices provided by an independent pricing service. In determining
value for normal institutional-size transactions, the pricing service uses
methods
60
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
based on market transactions for comparable securities and analysis of various
relationships between similar securities which are generally recognized by
institutional traders. Securities for which valuations are not available from
an independent pricing service ,including restricted securities, are valued at
fair value as determined in good faith according to procedures established by
the Board of Trustees. Short-term investments with remaining maturities of 60
days or less are carried at amortized cost, which approximates market value.
B. Repurchase Agreements
Each Fund may invest in repurchase agreements. Securities pledged as collateral
for repurchase agreements are held by the custodian on the Fund's behalf. Each
Fund monitors the adequacy of the collateral daily and will require the seller
to provide additional collateral in the event the market value of the
securities pledged falls below the carrying value of the repurchase agreement,
including accrued interest. Each Fund will only enter into repurchase
agreements with banks and other financial institutions which are deemed by the
investment advisor to be creditworthy pursuant to guidelines established by the
Board of Trustees.
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, Omega, Small Company Growth and Strategic Growth, along with
certain other funds managed by Keystone Investment Management Company
("Keystone"), may transfer uninvested cash balances into a joint trading
account. These balances are invested in one or more repurchase agreements that
are fully collateralized by U.S. Treasury and/or federal agency obligations.
C. Foreign Currency
The books and records of the Funds are maintained in United States (U.S.)
dollars. Foreign currency amounts are translated into U.S. dollars as follows:
market value of investments, assets and liabilities at the daily rate of
exchange; purchases and sales of investments, income and expenses at the rate
of exchange prevailing on the respective dates of such transactions. Net
unrealized foreign exchange gain (loss) resulting from changes in foreign
currency exchange rates is a component of net unrealized appreciation
(depreciation) on investments and foreign currency related transactions. Net
realized foreign currency gains and losses resulting from changes in exchange
rates include: foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency related
transactions and the difference between the amounts of interest and dividends
recorded on the books of the Fund and the amount actually received. Such gains
and losses are included in realized gain (loss) on foreign currency related
transactions. The portion of foreign currency gains and losses related to
fluctuations in exchange rates between the initial purchase trade date and
subsequent sale trade date is included in realized gain (loss) on foreign
currency related transactions.
D. Forward Foreign Currency Exchange Contracts
The Funds may enter into forward foreign currency exchange contracts ("forward
contracts") to settle portfolio purchases and sales of securities denominated
in a foreign currency and to hedge certain foreign currency assets or
liabilities. Forward contracts are recorded at the forward rate and
marked-to-market daily. Realized gains and losses arising from such
transactions are included in net realized gain (loss) on foreign currency
related transactions. The Fund bears the risk of an unfavorable change in the
foreign currency exchange rate underlying the forward contract and is subject
to the credit risk that the other party will not fulfill their obligations
under the contract. Forward contracts involve elements of market risk in excess
of the amount reflected in the statement of assets and liabilities.
E. Security Transactions and Investment Income
Securities transactions are accounted for no later than one business day after
the trade date. Realized gains and losses are computed on the identified cost
basis. Interest income is recorded on the accrual basis and includes accretion
of discounts and amortization of premiums. Dividend income is recorded on the
ex-dividend date or in the case of some foreign securities, on the date
thereafter when the Fund is made aware of the dividend. Foreign income may be
subject to foreign withholding taxes which are accrued as applicable. Capital
gains realized on some foreign securities may be subject to foreign taxes and
are accrued as applicable.
F. Federal Taxes
The Funds have qualified and intend to continue to qualify as regulated
investment companies under the Internal Revenue Code of 1986, as amended (the
"Code"). Thus, the Funds will not incur any federal income tax liability since
they are expected to distribute all of their net investment company taxable
income and net capital gains, if any, to their shareholders. The Funds also
intend to avoid any excise tax liability by making the required distributions
under the Code. Accordingly, no provision for federal income taxes is required.
To the extent that realized capital gains can be offset by capital loss
carryforwards, it is each Fund's policy not to distribute such gains.
G. Distributions
Distributions from net investment income for the Funds are declared and paid
quarterly. Distributions from net realized capital gains, if any, are paid at
least annually. Distributions to shareholders are recorded at the close of
business on the ex-dividend date.
61
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Income and capital gains distributions to shareholders are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles. The significant differences between financial
statement amounts available for distributions and distributions made in
accordance with income tax regulations are primarily due to differing
treatments for realized gains from foreign currency related transactions and
certain distributions received from real estate investment trusts.
H. Class Allocations
Income, expenses (other than class specific expenses) and realized and
unrealized gains and losses are prorated among the classes based on the
relative net assets of each class. Currently, class specific expenses are
limited to expenses incurred under the Distribution Plans for each class.
I. Organization Expenses
Organization expenses are amortized to operations over a five-year period on a
straight-line basis. In the event any of the initial shares of the Funds are
redeemed by any holder during the five-year amortization period, redemption
proceeds will be reduced by any unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number
of initial shares outstanding at the time of the redemption.
4. CAPITAL SHARE TRANSACTIONS
The Funds have an unlimited number of shares of beneficial interest with no par
value authorized. Shares of beneficial interest of the Funds are currently
divided into Class A, Class B, Class C and Class Y, except for Strategic
Growth, which does not currently offer Class Y shares. Transactions in shares
of the Funds were as follows:
62
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
-------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ............................................ 590,957 $ 12,972,905 2,422,549 $ 47,560,544
Shares redeemed ........................................ (1,453,165) (31,917,265) (3,066,636) (61,339,895)
Shares issued on reinvestment of distributions ......... 256,170 5,566,568 0 0
Shares issued in acquisition of Hartwell
Emerging Growth Fund .................................. 0 0 3,462,126 74,280,008
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Net increase (decrease) ................................ (606,038) (13,377,792) 2,818,039 60,500,657
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Class B
Shares sold ............................................ 189,526 4,095,824 816,050 16,534,301
Shares redeemed ........................................ (267,383) (5,665,037) (363,564) (7,410,013)
Shares issued on reinvestment of distributions ......... 69,204 1,481,660
Shares issued in acquisition of Hartwell
Emerging Growth Fund .................................. 0 0 287,735 6,092,951
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Net increase (decrease) ................................ (8,653) (87,553) 740,221 15,217,239
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Class C
Shares sold ............................................ 123,286 2,583,846 147,478 2,974,904
Shares redeemed ........................................ (136,462) (2,913,533) (110,246) (2,231,375)
Shares issued on reinvestment of distributions ......... 6,094 130,354
Shares issued in acquisition of Hartwell
Emerging Growth Fund .................................. 0 0 87,678 1,854,540
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Net increase (decrease) ................................ (7,082) (199,333) 124,910 2,598,069
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Class Y
Shares sold ............................................ 455,957 9,803,592 2,044,325 42,091,753
Shares redeemed ........................................ (1,007,725) (21,837,416) (1,390,494) (28,571,559)
Shares issued on reinvestment of distributions ......... 44,007 960,669 0 0
- -------------------------------------------------------- ------------- -------------- ------------- --------------
Net increase (decrease) ................................ (507,761) (11,073,155) 653,831 13,520,194
======================================================== ============= ============== ============= ==============
Net increase (decrease) ................................ (1,129,534) $ (24,737,833) 4,337,001 $ 91,836,159
======================================================== ============= ============== ============= ==============
</TABLE>
- --------------------------------------------------------------------------------
EVERGREEN FUND
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
--------------------------------- -----------------------------------
Shares Amount Shares Amount
--------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Class A
Shares sold ............................................ 8,793,444 $ 205,138,298 10,240,806 $ 201,289,910
Shares redeemed ........................................ (7,302,378) (170,138,469) (8,297,731) (163,949,566)
Shares issued on reinvestment of distributions ......... 197,283 4,385,608 141,874 2,555,157
- -------------------------------------------------------- ------------- -------------- ------------- -----------------
Net increase ........................................... 1,688,349 39,385,437 2,084,949 39,895,501
- -------------------------------------------------------- ------------- -------------- ------------- -----------------
Class B
Shares sold ............................................ 5,791,196 134,053,635 9,332,781 179,140,600
Shares redeemed ........................................ (1,745,783) (40,283,192) (2,027,269) (39,748,674)
Shares issued on reinvestment of distributions ......... 516,492 11,383,489 359,029 6,426,786
- -------------------------------------------------------- ------------- -------------- ------------- -----------------
Net increase ........................................... 4,561,905 105,153,932 7,664,541 145,818,712
- -------------------------------------------------------- ------------- -------------- ------------- -----------------
Class C
Shares sold ............................................ 175,464 4.055,320 166,021 3,177,817
Shares redeemed ........................................ (37,092) (850,601) (123,428) (2,398,358)
Shares issued on reinvestment of distributions ......... 8,349 183,677 7,595 135,795
- -------------------------------------------------------- ------------- --------------- ------------- -----------------
Net increase ........................................... 146,721 3,388,396 50,188 915,254
- -------------------------------------------------------- ------------- --------------- ------------- -----------------
Class Y
Shares sold ............................................ 36,298,302 842,507,555 82,859,843 1,605,086,492
Shares redeemed ........................................ (35,418,726) (822,665,401) (83,538,658) (1,619,882,613)
Shares issued on reinvestment of distributions ......... 1,115,169 24,879,416 1,085,192 19,587,726
- -------------------------------------------------------- ------------- --------------- ------------- -----------------
Net increase ........................................... 1,994,745 44,721,570 406,377 4,791,605
======================================================== ============= =============== ============= =================
Net increase ........................................... 8,391,720 $ 192,649,335 10,206,055 $ 191,421,072
======================================================== ============= =============== ============= =================
</TABLE>
63
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
MICRO CAP
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
------------------------------- ------------------------------
Shares Amount Shares Amount
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Class A
Shares sold ............................................ 281,173 $ 7,456,988 115,021 $ 2,520,780
Shares redeemed ........................................ (163,462) (4,335,246) (75,840) (1,765,373)
Shares issued on reinvestment of distributions ......... 5,408 138,923 0 0
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Net increase ........................................... 123,119 3,260,665 39,181 755,407
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Class B
Shares sold ............................................ 113,015 2,902,230 16,193 358,523
Shares redeemed ........................................ (7,708) (200,067) (36,249) (699,297)
Shares issued on reinvestment of distributions ......... 4,452 111,788 0 0
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Net increase (decrease) ................................ 109,759 2,813,951 (20,056) (340,774)
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Class C
Shares sold ............................................ 139,168 3,594,481 8,543 214,527
Shares redeemed ........................................ (13,224) (345,702) (152) (3,237)
Shares issued on reinvestment of distributions ......... 2,222 55,851 0 0
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Net increase ........................................... 128,166 3,304,630 8,391 211,290
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Class Y
Shares sold ............................................ 184,825 4,885,797 216,277 4,734,848
Shares redeemed ........................................ (178,344) (4,770,812) (609,034) (11,978,074)
Shares issued on reinvestment of distributions ......... 70,343 1,818,358 0 0
- --------------------------------------------------------- ----------- ------------- ---------- --------------
Net increase (decrease) ................................ 76,824 1,933,343 (392,757) (7,243,226)
========================================================= =========== ============= ========== ==============
Net increase (decrease) ................................ 437,868 $ 11,312,589 (365,241) $ (6,617,303)
========================================================= =========== ============= ========== ==============
</TABLE>
64
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
OMEGA
<TABLE>
<CAPTION>
Six Months Ended Nine Months Ended
March 31,1998 September 30, 1997*
------------------------------ --------------------------------
Shares Amount Shares Amount
------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ............................ 518,105 $ 11,513,312 764,570 $ 14,997,288
Shares redeemed ........................ (860,994) (18,993,514) (1,812,460) (35,414,920)
Shares issued on reinvestment of
distributions ......................... 652,599 13,593,635 292,502 5,545,839
Shares issued in acquisition of Hartwell
Growth Fund ........................... 0 0 0 0
- ---------------------------------------- ----------- --------------- ------------- --------------
Net increase (decrease) ................ 309,710 6,113,433 (755,388) (14,871,793)
- ---------------------------------------- ----------- --------------- ------------- --------------
Class B
Shares sold ............................ 353,738 7,406,039 1,361,525 25,967,636
Shares redeemed ........................ (466,961) (9,674,282) (1,280,735) (24,835,178)
Shares issued on reinvestment of
distributions ......................... 515,277 10,207,810 227,976 4,149,157
Shares issued in acquisition of Hartwell
Growth Fund ........................... 0 0 0 0
- ---------------------------------------- ----------- --------------- ------------- --------------
Net increase ........................... 402,054 7,939,357 308,766 5,281,615
- ---------------------------------------- ----------- --------------- ------------- --------------
Class C
Shares sold ............................ 59,792 1,234,483 121,875 2,315,406
Shares redeemed ........................ (146,402) (2,993,402) (352,354) (6,717,072)
Shares issued on reinvestment of
distributions ......................... 75,246 1,493,641 34,837 635,076
Shares issued in acquisition of Hartwell
Growth Fund ........................... 0 0 0 0
- ---------------------------------------- ----------- --------------- ------------- --------------
Net increase (decrease) ................ (11,364) (265,278) (195,642) (3,766,590)
- ---------------------------------------- ----------- --------------- ------------- --------------
Class Y**
Shares sold ............................ 0 0 232 5,021
Shares issued on reinvestment of
distributions ......................... 24 494 0 1
- ---------------------------------------- ----------- --------------- ------------- --------------
Net increase ........................... 24 494 232 5,022
======================================== =========== =============== ============= ==============
Net increase (decrease) ................ 700,424 $ 13,788,006 (642,032) $ (13,351,746)
======================================== =========== =============== ============= ==============
<CAPTION>
Year Ended
December 31, 1996
--------------------------------
Shares Account
--------------- ----------------
<S> <C> <C>
Class A
Shares sold ............................ 1,759,793 $ 33,571,953
Shares redeemed ........................ (2,381,626) (44,999,521)
Shares issued on reinvestment of
distributions ......................... 736,752 13,822,516
Shares issued in acquisition of Hartwell
Growth Fund ........................... 910,037 16,929,242
- ------------------------------------------------------ ---------------
Net increase (decrease) ................ 1,024,956 19,324,190
- ------------------------------------------------------ ---------------
Class B
Shares sold ............................ 1,552,928 28,806,348
Shares redeemed ........................ (1,062,059) (19,500,081)
Shares issued on reinvestment of
distributions ......................... 466,572 8,494,665
Shares issued in acquisition of Hartwell
Growth Fund ........................... 66,754 1,206,044
- ------------------------------------------------------ ---------------
Net increase ........................... 1,024,195 19,006,976
- ------------------------------------------------------ ---------------
Class C
Shares sold ............................ 336,661 6,288,512
Shares redeemed ........................ (253,439) (4,608,982)
Shares issued on reinvestment of
distributions ......................... 95,593 1,743,341
Shares issued in acquisition of Hartwell
Growth Fund ........................... 25,665 464,444
- ------------------------------------------------------ ---------------
Net increase (decrease) ................ 204,480 3,887,315
- ------------------------------------------------------ ---------------
Class Y**
Shares sold ............................ 0 0
Shares issued on reinvestment of
distributions ......................... 0 0
- ------------------------------------------------------ ---------------
Net increase ........................... 0 0
====================================================== ===============
Net increase (decrease) ................ 2,253,631 $ 42,218,481
====================================================== ===============
</TABLE>
* The Fund changed its fiscal year end from December 31 to September 30,
effective September 30, 1997.
** Omega Fund, Class Y commenced operations on July 23, 1997.
65
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
SMALL COMPANY GROWTH
<TABLE>
<CAPTION>
Six Months Ended Four Months Ended
March 31, 1998 September 30, 1997*
---------------------------------- ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ................................ 9,162,634 $ 76,064,503 0 0
Automatic conversion of Class B
shares to Class A shares .................. 124,181,726 962,424,518 0 0
Shares redeemed ............................ (16,371,535) (136,786,094) 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 1,123,086 8,684,926 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Net increase ............................... 118,095,911 910,387,853 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Class B
Shares sold ................................ 25,656,880 216,420,010 27,990,885 $ 243,488,031
Automatic conversion of Class B shares to
Class A shares ............................ (124,181,726) (962,424,518) 0 0
Shares redeemed ............................ (34,169,410) (289,770,962) (42,215,378) (369,839,740)
Shares issued on reinvestment of
distributions ............................. 13,003,167 105,065,592 11,242,892 91,854,430
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 2,456,961 18,998,994 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Net decrease ............................... (117,234,128) (911,710,884) (2,981,601) (34,497,279)
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Class C
Shares sold ................................ 26,425 221,257 0 0
Shares redeemed ............................ (56,070) (469,194) 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 675,716 5,225,388 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Net increase ............................... 646,071 4,977,451 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Class Y
Shares sold ................................ 23,290 193,313 0 0
Shares redeemed ............................ (20,207) (168,024) 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 87,676 678,001 0 0
- -------------------------------------------- -------------- ---------------- -------------- ---------------
Net increase ............................... 90,759 703,290 0 0
============================================ ============== ================ ============== ===============
Net increase (decrease) .................... 1,598,613 $ 4,357,710 (2,981,601) $ (34,497,279)
============================================ ============== ================ ============== ===============
<CAPTION>
Year Ended
May 31, 1997
-------------------------------------
Shares Amount
----------------- -------------------
<S> <C> <C>
Class A
Shares sold ................................ 0 0
Automatic conversion of Class B
shares to Class A shares .................. 0 0
Shares redeemed ............................ 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 0 0
- ------------------------------------------------------------ ------------------
Net increase ............................... 0 0
- ------------------------------------------------------------ ------------------
Class B
Shares sold ................................ 121,645,715 $ 1,018,919,437
Automatic conversion of Class B shares to
Class A shares ............................ 0 0
Shares redeemed ............................ (168,659,715) (1,402,606,782)
Shares issued on reinvestment of
distributions ............................. 19,925,079 168,366,921
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 0 0
- ------------------------------------------------------------ ------------------
Net decrease ............................... (27,088,921) (215,320,424)
- ------------------------------------------------------------ ------------------
Class C
Shares sold ................................ 0 0
Shares redeemed ............................ 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 0 0
- ------------------------------------------------------------ ------------------
Net increase ............................... 0 0
- ------------------------------------------------------------ ------------------
Class Y
Shares sold ................................ 0 0
Shares redeemed ............................ 0 0
Shares issued in acquisition of Keystone
Small Company Growth Fund II .............. 0 0
- ------------------------------------------------------------ ------------------
Net increase ............................... 0 0
============================================================ ==================
Net increase (decrease) .................... (27,088,921) $ (215,320,424)
============================================================ ==================
</TABLE>
* The Fund changed its fiscal year end from May 31 to September 30, effective
September 30, 1997.
66
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
STRATEGIC GROWTH
<TABLE>
<CAPTION>
Six Months Ended Eleven Months Ended
March 31, 1998 September 30, 1997*
--------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold ................................ 434,781 $ 4,202,496 0 0
Automatic conversion of Class B shares to
Class A shares ............................ 80,710,264 735,774,137 0 0
Shares redeemed ............................ (2,799,341) (27,414,462) 0 0
- -------------------------------------------- ------------- ---------------- -------------- ----------------
Net increase ............................... 78,345,704 712,562,171 0 0
- -------------------------------------------- ------------- ---------------- -------------- ----------------
Class B
Shares sold ................................ 2,942,672 28,577,953 13,375,436 $ 120,935,075
Automatic conversion of Class B shares to
Class A shares ............................ (80,710,264) (735,774,137) 0 0
Shares redeemed ............................ (5,027,261) (48,713,833) (18,734,530) (165,997,292)
Shares issued on reinvestment of
distributions ............................. 11,014,353 101,552,338 6,585,457 53,539,767
Shares issued in acquisition of Keystone Mid
Cap Growth Fund (S-3) ..................... 0 0 28,278,170 287,967,178
- -------------------------------------------- ------------- ---------------- -------------- ----------------
Net increase (decrease) .................... (71,780,500) (654,357,679) 29,504,533 296,444,728
- -------------------------------------------- ------------- ---------------- -------------- ----------------
Class C
Shares sold ................................ 12,703 127,122 0 0
Shares redeemed ............................ (29) (300) 0 0
- -------------------------------------------- ------------- ---------------- -------------- ----------------
Net increase ............................... 12,674 126,822 0 0
============================================ ============= ================ ============== ================
Net increase (decrease) .................... 6,577,878 $ 58,331,314 29,504,533 $ 296,444,728
============================================ ============= ================ ============== ================
<CAPTION>
Year Ended
October 31, 1996
----------------------------------
Shares Amount
---------------- -----------------
<S> <C> <C>
Class A
Shares sold ................................ 0 0
Automatic conversion of Class B shares to
Class A shares ............................ 0 0
Shares redeemed ............................ 0 0
- ----------------------------------------------------------- ---------------
Net increase ............................... 0 0
- ----------------------------------------------------------- ---------------
Class B
Shares sold ................................ 8,012,349 $ 65,085,209
Automatic conversion of Class B shares to
Class A shares ............................ 0 0
Shares redeemed ............................ (14,456,998) (118,085,204)
Shares issued on reinvestment of
distributions ............................. 2,591,072 20,184,450
Shares issued in acquisition of Keystone Mid
Cap Growth Fund (S-3) ..................... 0 0
- ----------------------------------------------------------- ---------------
Net increase (decrease) .................... (3,853,577) (32,815,545)
- ----------------------------------------------------------- ---------------
Class C
Shares sold ................................ 0 0
Shares redeemed ............................ 0 0
- ----------------------------------------------------------- ---------------
Net increase ............................... 0 0
=========================================================== ===============
Net increase (decrease) .................... (3,853,577) $ (32,815,545)
=========================================================== ===============
</TABLE>
* The Fund changed its fiscal year end from October 31 to September 30,
effective September 30, 1997.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of investment securities, excluding
short-term investments, were as follows for the six-months ended March 31,
1998:
<TABLE>
<CAPTION>
Cost of Proceeds
Purchases from Sales
-------------- --------------
<S> <C> <C>
Aggressive Growth ............ $ 36,206,776 $ 73,205,971
Evergreen .................... 126,237,589 66,728,721
Micro Cap .................... 21,230,649 14,273,823
Omega ........................ 212,874,633 222,221,877
Small Company Growth ......... 558,310,578 787,905,083
Strategic Growth ............. 592,544,947 644,980,004
</TABLE>
6. DISTRIBUTION PLANS
Evergreen Distributor, Inc. (formerly, Evergreen Keystone Distributor, Inc.)
("EDI"), a wholly-owned subsidiary of The BISYS Group Inc. ("BISYS") serves as
principal underwriter to the Funds.
Each Fund has adopted Distribution Plans for each class of shares, except Class
Y, as allowed by Rule 12b-1 of the 1940 Act. Distribution plans permit the fund
to reimburse its principal underwriter for costs related to selling shares of
the fund and for various other services. These costs, which consist primarily
of commissions and services fees to broker-dealers who sell shares of the fund,
are paid by shareholders through expenses called "Distribution Plan expenses".
Each class, except Class Y, currently pays a service fee equal to 0.25% of the
average daily net asset of the Class. Class B and Class C also presently pay
distribution fees equal to 0.75% of the average daily net assets of the Class.
Distribution Plan expenses are calculated daily and paid monthly.
With respect to Class B and Class C shares, the principal underwriter may pay
12b-1 fees greater than the allowable annual amounts the Fund is permitted to
pay. The Fund may reimburse the principal underwriter for such excess amounts
in later years with annual interest at the prime rate plus 1.00%.
67
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
During the six-months ended March 31, 1998, amounts paid to EDI and/or
predecessor pursuant to each Fund's Class A, Class B and Class C Distribution
Plans were as follows:
<TABLE>
<CAPTION>
Class A Class B Class C
----------- ------------ ----------
<S> <C> <C> <C>
Aggressive Growth ............ $196,590 $ 194,414 $17,910
Evergreen .................... 221,536 2,782,731 50,904
Micro Cap .................... 4,149 14,103 9,582
Omega ........................ 153,598 560,048 78,103
Small Company Growth ......... 494,175 2,083,610 9,832
Strategic Growth ............. 379,865 1,039,028 87
</TABLE>
Each of the Distribution Plans may be terminated at any time by vote of the
Independent Trustees or by vote of a majority of the outstanding voting shares
of the respective class. However, for Omega, Small Company Growth and Strategic
Growth, after the termination of any Distribution Plan, and subject to the
discretion of the Independent Trustees, payments to EDI and/or its predecessor
may continue as compensation for services that had been provided while the
Distribution Plan was in effect.
Contingent deferred sales charges paid by redeeming shareholders are paid to
EDI or its predecessor.
7. INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT AND OTHER AFFILIATED
TRANSACTIONS
The Capital Management Group of First Union ("CMG"), the investment advisor for
Aggressive Growth, is entitled to an annual fee of .60 of 1% of the average
daily net assets, pursuant to the Fund's investment advisory agreement.
Evergreen Asset Management Corp. ("Evergreen Asset"), a wholly owned subsidiary
of First Union, is the investment advisor for Evergreen and Micro Cap. The
management fee paid to Evergreen Asset is determined by applying percentage
rates starting at 1.00% and declining to 0.80% per annum as net assets
increase, to the average daily net assets, pursuant to the Fund's investment
advisory agreement.
Keystone, a subsidiary of First Union, is the investment advisor for Omega,
Small Company Growth and Strategic Growth. For Omega, the management fee paid
to Keystone is determined by applying percentage rates starting at 0.75% and
declining to 0.50% per annum as net assets increase, to the average daily net
asset value of the Fund. For Small Company Growth and Strategic Growth, the
management fee paid to Keystone is determined by applying percentage rates
starting at 0.70% and declining to 0.35% per annum as net assets increase, to
the average daily net asset value of the Fund.
Evergreen Investment Services ("EIS")(formerly Evergreen Keystone Investment
Services, Inc.), a subsidiary of First Union, is the administrator and BISYS
Fund Services is sub-administrator to the Funds. As administrator, EIS provides
the Funds with facilities, equipment and personnel. As sub-administrator to the
Funds, BISYS Fund Services provides the officers of the Funds. The
administrator and sub-administrator for each Fund are entitled to an annual fee
based on the average daily net assets of the funds administered by EIS for
which First Union or its investment advisory subsidiaries are also the
investment advisers. The administration fee is calculated by applying
percentage rates, which start at 0.05% and decline to 0.01% per annum as net
assets increase, to the average daily net asset value of the Fund. The
sub-administration fee is calculated by applying percentage rates, which start
at 0.01% and decline to .004% per annum as net assets increase, to the average
daily net asset value of the Fund. For Evergreen, Micro Cap, Omega, Small
Company Growth and Strategic Growth the administration and sub-administration
fee is paid by their respective investment advisor and is not a Fund expense.
For the six months ended March 31, 1998, Aggressive Growth paid administrative
fees of $31,202.
Lieber & Company, an affiliate of First Union, is the investment sub-adviser to
Evergreen, and Micro Cap and also provides brokerage services with respect to
substantially all security transactions of these Funds effected on the New York
or American Stock Exchanges. For the six-months ended March 31, 1998, Evergreen
and Micro Cap incurred $138,943 and $26,123 respectively, in brokerage
commissions with Lieber & Company. Lieber & Company is reimbursed by Evergreen
Asset, at no additional expense to the Fund, for its cost of providing
investment advisory services.
68
<PAGE>
Combined Notes to Financial Statements (Unaudited) (continued)
Evergreen Service Company ("ESC") (formerly, Evergreen Keystone Service
Company, Inc.), a wholly-owned subsidiary of Keystone, serves as the transfer
and dividend disbursing agent for the Funds.
Officers of the Funds and affiliated Trustees receive no compensation directly
from the Funds.
8. EXPENSE OFFSET ARRANGEMENT
The Funds have entered into an expense offset arrangement with their custodian.
The assets deposited with the custodian under this expense offset arrangement
could have been invested in income-producing assets.
9. DEFERRED TRUSTEES' FEES
Each Independent Trustee of the Funds may defer any or all compensation related
to performance of duties as a Trustee. Each Trustee's deferred balances are
allocated to deferral accounts which are included in the accrued expenses for
the Fund. The investment performance of the deferral accounts are based on the
investment performance of certain Evergreen Funds. Any gains earned or losses
incurred in the deferral accounts are reported in the Fund's Trustees fees and
expenses. Trustees will be paid either in one lump sum or in quarterly
installments for up to ten years at their election, not earlier than either the
year in which the Trustee ceases to be a member of the Board of Trustees or
January 1, 2000. As of March 31, 1998, the value of the Trustees deferral
account for Aggressive Growth, Evergreen, Micro Cap, Omega, Small Company
Growth and Strategic Growth were $13,186, $82,575, $12,231, $4,712, $30,402 and
$19,075, respectively.
10. FINANCING AGREEMENT
On October 31, 1996, a financing agreement among certain of the Evergreen
Funds, State Street Bank & Trust ("State Street") and a group of Banks (the
"Banks") became effective. Under this agreement, the Banks provided an
unsecured credit facility in the aggregate amount of $225 million ($112.5
million committed and $112.5 million uncommitted) allocated evenly among the
Banks. Borrowings under this facility bore interest at 0.75% per annum above
the Federal Funds rate. A commitment fee of 0.10% per annum was incurred on the
unused portion of the committed facility, which was allocated to all
participating funds. State Street served as agent for the Banks, and as agent
was entitled to a fee of $15,000 which was allocated to all of the
participating Funds. This agreement was terminated on October 31, 1997.
On October 31, 1997, a temporary financing agreement between the participating
Funds and First Union became effective. Under this agreement, First Union
provided a fully committed unsecured credit facility in the aggregate amount of
$300 million. Borrowings under this facility bore interest at 1.00% per annum
above the Federal Funds rate. State Street served as administrative agent under
this agreement, but received no compensation for its services. This agreement
was terminated on December 22, 1997.
On December 22, 1997, a financing agreement among all of the Evergreen Funds,
State Street and a group of Banks became effective. Under this agreement, the
Banks provide an unsecured credit facility in the aggregate amount of $400
million ($275 million committed and $125 million uncommitted). The credit
facility is allocated, under the terms of the financing agreement, among the
Banks. The credit facility is to be accessed by the Funds for temporary or
emergency purposes only and is subject to each Fund's borrowing restrictions.
Borrowings under this facility bear interest at 0.50% per annum above the
Federal Funds rate. A commitment fee of 0.065% per annum will be incurred on
the unused portion of the committed facility, which will be allocated to all
funds. For its assistance in arranging this financing agreement, the Capital
Market Group of First Union was paid a one time arrangement fee of $27,500.
State Street serves as administrative agent for the Banks, and as
administrative agent is entitled to a fee of $20,000 per annum which is
allocated to all of the Funds.
During the six months ended March 31, 1998, Aggressive Growth, Evergreen,
Omega, Small Company Growth and Strategic Growth had no significant borrowings
under these agreements. Micro Cap had borrowings outstanding for 79 days under
its line of credit and incurred $16,725 in interest charges related to these
borrowings which is included in other expenses. Micro Cap's average amount of
debt outstanding during the six months was $515,027 at a weighted average
interest rate of 6.513%.
69
<PAGE>
ADDITIONAL INFORMATION (Unaudited)
On December 15, 1997, a special meeting of shareholders for Aggressive Growth,
Evergreen, Micro Cap, Omega, and Strategic Growth was held to consider a number
of proposals and had the following shares represented at the meeting. On
October 16, 1997, the record date for the meeting the Funds had the following
shares outstanding:
<TABLE>
<CAPTION>
Aggressive
Growth Evergreen
-------------- --------------
<S> <C> <C>
Record date shares outstanding ............................................. 11,078,025 75,531,877
Shares represented at meeting .............................................. 5,966,387 46,177,059
Percentage of record date shares represented at meeting .................... 53.9% 61.1%
The votes recorded at the meeting, by proposal, were as follows:
Proposal 1 - The proposed reorganization of each Fund as a series
of the Evergreen Equity Trust, a Delaware business trust:
Shares voted "For" ..................................................... 5,538,713 43,274,638
Shares voted "Against" ................................................ 134,393 845,072
Shares voted "Abstain" ................................................. 293,281 2,057,349
Proposal 2 - Reclassification as non-fundamental of the
investment objective currently classified as fundamental:
Shares voted "For" ..................................................... 5,446,135 42,449,481
Shares voted "Against" ................................................. 197,999 1,557,400
Shares voted "Abstain" ................................................. 322,253 2,170,178
Proposal 3 - Changes to Fundamental investment restrictions:
Proposal 3A - To amend the Fundamental restriction concerning diversi-
fication of investments:
Shares voted "For" ..................................................... 5,448,919 42,566,787
Shares voted "Against" ................................................ 165,629 1,374,856
Shares voted "Abstain" ................................................. 351,839 2,235,416
Proposal 3B - To amend the Fundamental restriction concerning
concentration of a Fund's assets in a particular industry:
Shares voted "For" ..................................................... 5,448,984 42,604,245
Shares voted "Against" ................................................ 165,564 1,337,398
Shares voted "Abstain" ................................................. 351,839 2,235,416
Proposal 3C - To amend the Fundamental restriction concerning the
issuance of senior securities:
Shares voted "For" ..................................................... 5,449,332 42,563,194
Shares voted "Against" ................................................. 165,216 1,378,449
Shares voted "Abstain" ................................................. 351,839 2,235,416
Proposal 3D - To amend the Fundamental restriction concerning
borrowing:
Shares voted "For" ..................................................... 5,448,636 42,585,625
Shares voted "Against" ................................................. 165,912 1,356,018
Shares voted "Abstain" ................................................ 351,839 2,235,416
Proposal 3E - To amend the Fundamental restriction concerning
underwriting:
Shares voted "For" ..................................................... 5,449,185 42,603,388
Shares voted "Against" ................................................. 165,363 1,338,255
Shares voted "Abstain" ................................................ 351,839 2,235,416
Proposal 3F - To amend the Fundamental restriction concerning
investments in Real Estate:
Shares voted "For" ..................................................... 5,448,795 42,595,886
Shares voted "Against" ................................................. 165,753 1,345,757
Shares voted "Abstain" ................................................. 351,839 2,235,416
Proposal 3G - To amend the Fundamental restriction concerning
commodities:
Shares voted "For" ..................................................... 5,447,889 42,580,722
Shares voted "Against" ................................................. 166,173 1,360,921
Shares voted "Abstain" ................................................. 352,325 2,235,416
Proposal 3H - To amend the Fundamental restriction concerning
lending:
Shares voted "For" ..................................................... 5,449,124 42,549,411
Shares voted "Against" ................................................. 165,424 1,392,232
Shares voted "Abstain" ................................................. 351,839 2,235,416
<CAPTION>
Micro Strategic
Cap Omega Growth
------------- -------------- --------------
<S> <C> <C> <C>
Record date shares outstanding ............................................. 2,056,502 12,949,287 86,442,786
Shares represented at meeting .............................................. 1,464,068 7,506,720 53,965,593
Percentage of record date shares represented at meeting .................... 71.2% 58.0% 62.4%
The votes recorded at the meeting, by proposal, were as follows:
Proposal 1 - The proposed reorganization of each Fund as a series
of the Evergreen Equity Trust, a Delaware business trust:
Shares voted "For" ..................................................... 1,424,176 6,849,189 49,891,028
Shares voted "Against" ................................................. 12,525 169,195 1,127,011
Shares voted "Abstain" ................................................. 27,367 488,336 2,947,554
Proposal 2 - Reclassification as non-fundamental of the
investment objective currently classified as fundamental:
Shares voted "For" ..................................................... 1,413,698 - 48,772,836
Shares voted "Against" ................................................. 23,885 - 1,842,439
Shares voted "Abstain" ................................................. 26,485 - 3,350,318
Proposal 3 - Changes to Fundamental investment restrictions:
Proposal 3A - To amend the Fundamental restriction concerning diversi-
fication of investments:
Shares voted "For" ..................................................... 1,413,357 6,702,160 48,505,851
Shares voted "Against" ................................................. 23,898 199,854 1,575,545
Shares voted "Abstain" ................................................. 26,813 604,706 3,884,197
Proposal 3B - To amend the Fundamental restriction concerning
concentration of a Fund's assets in a particular industry:
Shares voted "For" ..................................................... 1,412,945 6,706,423 48,502,849
Shares voted "Against" ................................................. 24,310 198,696 1,589,100
Shares voted "Abstain" ................................................ 26,813 601,601 3,873,644
Proposal 3C - To amend the Fundamental restriction concerning the
issuance of senior securities:
Shares voted "For" ..................................................... 1,412,905 6,704,874 48,490,761
Shares voted "Against" ................................................. 24,350 200,245 1,589,842
Shares voted "Abstain" ................................................. 26,813 601,601 3,884,990
Proposal 3D - To amend the Fundamental restriction concerning
borrowing:
Shares voted "For" ..................................................... 1,412,317 6,703,809 48,477,894
Shares voted "Against" ................................................. 24,938 201,310 1,602,709
Shares voted "Abstain" ................................................ 26,813 601,601 3,884,990
Proposal 3E - To amend the Fundamental restriction concerning
underwriting:
Shares voted "For" ..................................................... 1,412,768 6,705,626 48,480,533
Shares voted "Against" ................................................. 24,487 199,493 1,600,070
Shares voted "Abstain" ................................................ 26,813 601,601 3,884,990
Proposal 3F - To amend the Fundamental restriction concerning
investments in Real Estate:
Shares voted "For" ..................................................... 1,412,768 6,702,717 48,484,385
Shares voted "Against" ................................................. 24,487 202,402 1,596,218
Shares voted "Abstain" ................................................. 26,813 601,601 3,884,990
Proposal 3G - To amend the Fundamental restriction concerning
commodities:
Shares voted "For" ..................................................... 1,412,768 6,704,954 48,471,907
Shares voted "Against" ................................................. 24,487 200,695 1,608,696
Shares voted "Abstain" ................................................ 26,813 601,071 3,884,990
Proposal 3H - To amend the Fundamental restriction concerning
lending:
Shares voted "For" ..................................................... 1,412,768 6,704,984 48,450,709
Shares voted "Against" ................................................. 24,487 200,135 1,627,694
Shares voted "Abstain" ................................................ 26,813 601,601 3,887,190
</TABLE>
70
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
<TABLE>
<CAPTION>
Aggressive
Growth Evergreen
------------ ------------
<S> <C> <C>
Proposal 3J9 - Reclassification as nonfundamental of current
fundamental restriction: Unseasoned Issuers
Shares voted "For" ............................................. 5,446,264 42,568,910
Shares voted "Against" ......................................... 169,267 1,372,327
Shares voted "Abstain" ......................................... 350,856 2,235,822
Proposal 3J10 - Reclassification as nonfundamental of current
fundamental restriction: Control or Management
Shares voted "For" ............................................. - 42,593,101
Shares voted "Against" ......................................... - 1,348,135
Shares voted "Abstain" ......................................... - 2,235,823
Proposal 3J11 - Reclassification as nonfundamental of current
fundamental restriction: Short Sales
Shares voted "For" ............................................. - 42,600,540
Shares voted "Against" ......................................... - 1,340,696
Shares voted "Abstain" ......................................... - 2,235,823
Proposal 3J12 - Reclassification as nonfundamental of current
fundamental restriction: Margin Purchases
Shares voted "For" ............................................. - 42,601,965
Shares voted "Against" ......................................... - 1,339,272
Shares voted "Abstain" ......................................... - 2,235,822
Proposal 3J13 - Reclassification as nonfundamental of current
fundamental restriction: Other Investment Companies
Shares voted "For" ............................................. - 42,613,808
Shares voted "Against" ......................................... - 1,336,108
Shares voted "Abstain" ......................................... - 2,227,143
Proposal 3J14 - Reclassification as nonfundamental of current
fundamental restriction: Officers' and Director's Ownership of
Shares ........................................................
Shares voted "For" ............................................. - 42,616,593
Shares voted "Against" ......................................... - 1,333,323
Shares voted "Abstain" ......................................... - 2,227,143
Proposal 3J15 - Reclassification as nonfundamental of current
fundamental restriction: Warrants
Shares voted "For" ............................................. - 42,615,203
Shares voted "Against" ......................................... - 1,334,182
Shares voted "Abstain" ......................................... - 2,227,674
Proposal 3J16 - Reclassification as nonfundamental of current
fundamental restriction: Interests in Oil, Gas,or Other Mineral
Explorations or Development Programs
Shares voted "For" ............................................. - 42,612,122
Shares voted "Against" ......................................... - 1,336,578
Shares voted "Abstain" ......................................... - 2,228,359
Proposal 3J17 - Reclassification as nonfundamental of current
fundamental restriction: Joint Trading
Shares voted "For" ............................................. - 42,611,250
Shares voted "Against" ......................................... - 1,337,450
Shares voted "Abstain" ......................................... - 2,228,359
<CAPTION>
Micro Strategic
Cap Omega Growth
----------- ----------- -------------
<S> <C> <C> <C>
Proposal 3J9 - Reclassification as nonfundamental of current
fundamental restriction: Unseasoned Issuers
Shares voted "For" ............................................. 1,411,309 6,698,292 48,482,003
Shares voted "Against" ......................................... 25,946 206,069 1,598,923
Shares voted "Abstain" ......................................... 26,813 602,359 3,884,667
Proposal 3J10 - Reclassification as nonfundamental of current
fundamental restriction: Control or Management
Shares voted "For" ............................................. 1,411,309 6,699,084 48,475,822
Shares voted "Against" ......................................... 25,946 205,277 1,601,284
Shares voted "Abstain" ......................................... 26,813 602,359 3,888,487
Proposal 3J11 - Reclassification as nonfundamental of current
fundamental restriction: Short Sales
Shares voted "For" ............................................. 1,411,309 6,697,957 48,458,811
Shares voted "Against" ......................................... 25,946 206,159 1,603,812
Shares voted "Abstain" ......................................... 26,813 602,604 3,902,970
Proposal 3J12 - Reclassification as nonfundamental of current
fundamental restriction: Margin Purchases
Shares voted "For" ............................................. 1,411,309 6,697,555 48,434,512
Shares voted "Against" ......................................... 25,946 206,562 1,627,437
Shares voted "Abstain" ......................................... 26,813 602,603 3,903,644
Proposal 3J13 - Reclassification as nonfundamental of current
fundamental restriction: Other Investment Companies
Shares voted "For" ............................................. 1,411,309 6,701,383 48,491,915
Shares voted "Against" ......................................... 25,946 206,562 1,598,557
Shares voted "Abstain" ......................................... 26,813 598,775 3,875,121
Proposal 3J14 - Reclassification as nonfundamental of current
fundamental restriction: Officers' and Director's Ownership of
Shares ........................................................
Shares voted "For" ............................................. 1,411,309 - -
Shares voted "Against" ......................................... 25,946 - -
Shares voted "Abstain" ......................................... 26,813 - -
Proposal 3J15 - Reclassification as nonfundamental of current
fundamental restriction: Warrants
Shares voted "For" ............................................. 1,411,309 - -
Shares voted "Against" ......................................... 25,946 - -
Shares voted "Abstain" ......................................... 26,813 - -
Proposal 3J16 - Reclassification as nonfundamental of current
fundamental restriction: Interests in Oil, Gas,or Other Mineral
Explorations or Development Programs
Shares voted "For" ............................................. - - -
Shares voted "Against" ......................................... - - -
Shares voted "Abstain" ......................................... - - -
Proposal 3J17 - Reclassification as nonfundamental of current
fundamental restriction: Joint Trading
Shares voted "For" ............................................. - - -
Shares voted "Against" ......................................... - - -
Shares voted "Abstain" ......................................... - - -
</TABLE>
71
<PAGE>
ADDITIONAL INFORMATION (Unaudited) (continued)
On January 6, 1998, a special meeting of shareholders for Evergreen Small
Company Growth Fund II (formerly, Keystone Small Company Growth Fund II) and
Small Company Growth was held to consider a proposal for reorganization of the
Funds and had the following shares represented at the meeting. On November 10,
1997, the record date for the meeting, the Funds had the following shares
outstanding:
<TABLE>
<CAPTION>
Small Company Small Company
Growth Fund II Growth
---------------- --------------
<S> <C> <C>
Record date shares outstanding ........................................................ 3,338,223 159,674,283
Shares represented at meeting ......................................................... 1,534,715 87,264,642
Percentage of record date shares represented at meeting ............................... 46.0% 54.7%
Proposal - The proposed reorganization of each Fund as a series of the Evergreen
Equity Trust,
a Delaware business trust:
Shares voted For ................................................................... 1,432,842 79,649,671
Shares voted Against ............................................................... 16,858 3,134,320
Shares voted Abstain .............................................................. 85,015 4,480,651
</TABLE>
72
<PAGE>
Evergreen Funds
Money Market
Treasury Money Market Fund
Money Market Fund
Municipal Money Market Fund
Pennsylvania Municipal Money Market Fund
Tax Exempt
Short Intermediate Municipal Fund
High Grade Tax Free Fund
Tax Free Fund
California Tax Free Fund
Connecticut Municipal Bond Fund
Florida Municipal Bond Fund
Florida High Income Municipal Bond Fund
Georgia Municipal Bond Fund
Maryland Municipal Bond Fund
Massachusetts Tax Free Fund
Missouri Tax Free Fund
New Jersey Tax Free Income Fund
New York Tax Free Fund
North Carolina Municipal
Bond Fund Pennsylvania Tax Free Fund
South Carolina Municipal Bond Fund
Virginia Municipal Bond Fund
Income
Capital Preservation and Income Fund
Short Intermediate Bond Fund
Intermediate Term Government Securities Fund
Intermediate Term Bond Fund
U.S. Government Fund
Diversified Bond Fund
Strategic Income Fund
High Yield Bond Fund
Balanced
American Retirement Fund
Balanced Fund
Tax Strategic Foundation Fund
Foundation Fund
Growth & Income
Utility Fund
Income and Growth Fund
Fund for Total Return
Value Fund
Blue Chip Fund
Growth and Income Fund
Small Cap Equity Income Fund
Domestic Growth
Evergreen Fund
Omega Fund
Small Company Growth Fund
Strategic Growth Fund
Aggressive Growth Fund
Micro Cap Fund
Global International
Global Leaders Fund
International Growth Fund
International Equity Fund
Global Opportunities Fund
Natural Resources Fund
Precious Metals Fund
Emerging Markets Growth Fund
Latin America Fund
Express Line
800-346-3858
Investor Services
800-343-2898
Retirement Plan Services
800-247-4075
www.evergreenfunds.com
<PAGE>
BULK RATE
U.S. POSTAGE
PAID
CHARLOTTE, NC
PERMIT NO. 136
(Evergreen Funds(SM) logo appears here)
201 South College St.
Charlotte, NC 28288
<PAGE>
EVERGREEN FUNDS
EVERGREEN INVESTMENT SERVICES, INC.
200 Berkeley Street
Boston, MA 02116
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, D.C.
Attn: File Room
Re: The Evergreen Equity Trust:
Evergreen Aggressive Growth Fund
Evergreen Fund
Evergreen MicroCap Fund
Evergreen Omega Fund
Evergreen Small Company Growth Fund
Evergreen Strategic Growth Fund
File No. 811-8413
CCC # - #5dnabmo
CIK # - 0001046026
Commissioners:
Please be advised that the Semi-Annual Report for the above referenced
Fund(s) were submitted to your office on May 28, 1998, via electronic
transmission (EDGAR).
Any questions or comments about this document should be directed to the
undersigned at (617) 210-3570.
Very Truly Yours,
/s/ Doug Miller
Doug Miller
Assistant Vice President
<PAGE>
EVERGREEN EQUITY TRUST
PART C
OTHER INFORMATION
Item 15. Indemnification.
The response to this item is incorporated by reference to "Liability
and Indemnification of Trustees" under the caption "Information on Shareholders'
Rights" in Part A of this Registration Statement.
Item 16. Exhibits:
1. Declaration of Trust. Incorporated by reference to Evergreen Equity
Trust's Registration Statement on Form N-1A filed on
October 8, 1997. Registration No. 333-37453 ("Form N-1A Registration
Statement")
2. Bylaws. Incorporated by reference to the Form N-1A Registration Statement.
3. Not applicable.
4. Agreement and Plan of Reorganization. Exhibit A to Prospectus contained in
Part A of this Registration Statement.
5. Declaration of Evergreen Equity Trust Articles II., III.6(c), IV.(3),
IV.(8), V., VI., VII., and VIII and ByLaws Articles II., III., and
VIII.
6.(a).Investment Advisory Agreement between Evergreen Asset Management Corp. and
Evergreen Equity Trust. Incorporated by reference to the Form N-1A
Registration Statement.
6(b). Form of Interim Investment Advisory Agreement. Exhibit B to Prospectus
contained in Part A of this Registration Statement.
6(c. Sub-Advisory Agreement between Evergreen Asset Management Corp. and
Lieber & Company.
7(a). Distribution Agreement between Evergreen Distributor, Inc. and Evergreen
Equity Trust. Incorporated by reference to the Form N-1A Registration Statement.
7(b). Form of Dealer Agreement for Class A , Class B and Class C shares used by
Evergreen Distributor, Inc. Incorporated by reference to the Form N-1A
Registration Statement.
8. Form of Deferred Compensation Plan. Incorporated by reference to the
Form N-1A Registration Statement.
9. Agreement between State Street Bank and Trust Company and Evergreen
Equity Trust. Incorporated by reference to Form N-1A Registration
Statement. Registration Statement.
10. Rule 12b-1 Distribution Plan. Incorporated by reference to the Form N-1A
Registration Statement.
10a. Mutli-Class Plan
10b.
11. Opinion and Consent of Sullivan & Worcester LLP. Filed herewith.
12. Tax Opinion and Consent of Sullivan & Worcester LLP. Filed herewith.
13. Not applicable.
14. Consent of KPMG Peat Marwick LLP. Filed herewith.
15. Consent of PricewaterhouseCoopers LLP. Filed herewith.
16. Not applicable.
17. Powers of Attorney. Previously Filed, Post-Effective Amendment No. 7
18. Form of Proxy Card. Filed herewith.
19. Undertakings
(1) The undersigned Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus that is a part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, the reoffering
prospectus will contain the information called for by the applicable
registration form for reofferings by person who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a apart of an amendment to the Registration
Statement and will not be used until the amendment is effective, and that, in
determining any liability under the Securities Act of 1933, each post-effective
amendment shall be deemed to be a new Registration Statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
(3) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act the Trust has duly caused this Registration Statement to be signed
on its behalf by the undersigned, duly authorized, in the City of Columbus, and
State of Ohio, on the 12th day of April, 1999.
EVERGREEN EQUITY TRUST
By: /s/ William J. Tomko
----------------------
Name: William J. Tomko
Title: President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on the 12th day of April, 1999.
<TABLE>
<S> <C> <C>
/s/William J. Tomko /s/ Laurence B. Ashkin /s/ Charles A. Austin, III
- ------------------------- ----------------------------- --------------------------------
William J. Tomko Laurence B. Ashkin* Charles A. Austin III*
President and Treasurer (Principal Trustee
Trustee
Financial and Accounting Officer)
/s/ K. Dun Gifford /s/ James S. Howell /s/ William Walt Pettit
- ---------------------------- ---------------------------- --------------------------------
K. Dun Gifford* James S. Howell* William Walt Pettit*
Trustee Trustee Trustee
/s/Gerald M. McDonnell /s/ Thomas L. McVerry /s/ Michael S. Scofield
- ------------------------------- ----------------------------- --------------------------------
Gerald M. McDonell* Thomas L. McVerry* Michael S. Scofield*
Trustee Trustee Trustee
/s/ David M. Richardson /s/ Russell A. Salton, III MD
- ------------------------------ -------------------------------
David M. Richardson* Russell A. Salton, III MD*
Trustee Trustee
/s/ Richard J. Shima
- ------------------------------
Richard J. Shima*
Trustee
*By: /s/ Catherine E. Foley
- -------------------------------
Catherine E. Foley
Attorney-in-Fact
</TABLE>
*Catherine Foley, by signing her name hereto, does hereby sign this
document on behalf of each of the above-named individuals pursuant to powers of
attorney duly executed by such persons.
INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
11 Opinion of Sullivan & Worcester
12 Consent of KPMG Peat Marwick LLP
13 Consent of PricewaterhouseCoopers LLP
14 Form of Proxy Card
SULLIVAN & WORCESTER LLP
1025 CONNECTICUT AVENUE, N.W.
WASHINGTON, D.C. 20036
TELEPHONE: 202-775-8190
FACSIMILE: 202-293-2275
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NEW YORK, NEW YORK 10017 BOSTON, MASSACHUSETTS 02109
TELEPHONE: 212-486-8200 TELEPHONE: 617-338-2800
FACSIMILE: 212-758-2151 FACSIMILE: 617-338-2880
April 12, 1999
Evergreen Equity Trust
200 Berkeley Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
We have been requested by the Evergreen Equity Trust, a Delaware
business trust with transferable shares (the "Trust") established under an
Agreement and Declaration of Trust dated September 18, 1997, as amended (the
"Declaration"), for our opinion with respect to certain matters relating to
Evergreen Fund (the "Acquiring Fund"), a series of the Trust. We understand that
the Trust is about to file a Registration Statement on Form N-14 for the purpose
of registering shares of the Trust under the Securities Act of 1933, as amended
(the "1933 Act"), in connection with the proposed acquisition by the Acquiring
Fund of all of the assets of Evergreen Micro Cap Fund (the "Acquired Fund"), a
series of the Trust, in exchange solely for shares of the Acquiring Fund and the
assumption by the Acquiring Fund of the identified liabilities of the Acquired
Fund pursuant to an Agreement and Plan of Reorganization, the form of which is
included in the Form N-14 Registration Statement (the "Plan").
We have, as counsel, participated in various business and other
proceedings relating to the Trust. We have examined copies, either certified or
otherwise proved to be genuine to our satisfaction, of the Trust's Declaration
and By-Laws, and other documents relating to its organization, operation, and
proposed operation, including the proposed Plan and we have made such other
investigations as, in our judgment, are necessary or appropriate to enable us to
render the opinion expressed below.
<PAGE>
We are admitted to the Bars of The Commonwealth of Massachusetts and
the District of Columbia and generally do not purport to be familiar with the
laws of the State of Delaware. To the extent that the conclusions based on the
laws of the State of Delaware are involved in the opinion set forth herein
below, we have relied, in rendering such opinions, upon our examination of
Chapter 38 of Title 12 of the Delaware Code Annotated, as amended, entitled
"Treatment of Delaware Business Trusts" (the "Delaware business trust law") and
on our knowledge of interpretation of analogous common law of The Commonwealth
of Massachusetts.
Based upon the foregoing, and assuming the approval by shareholders of
the Acquired Fund of certain matters scheduled for their consideration at a
meeting presently anticipated to be held on July 23, 1999, it is our opinion
that the shares of the Acquiring Fund currently being registered, when issued in
accordance with the Plan and the Trust's Declaration and By-Laws, will be
legally issued, fully paid and non-assessable by the Trust, subject to
compliance with the 1933 Act, the Investment Company Act of 1940, as amended and
applicable state laws regulating the offer and sale of securities.
We hereby consent to the filing of this opinion with and as a part of
the Registration Statement on Form N-14 and to the reference to our firm under
the caption "Legal Matters" in the Prospectus/Proxy Statement filed as part of
the Registration Statement. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the 1933 Act or the rules and regulations promulgated thereunder.
Very truly yours,
/s/SULLIVAN & WORCESTER LLP
---------------------------
SULLIVAN & WORCESTER LLP
CONSENT OF INDEPENDENT AUDITORS
The Trustees and Shareholders
Evergreen
We consent to the use of our reports incorporated herein by reference and
to the references to our firm under the caption "FINANCIAL STATEMENTS AND
EXPERTS" in the prospectus/proxy statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
April 12, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus/Proxy
Statement (the "Prospectus/Proxy") and the Statement of Additional Information
constituting parts of this Registration Statement on Form N-14 (the
"Registration Statement") of Evergreen Equity Trust of our report dated November
6, 1998 relating to the financial statements and financial highlights of
Evergreen Fund and Evergreen Micro Cap Fund (the "Funds") appearing in the
Funds' September 30, 1998 Annual Report to Shareholders, which is also
incorporated by reference into the Registration Statement.
We also consent to the reference to us under the heading "Financial Statements
and Experts" in such Prospectus/Proxy.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts
April 12, 1999
EVERY SHAREHOLDER'S VOTE IS IMPORTANT!
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH PROPOSAL.
PLEASE VOTE, SIGN, DATE AND PROMPTLY RETURN
YOUR PROXY IN THE ENCLOSED ENVELOPE TODAY!
Please detach at perforation before
mailing.
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EVERGREEN FUND,
a series of Evergreen Equity Trust
PROXY FOR THE MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 23, 1999
The undersigned, revoking all Proxies heretofore given, hereby appoints
Michael H. Koonce and Maureen E. Towle or any of them as Proxies of the
undersigned, with full power of substitution, to vote on behalf of the
undersigned all shares of Evergreen Micro Cap Fund, a series of Evergreen Equity
Trust ("") that the undersigned is entitled to vote at the special meeting of
shareholders of the Evergreen Micro Cap Fund to be held at 2:00 p.m. on Friday,
July 23, 1999 at the offices of the Evergreen Funds, 200 Berkeley Street, 26th
Floor, Boston, Massachusetts 02116 and at any adjournments thereof, as fully as
the undersigned would be entitled to vote if personally present.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME(S) APPEAR ON THIS PROXY. If
joint owners, EITHER may sign this Proxy. When signing as attorney, executor,
administrator, trustee, guardian, or custodian for a minor, please give your
full title. When signing on behalf of a corporation or as a partner for a
partnership, please give the full corporate or partnership name and your title,
if any.
Date , 1998
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Signature(s) and Title(s), if applicable
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF EVERGREEN
EQUITY TRUST. THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE
ACTION TO BE TAKEN ON THE FOLLOWING PROPOSALS. THE SHARES REPRESENTED HEREBY
WILL BE VOTED AS INDICATED OR FOR THE PROPOSALS IF NO CHOICE IS INDICATED. THE
BOARD OF TRUSTEES OF EVERGREEN EQUITY TRUST RECOMMENDS A VOTE FOR THE PROPOSALS.
PLEASE MARK YOUR VOTE BELOW IN BLUE OR BLACK INK. DO NOT USE RED INK. EXAMPLE: X
1. To approve an Agreement and Plan of Reorganization whereby
Evergreen Fund, a series of Evergreen Equity Trust, will (i) acquire
all of the assets of Evergreen Micro Cap Fund in exchange for shares of
Evergreen Fund; and (ii) assume the identified liabilities of Micro Cap Fund,
as substantially described in the accompanying Prospectus/Proxy Statement.
---- FOR ---- AGAINST ---- ABSTAIN
2. To consider and vote upon such other matters as may properly come
before said meeting or any adjournments thereof.
---- FOR ---- AGAINST ---- ABSTAIN
